New funds raised for private equity investing in Asia dropped 21.5 percent in the first half of this year, according to a report released yesterday, as the credit crunch pushes into the region after crippling leveraged buyout deals in the US and Europe.

The 2008 first-half findings of the Asia Venture Capital Journal (AVCJ) are a strong contrast to its year-end figures six months ago, when private equity fundraising and investing both notched major gains. Fundraising since the start of the year slid to $19.2 billion from $24.5 billion a year ago, according to the industry publication, while new investments fell 22.7 percent to $42 billion.

"The Asia Pacific industry is at last registering the effects of the downturn in the asset class," AVCJ said in a statement.

Several large Western private equity firms piled into the region in the last few years, raising billions of dollars to invest in companies benefiting from Asia's booming economies.

Australia hosted a number of large private equity deals last year, when private equity firms could borrow lots of money for their trademark leveraged buyouts.

But the impact of the credit crunch, which pinched lending across the US and Europe starting last fall, appears to be encroaching deeper into Asia.

Asian stock markets, which once looked like promising places for buyout firms to sell their stakes, have been hammered with China's shares down around 50 percent since late last year.

Buyout firms took in only $11.5 billion of proceeds from companies they took public in Asia this year, the AVCJ found, down 41 percent from the year-ago period. AVCJ Managing Editor Paul Mackintosh pointed out a few key factors to keep in mind.

Private equity deals in Asia consist of much less borrowing levels than in the West, making the credit crunch less of a factor.

Buyout firms in Asia are increasingly pursuing so-called "growth capital" deals that involve greater cash investments in fast growing companies.

And despite financial market turmoil, private equity activity in China and India is steady. India saw a 3.2 percent gain in private equity investing to $6.8 billion, while China was up 3 percent at $5.8 billion, AVCJ said.

Mackintosh also pointed out that this year's fundraising figures were up against tough comparisons, as several firms raised large amount last year. But he acknowledged that the private equity climate in Asia has changed, saying "people will have to be more measured in fundraising".

Reuters

(HK Edition 07/15/2008 page3)