Reputaton as a Leading Indicator for Value Creatin in Asian Private Capital
Jason Leow, Jess Gill / Septermber 18, 2022
The old guard of private equity recognised the value creation opportunity in Asia decades ago. EQT’s acquisition of Baring Private Equity Asia this year demonstrates how the next generation of PE also views Asia as critical to success. Buyout investments in the Asia-Pacific region reached a record $105.6bn in 2021, a 61.2 per cent increase on 2020 (Refinitiv). Deals aren’t solely being driven by the global powerhouses. Many pan-Asian and country-specialist general partners have emerged in recent years. The opportunity for private equity in Asia was clear because the good times rolled on.
Now there are fears of a funding and exit winter, making the path to private equity success less straightforward. Nevertheless, there remain strategic opportunities for those who know where to look. Private equity funds also need to market themselves very differently in down times: less brand marketing, more storytelling.
Let’s first talk about the opportunities. Private equity chooses an interesting time to expand its presence in Asia. Some of the largest economies in the region, such as South Korea and Japan, are in the midst of a corporate watershed moment. Historically sleepy shareholders are now calling for change. Their message is clear - less dynasticism, more dynamism. The largest chaebols and zaibatsu are trying to shift gear in response, aiming to remodel themselves into companies that can compete globally not just in product strength but in governance and innovation too.
General partners could and should spot the opportunity here. They have the skills, the capital and the connections to play a valuable role in this shift. Moreover, in markets such as China and Indonesia, more firms are finding their domestic-market focus increasingly limiting. They are looking for support to expand across borders through mergers and acquisitions or restructuring.
That said, will corporates and their shareholders welcome them with open arms? Will regulators and governments trust them to be better stewards than the incumbents? Asia is still dotted with protectionist policies - a legacy of attempts to nurture developing economies. But even as these policies gradually fade, new entrants still face an uphill battle to be accepted. Private equity needs to prove its credibility, not just its competence.
As the market becomes more crowded, private equity firms need to be visible, differentiated and understood to access the best opportunities. A faceless outpost office with a couple of investment professionals will no longer be enough to get deals done. In an era of increased scrutiny on private capital, marketing communications alone won’t help funds build trust. The market is looking to understand a GP’s governance, strategies and leadership – which disparate marketing and media relations activities won’t reinforce. The key is integrated communications – doing the upstream work of defining vision and strategy to the mid-stream work of employee engagement and corporate social responsibility before finally investing in downstream media relations and marketing. A fund that knows itself from end to end builds credibility.
General partners also need to meet corporates where they are, whether on WeChat in China, Influencer Business Network in India, or any of the investment forums that occur every month across APAC. They need to tell their story so businesses, and their employees, understand what they’re bringing to the table beyond just capital. And they need to demonstrate how private equity investment can contribute to communities at large, not just a select few company owners.
The macro backdrop intensifies the impetus for private equity firms to establish their reputations in Asia. Limited partners are rightly worried about where growth will come from in a recession. General partners have spoken about international footprint as a differentiator for years. Investors now want to see proof of concept, and Asia represents the biggest challenge. Private equity firms must show they can pivot across the whole region to navigate currency fluctuations and regulatory hurdles. This means showing up meaningfully and consistently in every key market.
As specialists in financial communications and strategic situations, we encourage our clients globally to build their brand inside-out and end-to-end in the integrated way we have described. Our work includes building reputations for private equity firms and supporting value creation through communications for portfolio companies. Our 30 specialists across 20 Asian cities also leverage our global network of 250 colleagues in the United States, Europe and the Middle East to support every situation. Our network and market knowledge is deep and extensive.
Jason Leow is Head of Asia Pacific, Edelman Smithfield.
Jess Gill is Director, Private Capital, UK, Edelman Smithfield.