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The “bar is high” for investing in China and there are greater deal opportunities in India and Japan, the chair of private equity firm EQT’s Asia business said after raising a regional buyout fund.
Jean Salata, the founder of Barings Private Equity Asia, which Stockholm-based EQT bought in 2022, said that as it considered potential deals in mainland China, it was not clear how easily it might later sell or list those companies.
“I think the bar is high for new deals in China at the moment . . if you invest today, how easy will it be to get liquidity on those investments five years from now?” he told the Financial Times.
Although falling valuations in the country are “making that market more interesting”, Salata said his firm was “finding more companies that we want to invest in — and a higher concentration of those deals — in markets like India, Japan and Australia”.
Salata’s comments come as Asia-focused private capital groups are eschewing China for other markets amid slowing growth, rising geopolitical tensions and Beijing’s regulatory crackdown on overseas listings, once a crucial source of returns for foreign investors.
Foreign direct investment in China fell last year to its lowest level since the 1990s, while the total value of private equity deals plummeted from a high of $47.6bn in 2021 to $4.5bn last year, figures from Dealogic show. Overseas listings have tumbled after a regulatory crackdown in 2021. Last year, Beijing introduced rules requiring Chinese companies to get regulators’ approval before listing outside the country.
EQT’s private equity business in Asia has €40bn under management. Nine per cent of its invested cash is in China deals, according to a presentation to investors in March. Its deals in the country include ecommerce giant JD.com’s healthcare unit, in which it took a minority stake in 2019.
It closed a $1.6bn mid-market Asia growth fund last week and said it raised more than twice its original $750mn target. It has a separate $11.2bn Asia fund, which was raised in 2022. Salata said his firm tends to take majority stakes in target companies, whereas many private equity deals in China involve the sale of minority stakes.
Salata, who said his firm had been investing in India since 1997, said he had “never felt as positive or confident about the outlook in India as I do today”. He added that the country’s young population, growing middle class and infrastructure expansion were among the reasons to invest. Almost 40 per cent of EQT Private Capital Asia’s invested funds are in India, according to the investor presentation.
“It does really remind me of the golden period that China went through between 2005 and 2015, that sort of 10-year period,” he said. “It feels like India is in the middle of that right now.”
Salata said the country’s prime minister, Narendra Modi, “has provided some clarity and continuity for financial investors and business investors into the economy . . . and this has created a really favourable backdrop”.
There is “real fundamental support” for the hefty corporate valuations often seen in the country, he added.
Salata said corporate governance reforms and rising shareholder activism in Japan had created “a sea change, a mindset change” in the country.
“You’re seeing companies that previously would have been resistant to any approach or to engage with private equity actually embracing or at least being open-minded about what private equity could bring,” he said.
“There are companies that have sold divisions to private equity firms and have done so successfully. They didn’t get embarrassed, the company wasn’t sort of torn apart and highly levered.”
Private equity dealmaking globally has slowed in recent years, partly as a result of higher interest rates.
Salata said the industry, particularly in the US, had benefited from “market dynamics that led to a lot of multiple expansion and essentially a lot of market beta which drove returns”. He warned that those favourable conditions were unlikely to be repeated.