Private equity emerges as a force for growth

Private equity emerges as a force for growth

Singapore, 11 November 2011 - Grant Thornton has released a new report showing how a turbulent global economy is transforming the private equity industry. The sector, often criticised for a lack of transparency and for a focus on financial engineering, is emerging as a real force for growth with its focus on performance improvement and enhanced levels of governance.

In spite increased uncertainty in the financial sector in the global economy, 66% of respondents in three Asia Pacific countries (Australia, Singapore and Vietnam) believe investment activity in the private equity sector will rise as foreign investors become increasingly active and in South East Asia in particular. 

The Global Private Equity Report 2011 is based on interviews with 144 private equity professionals across the world and shows how the private equity industry has transformed in the face of increased uncertainty in the financial sector. Globally, 61% expect investment activity will increase over the coming year. Western Europe is the least optimistic with only 50% expecting investment activity to increase. Taking pole position are respondents in the BRICS region – Brazil, China, India, Russia and South Africa.

Figure 1: Investment activity by region

The study reveals the uncertain global economic climate and market perception as the greatest hurdle facing the AsiaPac PE practitioners. According to the report, the rapid growth of the private equity sector also attracts more attention from regulators. Kon Yin Tong, Director of Grant Thornton Corporate Finance commented, “Investors have become more analytical, demanding transparency from private equity partners. The sector as a whole still needs to improve its reputation, countering suspicion and ignorance by demonstrating its social responsibility and by explaining the value it can deliver.”  

The report highlights that the private equity sector has rolled up its sleeves and now exhibits a very hands-on approach with portfolio companies. Globally nearly half (44%) of firms now view performance improvement with portfolio companies as the main way to drive value. In the AsiaPac region 31% of practitioners expect more hands-on involvement in future. They are creating value by becoming involved in key management functions such as strategy (63%), operational input (38%) with financial planning, governance and human resources each at (25%).

The report also reveals a tough environment for fundraising. Globally, there is more negativity than positivity about the outlook (46% vs. 28%), with 13% feeling very negative. Although private equity cites difficulties in raising new funds, the outlook for exiting investments is brighter.  Globally, nearly two thirds (63%) of practitioners expect to see exits increase. AsiaPac region sees a 74% increase in exit activity over the coming year. The highest activity level (79%) is seen in the MENA region (Bahrain, Turkey and UAE) and 69% in Western Europe. The push and pull drivers are the key factors in the increasing trend towards secondary buyouts and strategic trade buyer activity. They have provided the lifeblood where IPO exit channels have been very difficult to achieve.

Figure 2 - Exit Activity over next 12 months