It has been another twelve months in which the extraordinary has become the norm, the unthinkable the mundane. Lockdowns have oscillated between full, partial and non-existent. Offices, restaurants and borders across the globe have creaked open and slammed shut as the pandemic has continued to shape the way we live our lives. And yet, throughout it all, lock-up funds have continued to be raised: investors were wooed over Zoom, side letters were negotiated at kitchen tables and the universe of participants and stakeholders in the closed-ended funds industry repeatedly showed themselves to be nimble and flexible enough to keep the wheels turning.
Dubai
Start-ups in the Middle East
The COVID-19 global pandemic has accelerated the growth and development of various start-up businesses in the Middle East region. Leveraging off such growth, we have seen strong fundraising rounds completed by leading regional start-ups in recent months.
Dubai-based cloud kitchen start-up Kitopi recently secured US$415 million in a Series C funding round backed by Softbank's Vision Fund 2. Walkers' Dubai office acted as British Virgin Islands counsel to Kitopi on this transaction, which marks Softbank's first investment in a Middle Eastern company.
From the Dubai office, Walkers also acted as Cayman Islands counsel to leading global payment processor Checkout.com in its US$110 million Series A financing for Saudi buy-now-pay-later FinTech business Tamara. This is the largest-ever investment raised by a FinTech business in the Middle East region. It is also the largest Series A funding round conducted in the region and the largest-ever investment raised by a Saudi start-up.
The Rise of FinTech
The FinTech sector is growing quickly in the Middle East region, with the leading regional financial centres (including the Dubai International Financial Centre and the Abu Dhabi Global Market) having implemented a wide range of initiatives and projects with the aim of further developing the sector. These initiatives include sandboxes and test licences for FinTech start-ups as well as the DIFC FinTech Hub, which is the first and largest FinTech accelerator in the region.
In our experience, operators in the FinTech sector need to utilise the services of both onshore and offshore jurisdictions to address their needs. With respect to offshore jurisdictions, we have seen the Cayman Islands emerge as the leading offshore jurisdiction for FinTech operators in the Middle East region (a position enhanced by the introduction in the Cayman Islands in October 2020 of the VASP Act, which provides a regulatory framework for virtual assets).
Real Estate
Real estate (primarily located in the United States and Europe) continues to be a popular, low-risk investment option for Middle East based investors and we have seen asset allocations to real estate investment opportunities remain steady in the past 12 months.
That said, we have seen some variation recently in the type of real estate assets that are being invested in, with a greater focus on industrial real estate assets. For example, Walkers' Dubai office acted as Cayman Islands counsel to Bahrain's GFH Financial Group on its recent acquisition of warehouses in Spain that are operated by Amazon.
Hong Kong
While 2020 was year of challenges and contradictions in Asia, it was predicted that 2021 would be a year of improvement. With China being "the first country to lock down and the first to recover"1, at the close of 2020, Walkers Asia Private Equity Survey Report found over 80% of respondents in the region were generally optimistic about the year ahead. And by and large their optimism was justified.Private Equity
For private equity, 2020 had not been a bumper year for fundraising in Asia. Bain reported that the amount raised by Asia-Pacific focused funds that closed in 2020 had shrunk year-on-year from US$144 billion to US$90 billion. According to Preqin (which cited similar figures), one of the drivers for this was a slow exit market2, and not simply due to complications arising from Covid-19.On a relative basis, however, this performance did not seem particularly negative. According to KPMG, "Asia continues to outperform capital raising, setting new dry powder records"3 with approximately US$476 billion in commitments to PE and VC at November 20204. This represented 25% of the global market5 and Preqin predicts Asia will have PE assets under management above US$4 trillion by 20256.
Looking specifically at Japan, both Japan-based and Japan-focused private equity funds actually increased the amount raised in 2020 year-on-year, even though the numbers of funds raised declined.
And the positive news is not limited to fundraising. In the first three quarters of 2020, Asia recorded a 29% increase in M&A deal value (compared with the same period in 2019)7. This uptick in deal value was led by China M&A activity which, according to Bain, witnessed a 42% year-on-year increase in total deal value from 2019 to the end of 20208.
