Note: Credit Card Penetration as defined by percentage of people age 15+ who use credit cards Source: Statista, data as of June 2022, Source: PPRO Asia Pacific, Western and Central Europe, North America Payments and e-commerce report 2022. Geopolitical risks, currency risks, and exits/liquidity are important considerations for investors contemplating an allocation to Asian private equity, and adequately addressing these risks are undoubtedly key to achieving positive performance in Asian markets. Amid the challenges, public markets sold off substantially, and though private markets remained relatively buoyant in the first half of 2022, they followed in the latter half. From a GPs perspective, effecting operational change requires more effort and a specialized skill set, as well as significant influence on a company which is often lacking in minority stake deals (the predominant deal type in much of Asia). MSIMJ exercises the delegated authorities based on investment decisions of MSIMJ, and the client shall not make individual instructions. The growth rate was lower In Indonesia, for example, stakeholders including entrepreneurs, venture capital (VC) funds and politicians, are working in concert to pre-empt potential fintech-related regulatory issues observed in the U.S. and China, such as crackdowns in the peer-to-peer lending space. In Switzerland, MSIM materials are issued by Morgan Stanley & Co. International plc, London (Zurich Branch) Authorised and regulated by the Eidgenssische Finanzmarktaufsicht (FINMA). More private markets managers are incorporating considerations for ESG factors into their corporate policies, operating procedures, and investment decisions. PE/VC firms considering investment in the Consumer sector plan to focus on the Consumer Retail (24%) and Consumer Producers sub-sectors (18%), while taking rather a cautious approach to Consumer Leisure (8%). A strengthening dollar accounted for a material portion of the dollar-based decline in fundraising in non-US markets. In the first half of 2022, central banks fought roaring inflation by sharply raising interest rates, and public market valuations cratered. Exit activity bounces back and set for another active year. Report is also available in Chinese, Japanese and Korean upon download. 2022 will prove to be the best year yet for ESG-focused fundraising, with $24 billion raised through the first half of the year. To date, top-line revenue growth has been the largest contributor to Asian PE returns.11 This is unsurprising, given that until recently growth has been easy to come by in Asian markets, making efficiency (and hence margin) improvement less of a focus. While emerging Asian countries generally lag in terms of adoption of traditional banking products (e.g., credit cards),5 consumers in emerging Asia over-index on adoption of fintech products.6 Knowledge gains from more established regions can serve as the foundation for even better solutions in more emerging Asian regions. While fundraising and investment performance declined, the industrys growth held reasonably steady, with assets under management increasing to $11.7 trillion as of June 30, 2022 (Exhibit 2). While there is generally broad appreciation for growth potential in Asia, there is often an implicit assumption that markets are efficient with commensurate valuations, or, said differently, that higher growth potential means higher valuations.7 That is not necessarily the case in Asia. In total we received 357 responses from PE and VC investors globally. Private market valuation refers to round size, as determined by capital invested divided by no of deals. The third risk factor concerning PE/VC firms this year has changed considerably from last year. Bain's Nirad Jain and Kara Murphy share insights from our annual report. ASIAN BUSINESSES RIPE FOR PROFESSIONALIZATION Banks began to pull back, unwilling or unable to lend. On average, 56% of respondents believe deal activity will improve in the next 12 months. North America registered a 111% increase in aggregate deal value on the previous year and accounted for half of the total transaction value ($534 billion). VC and growth equity both had their second-largest fundraising year on record, cumulatively accounting for more than 50 percent of PE fundraising for the first time. Even in 2020, when activity stalled briefly during the early months of the COVID-19 pandemic, private markets hummed again in the second half. The table below indicates the fund types Preqin considers as constituting each asset class. Political upheaval (26 %) and the high speed of technological changes (20%) round off the top five risk factors. Retrieved from: https://www.spglobal.com/esg/insights/key-esg-trends-in-2022. . 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association. LatAm investors especially seem to have accelerated the adoption of ESG principles: the number seeking investments in companies with a good ESG track record has nearly doubled from last year, to 43% from 25%, while the number of firms that are not considering ESG factors has decreased considerably, to only 7% from 19% in 2021. In subsequent papers, the team will go into further depth on the region, covering topics such as the opportunity for venture capital in India and the current state of private equity in China. There was a notable drop in private debt deal volumes, driven by the slowdown in PE and only partially offset by market share gains taken from bank and syndicated financing channels (Exhibit 8). Number Of France-Based Institutions Investing In Private Equity Grows Screening results include only M&A Exits not IPOs. Another prevailing theme for the upcoming months to grow in significance will be digitalization. The Netherlands: MSIM FMIL (Amsterdam Branch), Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. On average, 56% of respondents believe deal activity will improve in the next 12 months. However, in 2021, the Consumer sector saw the sharpest rise in deal value of all sectors, tripling $180.8billion in 2021 from $63.3billion in 2020 to[7]. As the industry narrative turned from beta to alpha, there was less alpha to be had in 2022. Beyond robust GDP growth, under-penetration in many sectors creates opportunity for accelerated growth. Add-on deals, which tend to be smaller, continued to gain share as a percentage of total deals. Many attributes of businesses located in Asia are well-suited to operational improvements that can both further growth and increase margins. [1] The survey was conducted over the period of 15 weeks between October 4, 2021, and January 16, 2022. Morgan Stanley Investment Management (MSIM) views private equity in Asia as a potential bright spot for investors that offers the opportunity for outperformance, particularly at the current juncture. 12 Weforum.org How reform has made Chinas state-owned enterprises stronger October 2020. Amid current financial market volatility, investors are revisiting asset allocations in their portfolios, hoping to identify attractive market segments with upside potential. equity, real assets, and debt capital markets. [5]In 2021, deal activity in Healthcare continued gaining momentum, not only in terms of deal count but also deal value, which reached $340 billion; Healthcare Technology deal counts contributed the most to the sectors dynamism.[6]. Increasing representation across all levels will require managers to take fresh approaches to hiring, retention, and promotion. Global PE performance turned negative for the first time since 2008, posting a 9 percent return through September1As measured by year-to-date IRR as of September 30, 2022, for global funds vintages between 2000 and 2019. and ending a five-year run as the highest-performing private asset class.