Does Private Equity Have a Problem Only Asia Can Fix?
In today’s economic markets, it’s not often you find yourself operating in a market that offers continual and robust returns. The private equity industry in Asia continues to grow and diversify and key players must consider revisiting their private equity tool kit.
For many private equity firms, the Asian market holds the answers they are looking for. This particular region enjoyed a boom year for private equity transactions with strong returns. Here, we’ll be taking a closer look at what private equity is and how the Asian market is evolving.
What is Private Equity?
Private equity typically consists of investing in a series of unlisted companies which are at different stages of development. The main objective of tis is to inject added value and then selling these companies in the future to enjoy significant capital gains.
To help facilitate this process and increase people investing in private companies, Private Equity funds were created. These funds were largely created in the 90’s to help raise money from prospective investors. This progressive investment option meant that investors could acquire high-performing companies to help them increase profit margins.
How is Private Equity Changing in Asia?
Thanks to a rapidly growing middle class, rising competitors and urbanisation, private equity in Asia is constantly evolving. These changes are causing large numbers of investors to focus on specialised sectors. Firms like Goodwin offer comprehensive help within the Asia market and have a strong focus on mergers and acquisitions, capital markets and private equity.
Think you’re ready to start using a private equity firm like Goodwin? Take a look at whether or not there is any truth to these popular stereotypes.
Stereotype #1 Private Equity firms are seen as asset-strippers
Many detractors who do not see the value in private equity will say that private equity funds often generate a high yield by acquiring companies and stripping out their best assets. You will be pleased to hear that this stereotype does not match up and many of your favourite brands such as Heinz, Moncler and Center Parcs were all supported by private equity funding.
Companies are typically grown by private equity firms through a number of value creation strategies. These include:
- Integrating smaller competitors to create buildups. These buildups are then able to worldwide leaders in a particular market or niche.
- Revising an out-of-date concept when expanding into new markets to help turn it into a trendy product that people want to be seen with and want to purchase.
- Increasing the geographical footprint of your company with the support of a private equity firm.
Stereotype #2 Your money as an investor will be blocked for 10 years
When it comes to private equity funds, it is always worth remembering that growing companies can often take years to accomplish. This is why private equity firms are often seen as a long-term investment strategy, however, the widely held concept that your money will be locked away for 10 years is false.
If you do choose to invest in a private equity fund, it is always worth remembering that it does often take up to 10 years for your investment to mature, however, you could see a company sold after as little as 4 years.
We hope that we have helped set the record straight when it comes to common private equity fund stereotypes and have helped convince you that the Asia market still offers robust returns.