In its outlook for the private markets in 2025, Pitchbook says Asia Pacific (Apac) remains small. “Compared with its US counterpart, the private market in Apac remains small despite having a total GDP around 40% higher. China’s venture capital (VC) market is the second largest in the world by country, yet its activity is less than half of that occurring in the US. Through the first three quarters of 2024, private equity (PE) fundraising across all of Asia was US$200 billion ($270 billion) lower than the total raised in the US,” PitchBook says.
Activity in the private equity market in Apac has been subdued. According to data compiled by Pitchbook, deal activity in both the number of deals and dollar value fell y-o-y in 2022 and 2023 (see chart) before rebounding in 2024. Exits have continued to fall in value. This was echoed by Dickson Loo, managing director of private investments at SeaTown Holdings International.
“The last two to three years have been challenging. Trends which create uncertainty, such as deglobalisation, geopolitical risks and the advance of artificial intelligence (AI), will continue to have an impact on investors’ outlook and create both challenges and opportunities,” Loo says.
Loo was part of a team of Seviora C-suite managers, headed by CEO Jimmy Phoon, who met with the media on Jan 21 to give their outlook for the private markets.
“Seviora was formulated using the alphabet of the four entities: InnoVen, Azalea, Fullerton Fund Management and SeaTown. When I googled the name four years ago, it is the name that is normally given to someone ambitious and driven, ” Phoon reveals. Yet when he googled Seviora more recently, all he could find was information on … well … the Seviora Group.
Seviora Holdings was formed in 2020 and has assets under management (AUM) of US$51.3 million. Despite its youth, the companies that make up Seviora have been around for a couple of decades. SeaTown Holdings International was founded in 2009 and has an AUM of US$4 billion.
See also: Liquidity and exits stay challenging for PE players, but GLP manages large divestment
SeaTown has open-ended and close-ended funds. Among its investee companies in close-ended funds are Foundation Healthcare, Skyform, a platform specialising in technology solutions for enterprises and Linnovate, which provides value-added services and solutions for asset managers.
On the credit side, SeaTown Private Credit provides tailored solutions to businesses in Apac.
Seviora is wholly owned by Temasek. In addition to SeaTown, Seviora owns Azalea Investment Management, Fullerton Fund Management and InnoVen Capital.
See also: A brief recap of private equity
Outlook in the Year of Snake
Loo believes the year of the Snake could start with better prospects. “Over the last six months, we’ve seen an uptick in activity. We see positive signs with the moderation of inflation. This would be genuinely supportive for private equity markets.” Nonetheless, concerns around geopolitical risks could keep rates higher than previously anticipated, Loo adds.
Private equity managers are likely to adopt “differentiated strategies”, which refer to focusing on quality. For instance, in the mid-market, some essential sectors are less vulnerable, Loo points out.
Among the shift in strategies is a migration to sectors with more stable economic conditions. SMEs are coming together to scale up so they can manage cost pressures better.
“The drivers for value going forward may look different from what they used to be. The case of high leverage driving a high growth environment may be a bit different now,” Loo says.
Chue En Yaw, who is CIO of Azalea and will be CEO of Azalea in April, said during a media briefing on Jan 21: “We cover primarily the US and European markets. We think with Trump 2.0, a lot of the investment themes will be focused on growth areas. Some of the positive sectors will be AI and tech. In terms of the PE outlook, it will do well with inflows of capital into manufacturing, industrials, AI tech, and software.” Just look at the tech bros at Trump’s inauguration, he quips.
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“Defence will also benefit,” Chue says. On the flip side, he expects a roll-back on carbon emissions and ESG (environmental, social and governance) initiatives.
Azalea Investment was established in 2015 and is something of a household name in Singapore, having made five Astrea bond series accessible to retail investors. The Azalea Group invests in PE funds, focusing on the development and innovation of new investment platforms and products to make PE accessible to a broader group of investors.
“Our bond programme is the avenue with which we reach out to retail investors. Our other programme is our equity programme which allows investors access to buyout funds as well.
In July last year, Azalea listed two classes of Astrea 8 bonds, which were 3.1 times oversubscribed. Astrea 8 is the fifth in a series of locally listed Astrea bonds retail investors can access. Astrea IV bonds, listed in 2018, were fully redeemed in December 2023.
Astrea 8 owns interests in a globally diversified pool of alternative investment funds. Based on its January update, most of the funds are buyouts in the US and Europe, with a few growth equity funds in the US and Asia. The bonds issued by Astrea 8 are backed by the interests in, and cash flow generated by, the funds.
