34 Asian Legal Business | January-February 2025 Hong Kong-headquartered private equity platform. A Probitas Partners private equity survey for 2024 found that just 3 percent of institutional investors viewed China as the “most attractive” market in Asia, down from 58 percent in 2021. “This trend indicates a strategic reallocation of capital towards markets with better growth prospects and lower geopolitical risks,” explains Gerrit Jan Kleute, principal at Baker McKenzie Wong & Leow in Singapore. “While many funds remain invested in China, their enthusiasm for deploying fresh capital is tempered,” says Harshita Srivastava, co-head of Indian law firm Nishith Desai Associates’ M&A and private equity practice. Risk mitigation and strategic adaptation As we move through 2025, PE funds are adopting sophisticated risk-mitigation strategies in their China portfolios. The global headwinds of change are sweeping through Asia’s private equity landscape as fund managers and LPs grow increasingly sceptical of China’s muted growth and look beyond their most profitable Asian market to find a new home for their capital. This pivot, while not a complete exodus from the world’s second-largest economy, marks a strategic reorientation towards markets in South and Southeast Asia, with Indonesia, Vietnam and India emerging as clear favourites, while Japan experiences a dealmaking renaissance driven by corporate governance reforms, a weakening yen, and a favourable monetary environment. Recent data paints a compelling picture of this transformation. The share of venture capital deals in China involving non-domestic investors hit its lowest level since 2015, dropping to 5.6 percent of total deals in 2024, according to Finex, a The great reallocation Global private equity investors are pivoting away from China towards emerging markets like Indonesia, Vietnam, and India, driven by concerns over China’s growth and geopolitical risks. These alternative markets have shown significant momentum, with India’s PE investments reaching $15 billion in 2024 and Vietnam achieving over 7 percent of GDP growth. However, lawyers say success in these markets requires navigating complex local regulations and building strong partnerships with local entities. By Nimitt Dixit • Regulatory reforms across emerging Asian markets are creating more investor-friendly business environments. • Private equity firms must navigate local partnerships and complex regulations for successful investments. • ESG compliance and infrastructure development are becoming crucial factors in Asian investment decisions. PE/VC
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