Welcome to Walkers' 2020 Fundamentals White Paper Series, in which we discuss certain trends identifiable among the hedge funds and private equity funds that we helped our clients launch over the last twelve months.

In last year's White Paper, published in November 2019, managers and their funds appeared to be positioning themselves for market turbulence in the face of global uncertainties and a volatile economic and financial environment. One year on, with the benefit of hindsight, this was something of an understatement. 2020 has tested all aspects of managers' businesses, from the boardroom to the back office, and in many parts of the world out of the office altogether. All of this, of course, is not to overlook the broader global context of the pandemic and the significant health, economic and political challenges that 2020 has brought and continues to present.

To visit the other parts of the series, please use the direct links below:

Hong Kong

2020 has been a year of contradictions in private equity throughout Asia. This is particularly apparent in relation to fundraising. With the COVID-19 pandemic and a trade war affecting China, the region has faced significant headwinds. As such, it came as no surprise that in Walkers' Asia Private Equity Fund Survey 2020, we found that fund- raising was seen as the second biggest challenge for managers, with only the pandemic being a bigger concern.

Notwithstanding the headwinds, fundraising has remained reasonably resilient. Private Equity International reported that three of the top ten funds raised in H1 of 2020, were Asia-focussed and that Asia-focussed funds raised 51% more capital than those focussed on Europe.1

This is not to say that fundraising is not changing. According to McKinsey & Company, in Asia, at least, "funding increasingly flows towards the largest, highest performing firms"2 and there is increasing concentration in the top funds. This consolidation is most notable in China. In 2015, the top ten China-focussed funds accounted for 23% of funds raised for that sector. In 2019, their share had increased to 30%.3 2020 has seen this trend continue, especially since COVID-related travel restrictions resulted in first-time fundraisers having difficulties meeting investors, leaving a clear opportunity for existing powerhouses to garner re-up capital.

Looking at transactions in the region, average PE deal sizes in China have doubled between 2009 to 2019,4 led by an increase in the number of deals above US$500 million (up from four such deals in 2009 to 40 in 2019).5 Given the levels of dry powder allocated to Asia (apparently sitting at around US$388 billion6), and that competition should drive valuations up, there is little reason to think that average values won't continue to rise.

The number of RMB funds raised by domestic GPs in China also under- went a material decline between 2017 and 20197. This correlates with the observation that first-time and smaller fund raisers seem to be declining in the region – new China-focussed funds (which tend to be smaller and traditionally access smaller transactions) raised US$16.3 billion in 2017 but less than US$200 million in 2019.8

Exit numbers are similarly down. 2019 saw a decline in Asia Pacific deal values to US$150 billion (being 43% below the 2018 record high). Driven by macro-economic factors, specifically in China, where real GDP growth slowed to 6% in H2 20199, exits dropped from a peak of 229 deals in 2014 to 112 in 2019.10

All of this, taken together, indicates that the PE industry in Asia (and particularly China) continues to mature and is moving to a new level of sophistication, a trend we have seen in the region.

The experience of the Japan-based PE industry is not always consistent with the rest of Asia generally, and that remained true in 2019. PE investment value in Japan increased 144% from 2018 to 2019 (according to Bain).11 As one leading Japanese fund formation firm observed, although there are no official statistics on the fundraising market in Japan, there has been an increasing demand from various private equity funds in 2019. It was also observed that membership of Japanese private equity and venture capital peak bodies, such as the Japanese Venture Capital Association and Japanese Private Equity Association, has materially increased12, indicating that the trend towards wider acceptance of private equity in Japan is continuing.

In relation to hedge funds, similar to the experience in private equity, it has been a year of apparently conflicting data points. According to data from Preqin13 performance for Asia-focussed hedge funds was solid in 2019 at +10.79% (well above the 7.8% posted in relation to Europe- focussed hedge funds and materially above the five year annualised average of 5.51%). Similarly, the Asia-Pacific hedge fund performance matrix, published by HFM, indicated that in Q3 of 2020 Asia-Pacific funds were up 8.9% year to date, well above the 3.9% figure posted in relation to the North America Index and 4.1% global index figure.14

In general, fund raising activity has been sluggish. Asian fundraises tend to rely heavily on start-up and spin out activity. A mixture of COVID-19 and travel restrictions, have materially impeded the ability of new entrants to go on fundraising roadshows, and for allocators and investors to undertake operational due diligence.

