At the CAIA Association, a global mindset encompasses the understanding of globalization and how interconnected each region of the world is economically, politically, and socially. For this month’s edition of Chronicles, we turned to Jo Murphy, Managing Director, CAIA APAC to contribute insight and perspective on 2022 as a year of sustained momentum for the APAC region.
The end of another year is directly in sight. For APAC, as with much of the world, it’s been quite the ride. The global triumvirate of geopolitical worries, escalating inflation, and rising interest rates have certainly offered up a great deal to contend with. This year’s public markets sell-off has created a significant denominator affect and left much of the private markets community – notably private equity – set to the brace position as investors scramble to contend with the relative value of less liquid investment holdings and how they should be handled.
International Monetary Fund (IMF) suggests we’re sailing into headwinds for the region and within their research suggests there are many spotlights of hope and with that, undoubtedly opportunity.
One area where opportunity shines bright is upon APAC’s private markets arena. There’s been a notable shift in attention and focus on investment opportunities here in the East, and it’s heavily concentrated across its component parts with particular emphasis on private equity, venture capital, and private debt with infrastructure just ahead.
For private equity, activities took a significant leap in asset size last year with almost US$400 billion injected into APAC deals, up almost 25% on the previous year. Bain & Company’s excellent report offers a happy dive into the pond and provides intelligence on where the sector will shift ahead. Should you be looking for a wider world review, McKinsey & Company’s earlier report will certainly aide with a catch-up of insights and opinions.
Earlier this year, CAIA APAC contributed a white paper, The Rise of India’s Private Equity Market, which illustrated where opportunities are set to be centered in the India private marketplace — an appetite that certainly remains strong today. India has the full wind of three megatrends – global offshoring, digitalization, and energy transition with each underpinning the route map towards unprecedented economic growth for its population of more than 1 billion. Its strong domestic IPO market provides a powerful lure for exits and crystallization of investments made as evidenced in this EY India piece. This all sits solidly on the rails of India firmly on track to be the world’s third largest economy by 2027 (surpassing Japan and Germany). All told, opportunities in abundance reside within India’s reach as outlined in research presented by Morgan Stanley.
Much continues to be discussed about China’s slowing growth - reflected in most recent consumption data, but a new Goldman Sachs report predicts a year of two halves that is certainly worth reading!
A consistent concern that threads through APAC, and around the globe, is the reality of increasingly high valuations as often cited at the top of GPs’ list of worries. Recent research by Burgiss looks at two key elements for this — a reporting lag, and subjective behavior for reporting. Net-net equaling greater than the sum of their parts.
This year, we also addressed the importance of operational alpha in our Portfolio for the Future™ report. Recent research from Teneo looks at this topic more closely through the lens of leadership alpha that’s present in private equity. Their analysis has exposed a profound gap between the importance private equity firms attach to leadership, and the time, resources, and money they dedicate to optimizing it.
