Private Equity in Asia-Pacific Thrives as China Lures Capital from the Middle East and US

Geopolitical issues have made some Western private equity investors more cautious about China, the second-largest economy, with a GDP of $19.53 trillion.

Private equity investors in the Asia-Pacific area saw signs of new life in 2024. Investments in private equity in China could be the answer for a quick recovery, supported by rising capital from the Middle East and flexible strategies from US investment funds, as per Bain & Company.

Sebastien Lamy, co-leader of the Asia-Pacific private-equity practice at the global consultancy, noted that a positive trend for China could lead to a more optimistic outlook in 2025 and 2026, adding that several factors contribute to the positive rebound.

Lamy stated that the stock market witnessed a surge due to breakthrough technological advancement from artificial intelligence (AI) start-up DeepSeek. The growth has coincided with a medium-term trend in the Chinese market which improves the forecasts.

He adds that he has seen an influx of private capital, especially from the Middle East, filling the private capital funding gap.

Geopolitical issues have made some Western private equity investors more cautious about China, the second-largest economy, with a gross domestic product of $19.53 trillion.

However, according to the data by Global SWF, a platform and consultancy that focuses on sovereign wealth funds (SWFs) and public pension funds (PPFs), which made up 62% of sovereign wealth fund investments in China last year, have a different sentiment.

Marc Antaki, deputy chief strategy, and risk officer of Mubadala Investment, an Abu Dhabi sovereign wealth fund, spoke at the Milken Global Investor Symposium in Hong Kong and stated that they started investing in China in 2015 and have stayed loyal when many Western companies pulled their investment from China have deployed across Asia.

According to Lamy, several US funds were changing their China strategies to include less exposed and risky investments, pointing to cross-border deals.

He stated that businesses keep one foot in China and another in the rest of Asia, where funds contribute to the value of being global and have some exposure to China.

In August 2023, US investment fund Bain Capital sold off Chindata Group Holdings, a Chinese data centre operator, for approximately US$3.2 billion. Chinadata provides data centre solutions in emerging Asia-Pacific markets and is also listed on the Nasdaq, a stock market index.

Lamy added that technology investments have increased recently and created positive traction in the public markets.

According to him, there is a recent trend of increased inventions from Asia, especially China, which contributes more to tech investments. Developing industries, like data centres, witnessed more funds invested, which are crucial infrastructure for technological growth.

Lamy acknowledged that further gains from private equity investments in China would take time to roll out, but market players need to see private equity companies successfully exit their investments and capital getting returned to investors.

Bain & Company annual report on private equity shows that Asia-Pacific deals increased by 11% to US$176 billion in 2024.

Lamy claimed that China’s share in the private equity market in Asia-Pacific dropped significantly over the past few years.

China represented over half of all Asia-Pacific deals till 2020, but that share dropped to 27% last year. In 2023, the total deal value dropped to the lowest in ten years due to sluggish economic growth, high interest rates, and unstable stock markets.

India and Japan are the only markets that have maintained their deal value in 2024, similar to their previous five-year average. Even though India has macroeconomic problems like inflation, it is still one of the fastest-growing countries in terms of GDP. Japan’s strong historical returns and potential privatization opportunities lured many investors into more private equity funds.

Lamy commented that he expects that 2025 would be helpful for recovery in Asia-Pacific since industries are adjusting to a new reality of macroeconomic events in recent years and better deployment of capital.