The pipeline for new funds looks strong however. Based on discussions with prime brokers, industry mainstays and our own intelligence, we expect a number of high pedigree funds to launch in H1 of 2021. That sentiment echoes the general level of optimism that managers signalled in our survey, with 80% being generally optimistic for 2021.


The funds market in Singapore continues to be vibrant. Over the last five years, assets under management in Singapore expanded at an 11% compound annual growth rate. At the end of 2019, total assets managed by Singapore-based asset managers grew 15.7% from 2018, to reach S$4.0 trillion (US$2.94 trillion).15 The alternatives sector saw sustained growth of 12% in 2019 to S$721 billion (US$531 billion), led by private equity and venture capital managers while AUM from hedge fund managers increased by 14%.16

With AUM rising by almost 36%, to reach US$1.2 trillion in 2019, Asia Pacific now represents a quarter of the global PE and VC market.17 Despite the lingering COVID-19 uncertainty and other regional turmoil, Singapore continues to be attractive, with close to 300 global and regional PE and VC managers based in Singapore by the end of 2019.18 HFM Global has reported that seven hedge funds launched in Hong Kong compared to six in Singapore in the first half of 2020, compared to 18 and three, respectively, in the previous six-month period.19

The outlook is robust with the expansion to Singapore of some of the largest managers globally.20 This includes TPG Capital, who have consolidated their Asia Pacific investment activities in Singapore21, D.E. Shaw, one of the world's biggest hedge funds, which reportedly has applied for a fund management license in Singapore22 and the move to open an office by Citadel hedge fund business.23 Singapore is also attractive to local and Chinese wealth managers vying for a slice of the asset management market in Southeast Asia.24

In January 2020, the Monetary Authority of Singapore introduced the Variable Capital Company ("VCC"), a new corporate structure for investment funds which was launched with a highly attractive grant scheme. As at 15 October 2020, 149 VCCs had been incorporated.25 Industry participants in Singapore envisage the VCC primarily being used by local boutique managers with a domestic and regional focus rather than the larger global players.

For larger multi-jurisdictional offerings, it is expected that Cayman will remain the domicile of choice of Singapore based managers. This is supported by the results of our 2020 Walkers Asia Private Equity Survey, where investor familiarity is the key driver for domicile choice, a key consideration when it comes to fundraising.


1  Private Equity International, "Fundraising Report H1 2020"

2  McKinsey & Company, "In Search of Alpha: Updating the playbook for private equity in China", 27 August 2020

3  McKinsey & Company, "In Search of Alpha: Updating the playbook for private equity in China", 27 August 2020

4  McKinsey & Company, "In Search of Alpha: Updating the playbook for private equity in China", 27 August 2020

5  McKinsey & Company, "In Search of Alpha: Updating the playbook for private equity in China", 27 August 2020

6  Bain & Company, Asia-Pacific Private Equity Report 2020

7  McKinsey & Company, "In Search of Alpha: Updating the playbook for private equity in China", 27 August 2020

8  McKinsey & Company, "In Search of Alpha: Updating the playbook for private equity in China", 27 August 2020

9  Bain & Company, Asia-Pacific Private Equity Report 2020

10  McKinsey & Company, "In Search of Alpha: Updating the playbook for private equity in China", 27 August 2020

11  Bain & Company, Asia-Pacific Private Equity Report 2020

12  Lexology, "Private Equity Fundraising in Japan" 14 August 2020

13  Preqin Global Hedge Fund Report 2020 data pack

14  HFM, "Hedge Funds in Q2 20"

15  2019 Singapore Asset Management Survey, Monetary Authority of Singapore

16  2019 Singapore Asset Management Survey, Monetary Authority of Singapore

17  Bain & Company, "Asia Pacific Private Equity Report 2020"

18  2019 Singapore Asset Management Survey, Monetary Authority of Singapore

19  2019 Singapore Asset Management Survey, Monetary Authority of Singapore

20  2019 Singapore Asset Management Survey, Monetary Authority of Singapore

21  2019 Singapore Asset Management Survey, Monetary Authority of Singapore

22  Billionaire Ken Griffin's Citadel Opens Singapore Office, Bei Hu, August 24, 2020, Bloomberg

23  D.E. Shaw to Open Singapore Office as Hedge Funds Target Asia, David Ramli, October 15, 2020, Bloomberg

24  China Wealth Manager Hywin Plans Foray Into Singapore By Lulu Yilun Chen, August 3, 2020, Bloomberg

25 https://www.acra.gov.sg/docs/default-source/default-document-library/variable-capital-companies/list-of-vccs_as_at_15october20.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.