Asia-focused private equity funds lost momentum in money-raising last year, new figures show.

The pace of fundraising by private equity houses in Asia decelerated last year, with the number of funds closing and total capital raised falling off, according to research firm Preqin.

According to the firm, 148 Asia-focused private equity funds raised a combined $40 billion last year, a decline from the 214 funds that raised $51 billion in 2015, and the 226 funds raising $65 billion in 2014. 

Asked to explain the decline, Chris Elvin, head of private equity products at Preqin, told this news service: “The latter part of 2015 and early part of 2016 were dominated by the slowdown in China’s economy and the corresponding effects on currency and equity markets may have had an effect on Asia-focused private equity fundraising. At the same time, we know from recent surveys we have conducted that LPs [limited partners] continue to favour North America first, then Europe, then Asia in terms of geographic preference. North America- and Europe-focused private equity funds saw net cash flows turn positive in 2011 and 2013 respectively; by contrast, it was only at the end of 2015 that Asia-focused funds saw a positive net flow of capital. This is likely to have had an impact on investor satisfaction, and makes it more likely that some investors seeking to reallocate to private equity are likely to chase returns in more mature Western markets before looking to the less developed Asia market,” Elvin continued.

“That said, the draw of Asia remains intact and if the low growth and low interest environment remains in North America and Europe, and if Asia can deliver real returns to LPs for a sustained period then it stands to win a permanent place in global LPs’ portfolios,” he added. 

Venture capital fundraising held broadly in line with previous years, however, as buyout fundraising fell by 21 per cent from 2015, and growth fundraising fell by 58 per cent. The report did not offer an explanation for the fall. This publication is in contact with Preqin and will update in due course. One factor might be that up until three or four years ago there was heavy fundraising by private equity funds and a large amount of unused funds, or "dry powder", may have made more recent money-raising difficult.

Asia continues to vie with North America as the most active venture capital market in the world, Preqin said. China, India and Japan are in the top-five countries for the highest number of active fund managers, and China in particular has accounted for a growing proportion of global venture capital deal activity over recent years.

Asia has, however, become less important as a region for buyouts in recent years. Buyout funds focused on Asia accounted for 7 per cent of total buyout fundraising in 2016, its lowest share since 2012. Additionally, the total value of buyout-backed deals in the region fell by 55 per cent compared to 2015, with 257 deals taking place worth a combined $24 billon.

Asia-based investors accounted for just 13 per cent of the global private equity investor universe at the start of 2017, suggesting considerable future upside potential, Preqin added.