Turning to investment opportunities, perhaps unsurprisingly, the leading sector for PE in the Asia region was technology, representing over 30% in total deal value9 with US$33 billion in deals in the sector completed by Asian buy-out funds in quarters 1 to 3 of 202010. If you add the value of healthcare deals to the technology total, those sectors account for more than 50% of total Asia-Pacific deal value11.
Looking beyond 2021, technology and TMT are still regarded by many as the key areas of opportunity, together with healthcare12. Walkers Asia Private Equity Survey of 2021 also indicates that tech is the sector presenting the greatest opportunity in the region (favoured by 58% of respondents) followed by healthcare and then pharmaceuticals.
China remains the most popular geographic target for future investment, with 58% of investors considering it the most attractive according to Probitas Partners13 and 47% of managers favouring the jurisdiction according to our own 2021 survey. Japan was the second most favoured jurisdiction for investment according to Probitas Partners 14.
Turning to the exit market, amidst the pandemic, private equity trade sale exits in Asia-Pacific decreased in 2020 and the aggregate value of such deals for the year sat at US$29.5 billion15 (representing a 24% decrease year-on-year16) driven by travel restrictions and complications with in-person due diligence which truncated closing time tables.
Hedge Funds
There is reason to have a positive outlook of the Asia regional hedge fund environment. Asia Pacific hedge funds posted returns of +17.00% in 202017. If results from Q1 2021 are added to that data, looking at the past three and five years, the Asia-Pacific benchmark is up 7.91% and 9.58%, respectively, on an annualized basis18. Such solid performance explains in part the increase in assets under management of Asia Pacific hedge funds in 2020 which increased from US$129 billion to US$156 billion19.As the clouds of the pandemic start to pass, travel restrictions slowly lift, and teams adapt to the challenges of electronic due diligence, we think this aggregate capital inflow of US$14.5 billion20 as a sign of brighter times ahead.
Singapore
2021 is certainly shaping up to be a buoyant year for the Southeast Asia private equity and venture capital investment funds market.By December 2020, Asia-Pacific ("APAC") AUM had risen to 28% of the global PE market.21 It was estimated that the ASEAN-focused PE and VC industry stood at US$37 billion, more than doubling in five years.22 The region's VC industry has seen a staggering six-fold increase over a 10 year period from 2010 to 2020, increasing from US$2.7 billion to over US$16 billion in AUM.23 Fundraising by Southeast Asia-focused PE funds further rebounded in the first half of 2021 to match the whole tally of 2020.24
It is no surprise, then, that the outlook for the Southeast Asian region is bright. A recent Preqin survey found that, within the APAC region, fund managers felt Southeast Asia presented the best opportunities for 2021 (50% of respondents), followed by China (38%) and India (25%).25 Private capital assets that are focused on the APAC region are expected to grow to a total US$6.1 trillion by 2025, with the majority of allocations to PE funds.26 Dry powder targeting APAC private capital opportunities (excluding hedge funds) hit a record US$446 billion in April 2021, up from US$416 billion in December 2020.27 Indonesia, with its population of over 270 million and its US$44 billion digital economy, remains Southeast Asia's premier jurisdiction for investment, with Jeff Bezos' family office recently participating in the Series B funding for Indonesian start up Ula being a good example of the flurry of interest in the country.
Singapore remains a PE and VC hub for the region. In 2020, AUM in Singapore rose 17% to US$3.5 trillion from 2019's 15.6% growth.28 As at July 2021, the six largest ASEAN-focused VC funds in the market are headquartered in Singapore, with their fundraising targets ranging from US$150-400 million.29
Following the introduction of the Variable Capital Company ("VCC") by the Monetary Authority of Singapore ("MAS") in January 2020, being a new corporate vehicle for investment funds, over 300 VCCs have been incorporated by June 2021.30 While industry participants expected VCCs to primarily be used by local boutique managers, some mid and larger asset managers have also adopted VCCs31 and the MAS is presently considering allowing single family offices to utilise the VCC structure.32
Singapore's goal of positioning itself as a leading fund raising jurisdiction has been further supported by the Singapore Exchange's (the "SGX") new rules for the listing of special purpose acquisition vehicles ("SPACs"). In September 2021, the SGX became the first Asian bourse to allow SPAC listings since the investment frenzy in SPACs started in the US in 2019.33It is anticipated that this move will draw more firms to raise funds in Singapore.
