30 ASIAN LEGAL BUSINESS – APRIL 2024 WWW.LEGALBUSINESSONLINE.COM Squeezed by a persistent high-rate environment and challenging credit conditions, private equity investors ended 2023 with a disappointing record. The number of funds that closed in 2023 – 71 funds raising $35 billion of capital - dropped to the lowest point since 2018, according to an EY report. The PE deal flow slowed last year even in Southeast Asia, which, for the first time since 2008, registered no megadeals. There were a total of 22 PE deals in Southeast Asia last year deploying $3.9 billion – down from 38 deals recorded in 2022 deploying $6.7 billion, the data showed. The total value of the deals in 2023 and 2022 also paled in comparison to the aggregate in 2021, when Southeast Asia’s PE market recorded an all-time high of $25 billion in deal value despite the COVID pandemic. The usual suspects contributing to the market slowdown include tightened monetary policies, inflationary pressure, geopolitical uncertainty and market volatility. On top of those, “the reduction in the number of private equity deals is possibly due to the slower pace in fundraising activities coupled with unexpected exits emanating from concerns over slower return of capital, which invariably cause lower levels of commitment to raise and establish new funds,” note a team of lawyers at Malaysia law firm Zul Rafique & Partners led by corporate and M&A partner David Lee. Even though the end might be nigh for a sluggish global dealmaking scene as blockbuster deals rejuvenate investor appetite, the lingering caution has led to a continuously muted scene in the Asia-Pacific region, where deals fell 28 per cent to $90 billion in the first quarter of this year, according to data from the London Stock Exchange Group. However, a pick-up in activity among private equity investors is anticipated. One of the main reasons is that buyout groups have been sitting on a large amount of unused capital and have been proactively scouring for exit opportunities under investor pressure. But, the Asia-Pacific region faced a challenging exit environment last year. In Southeast Asia, there were 13 PE-backed exits valued at $3.3 billion last year, according to EY. The exit value plunged by 58 per cent compared to 2022 levels as subpar exit conditions and valuations prompted many general partners (GPs) to put selling on hold. However, analysts believe the dealmaking momentum is expected to tick up in 2024. FROM GLOBAL TO REGIONAL Despite macroeconomic headwinds, Southeast Asia – with its favourable demographic trends, quickened technological advancement, and a steady rise in domestic consumption – has managed to capture the attention of global buyout heavyweights, including KKR. For instance, the New York-listed PE group has raised a record $6.4 billion for its latest pan-Asia infrastructure fund, making 10 investments so far, including an $800 million injection for a 20 PRIVATE EQUITY Image: Olivier Le Moal/ BRIGHT SPOT With China sputtering out of global investors’ sights, buyout firms sitting atop a record amount of unused capital increasingly turned to Southeast Asia. Lawyers in Indonesia and Malaysia share what they have seen in the local private equity markets and the factors driving the growth in investor interest. BY SARAH WONG