The Astrea 8 Portfolio started with an audited NAV of $1.47 billion as of Dec 31, 2023. When the underlying investments held by PE funds are marked-to-market, any appreciation/depreciation results in a change in NAV. These changes are unrealised gains/losses. As of Jan 6, the portfolio value appreciated by 3.1% to $1.516 billion. The Astrea 8 A-1 bond is in SGD with a coupon of 4.35%, and the A-2 bond is in USD with a coupon of 6.35%.
Chue looks at experienced fund managers for the Astrea bond programme. “We pick managers that have gone through cycles and are experienced with Trump 1.0,” he adds.
Although exits faced a challenging period during 2022 and 2023 because of the sharp rise in the Federal Funds Rate and US treasury yields, the small and mid-cap markets fared better because they were not highly leveraged.
“The small and mid-cap [funds] sector didn’t use much leverage and they are valuable as a platform. Bigger fund managers want to buy their platforms and there is a lot of activity going on at the lower end of the market,” Chue says.
“We have been increasingly leaning into mid-market managers which are smaller in fund size and capacity constrained. That is where Seviora comes in. We are able to open a lot of doors and that is where we are able to bring value to our own investors by accessing these high-quality managers,” he explains.
As a testament to how popular Azalea’s strategies are, it had to close its co-investment fund in 2024 after it was oversubscribed.
“Investors view us as differentiated because of the Seviora ecosystem. We are able to source unique deals. Some of our managers source investments through the founders’ network and have a bilateral relationship with founders to improve businesses. We invest alongside our managers while they continue to add value to the companies where they are able to derive operational improvement,” Chue continues.
Exits challenging for Southeast Asian PE
Exits have been somewhat challenging over the last two years. Southeast Asia has experienced unique challenges not evident in developed markets, where liquidity is more ample and the rule of law governs many transactions.
“Cash returns remain elusive for investors in Southeast Asia for both PE and VC strategies. Since 2015, just US$79.3 billion in exit value was generated by PE-backed companies, and just over US$70 billion was generated by VC-backed exits,” PitchBook says. VC or venture capital is a subset of PE.
In 2024, the median age of exit for Southeast Asian-headquartered VC-backed start-ups rose to 7.5 years, which is “the highest level in our dataset,” according to PitchBook.
Around 80% of VC-backed start-ups have exceeded the 7.5-year mark. These include Vietnam-based fintech startups MoMo and VNLIFE, founded 17 years ago. Singapore-based Eruditus Executive Education and Trax Retail are 14 years old. One solution is to make the Singapore Exchange more liquid and to revive it as an attractive listing venue.
A national effort
Staying private for longer isn’t the best outcome for the region. “Those businesses need to exit eventually so that capital can be released and recycled into new funds,” PitchBook opines.
IPOs used to be a popular exit strategy for PE companies, but during 2022–2023, when interest rates rocketed, there was a mismatch between sellers who wanted exits and buyers. In PE, Loo says expectations have fallen as valuations fell and sellers became more realistic.
“There is a lot of capital that is looking to be deployed. Secondly, I think there is also a fair amount of funds looking to look for liquidity solutions for their existing portfolio. If you look at where multiples have been trading over the last two years, I think we are finally at the stage where we are seeing adjustments. [Valuation] multiples have come down over the last two years and this will all be conducive to improving exits,” Loo says.
Most of the exits in Southeast Asia have been by sales to other private investors, rather than the public markets. The weakness for Southeast Asia is that a significant portion of the exit value generated by PE and VC since 2015 has come from a very small number of companies, such as Grab and Goto. Grab is listed on Nasdaq via a spac, while Goto is listed on the Jakarta Exchange.
Within Southeast Asia, PE companies may want to go for a listing, but stringent listing policies could have been a barrier. For instance, in 2024, Singapore did not have any mainboard equity primary listings. The biggest IPOs were, ironically, the Astrea 8 bonds.
“Exits are closely tied to the overall macroeconomic picture and may be subject to regulatory scrutiny. Unfavourable conditions such as a lack of retail investor confidence and heightened economic and geopolitical uncertainties could weigh on the prospect of exits,” PitchBook says.
Interestingly, the lack of returns generated, coupled with the high amounts invested in the region over the past few years, has given rise to a growing secondary market. “This trend in secondaries could further reveal itself if foreign investors, which have accumulated large portfolios within the region on aggregate, continue their pullback to traditional strategies and geographies,” PitchBook points out.
As investors lose interest in China, Southeast Asia should provide an attractive pivot. However, according to Pitchfork, the future growth of private capital markets in Southeast Asia is not guaranteed, though there are signs that point toward a better future.
At present, Apac accounts for just 6% of the total deal size. If the glass is half full, then Southeast Asia, which is a subset of Apac, should have a great future.
