The Asia-Pacific (APAC) private equity (PE) market faced significant challenges in 2023 due to concerns about slowing economic growth, rising interest rates and ongoing geopolitical tensions, Bain & Company’s latest report, the Asia-Pacific Private Equity Report 2024, says.

The report, released on March 24, reveals a continued decline in PE deal activity throughout 2023, totaling US$147 billion. PE exits dropped by 24% year-over-year (YoY) to US$101 billion, while fundraising hit a decade-low of US$100 billion.

The downturn persisted from 2022 as investors continued to put dealmaking on hold, concerned about uncertain macroeconomic conditions, volatile public stock markets and global conflicts. This uncertainty led to a pause in dealmaking as funds opted to wait out the storm.

Tech remains top sector

In 2023, technology remained the largest sector in PE activity, accounting for 23% of deals and witnessing continued interest from investors. However, its share decreased from the prior five-year average of 41%, suggesting a diversification of investment focus and a shift towards less risky industries.

Technology also dominated the exit market, increasing its share of the region’s total exit value. Initial public offerings (IPOs) in Greater China accounted for 42% of the tech sector’s exit value, and most of those sales were semiconductor firms. Megaexits included Bain Capital’s US$2.7 billion sale of a 50% stake in Works Human Intelligence to GIC, as well as Tiger Global and Accel’s US$1.8 billion sales of their stakes in Indian e-commerce firm Flipkart to Walmart.

Increased PE activity in fintech

APAC’s fintech sector bucked the trend, with PE deal value growing by 7.5% between 2022 and 2023, while venture capital (VC) funding plummeted by 49%, data from KPMG’s Pulse of Fintech H2’23 show.

The decline in VC funding and the increase in PE deal value within the fintech sector in APAC suggest a shift towards more conservative investment strategies, a focus on established players, and increased M&A activity.

As economic growth slowed and interest rates rose, investors became more risk-averse and prioritized investments in established fintech companies with proven business models and stable revenue streams. Investors moved away from sectors that rely heavily on investor funding, pivoting towards companies with steady cash flows and which are more resilient to economic headwinds.

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