This move follows a recent focus on de-SPAC transactions involving regional tech giants, including ride-hailing giant Grab announcing in April 2021 that it would go public on Nasdaq via a record-setting SPAC merger valued at US$39.6 billion.34 Two of Indonesia's largest unicorns, e-commerce giant Tokopedia and super app platform Gojek, have recently merged and are considering listing on the US market through an IPO or SPAC (though ultimately landed on the former).35 FinAccel, the Singapore-based parent of Indonesian fintech startup Kredivo, has also recently agreed to list in the US via SPAC merger.36
As deal activity levels in the Southeast Asian region remain strong, the Cayman Islands continue to play a significant role in the region. Investor familiarity continues to drive the Cayman Islands as a domicile of choice for fundraising vehicles and Cayman Islands vehicles are frequently part of the transaction deal flow seen in the region, to include M&A transactions, SPAC and de-SPAC transactions.
Footnotes
1 Bain & Company, Asia-Pacific Private Equity Report 2021 p3
2 Preqin, 2021 Preqin Global Private Equity & Venture Capital Report p27
3 KPMG, Looking Ahead: Private Equity Trends for 2021 p 4
4 KPMG, Looking Ahead: Private Equity Trends for 2021 p 5
5 KPMG, Looking Ahead: Private Equity Trends for 2021 p 5
6 Preqin, 2021 Preqin Global Private Equity & Venture Capital Report p27
7 Grant Thornton, Asia Private Equity Insights 2021 - Navigating through turbulence p3
8 Bain & Company, Asia-Pacific Private Equity Report 2021p6
9 KPMG, Looking Ahead: Private Equity Trends for 2021 p10
10 Grant Thornton, Asia Private Equity Insights 2021 - Navigating through turbulence p8
11 Bain & Company, Asia-Pacific Private Equity Report 2021p9
12 Grant Thornton, Asia Private Equity Insights 2021 - Navigating through turbulence p4
13 Grant Thornton, Asia Private Equity Insights 2021 - Navigating through turbulence p8 citing Probitas Partners - 2021 Institutional Investors Private Equity Survey
14 Grant Thornton, Asia Private Equity Insights 2021 - Navigating through turbulence p8 citing Probitas Partners - 2021 Institutional Investors Private Equity Survey
15 KPMG, Looking Ahead: Private Equity Trends for 2021 p9
16 Bain & Company, Asia-Pacific Private Equity Report 2021 p11
17 Preqin, Preqin Markets in Focus: Alternative Assets in Asia-Pacific p44
18 Preqin, Preqin Markets in Focus: Alternative Assets in Asia-Pacific p44
19 Preqin, Preqin Markets in Focus: Alternative Assets in Asia-Pacific p 45
20 Preqin, Preqin Markets in Focus: Alternative Assets in Asia-Pacific p45
21 Asia-Pacific Private Equity Report 2021, Bain & Company
22 AUM for Asean-focused PE, venture capital industry at US$37b, more than doubling in five years, Asean Business, 18 August 2021
23 Ibid
24 SE Asia-focused PE funds rebound from weak 2020 to raise $1b in H1 2021, Deal Street Asia, 17 September 2021
25 2021 Preqin Global Private Equity & Venture Capital Report, Preqin
26 APAC-focused private markets AUM set to surpass $6trillion by 2025, Pensions & Investments, 17 June 2021
27 Ibid
28 Assets under management in Singapore rises 17% to $3.5 trillion, Asian Investor, 30 June 2021
29 AUM for Asean-focused PE, venture capital industry at US$37b, more than doubling in five years, Asean Business, 18 August 2021
30 View from Singapore: one year of the VCC structure, World Finance, 18 August 2021
31 Ibid
32 Plan to tweak VCC framework to draw more single family offices, Business Times, 7 December 2020
33 SGX introduces SPAC listing framework, SGX News Release, 2 September 2021
34 SoftBank-backed Grab agrees to deal to go public in world's largest SPAC merger, CNBC, 13 April 2021
35 Gojek, Tokopedia Reportedly Finalizing Merger Deal; Listings In US, Jakarta, PYMNTS.com, 10 February 2021
36 Singapore's Fintech Firm FinAccel To List In U.S. Via $2.5 Billion SPAC Deal, Forbes, 3 August 2021
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