This week was the International Financial Week in Hong Kong, and the annual Asia Private Equity Forum organised by the Hong Kong Venture Capital and Private Equity Association (HKVCA) was one of the hallmark events. As a platinum sponsor, our team in Hong Kong had a strong presence at the forum. Here are the five things we took away from the event.
Outlook for Private Equity in Asia
The Asian economy is facing a number of macro headwinds, including geopolitical tensions, liquidity issues, rising interest rates and a slowdown of the IPO market. This environment is creating a buyers' market, and General Partners (GPs) are anticipating a strengthening supply side for investments - i.e. sellers looking to accept lower valuations in order to de-risk and monetise what they have. The fundamentals are strong and the long-term growth story for Asia is still intact, but it's still going to be a rocky year. Therefore, private equity managers need to have strong conviction, be selective in what they're buying and make sure they have downside risk protection in place.
Developments in Hong Kong Private Equity
To support the continued growth of the private equity sector in Hong Kong, a number of changes are being implemented. Firstly, Hong Kong's profits tax exemption for private equity funds will soon be extended to include onshore activities. The current legislation relies on 'offshore' status in order to claim tax exemption, but from 1 April (when the bill is expected to be passed) there will be no longer be a distinction between 'offshore' and 'onshore'. As long as the definition of 'fund' is met, then private equity managers can enjoy the tax benefits. The new regime is a positive step for Hong Kong. Not only does it mean more activities and decisions can be made onshore (less ferry trips to Macau!), it'll also encourage funds to invest into Hong Kong companies without any tainting implications. There are still a few issues to be ironed out with regard to carried interest and SFC licensing, but on a whole the industry is very positive about the new developments. Furthermore, the Hong Kong government also confirmed that it'll soon start the consultation phase for a new limited partnership regime in Hong Kong for private equity funds. Watch this space.
Rise of buyouts in China
The majority of deal-making in China over the last few years has been focused on minority or growth investments. During this period the China economy has been growing at...