Singapore was the only market in South-east Asia to see growth in private equity deals and deal value in 2020, amid greater slowdown in investment activity in the region compared with elsewhere in the Asia-Pacific.
A report released by global consultancy Bain & Company yesterday noted that the muted activity in Asean was due to factors such as the varied Covid-19 impact across countries in the region and border restrictions limiting cross-border travel, which is usually required to complete due diligence processes.
About US$9 billion (S$12 billion) of private equity deals were struck in the region in 2020, down from the US$12 billion seen the year before. The number of deals fell to 106 from 115 in 2019.
But there were signs of recovery from the third quarter of last year, with US$2.2 billion of deals struck from July to September. This rose to US$3.8 billion in the final quarter.
Bain & Company private equity partner Usman Akhtar highlighted in a virtual panel that Singapore was less affected by the coronavirus pandemic last year compared with some of the other South-east Asian markets, managing infections relatively well.
"As a result, confidence in Singapore assets grew," he said.
Another factor for Singapore's resilient showing was that many firms are headquartered in the country and, as a result, investments in these firms are booked here, even though they could have significant operations outside of Singapore, Mr Akhtar said.
Overall, fund raising globally softened, with Asia-Pacific-focused funds seeing a 32 per cent decrease last year compared with 2019.
The Internet and technology sector remains dominant in terms of deal value for Singapore and Indonesia, while healthcare is starting to see a noticeable share of the pie. Digital health services are expected to see continued growth throughout the region in the next three to five years.
Private equity firms are increasingly focused on opportunities related to digital health and e-learning in South-east Asia, with growth anticipated in these sectors as well as e-commerce, although valuations can be challenging.
Meanwhile, sectors such as physical retail, consumer products and offline entertainment face an uncertain outlook, and require deep company and industry-specific assessments, the report noted.
The next wave of fast-growing companies will not look like the unicorns that have emerged today, and will have to develop in a different way, said Bain & Company partner Alessandro Cannarsi.
"To some extent, there will be partnerships between the existing companies and the new up-and-coming winners in South-east Asia and that will make this ecosystem really interesting from an investor's perspective," he added.
At the same time, general partners have increased their efforts and focus on environmental, social and corporate governance in the past three to five years, a trend that looks to continue.
The report also noted that shadow capital investments have become an important feature of the South-east Asia region's landscape.
Shadow capital allows institutional investors to access private equity assets without depending on general partners, which means lower costs and increased control over investments, and is often seen to have a longer investment horizon.
Examples of shadow capital investors are Singapore's sovereign wealth fund GIC and investment firm Temasek, the Abu Dhabi Investment Authority, as well as family offices and corporates.
Over 75 per cent of the 30 highest-funded start-ups in South-east Asia have received shadow capital.
