Private equity is heading for a shake-up, experts say: ‘This market actually is a good reset’

The private equity market could be heading for a shake-up, with several fund managers facing difficulties in raising cash, Serena Tan, CEO of Gaia Investment Partners, a Malaysian fund of funds, told CNBC at CONVERGE LIVE in Singapore.

The low interest rate environment post-Covid means the deals market was booming, bolstering fund managers’ track records, according to Tan. But many of these previously successful private equity players have been struggling to raise funds in the current lackluster market, Tan added.

“We do see is this market, actually is a good reset for a lot of the private equity. For private equity in general,” she said.

“There’s a quote that came out to say that many private equity players have raised their last fund, they just don’t realize that yet, right?”

Investors are also getting more discerning over where they allocate capital, she said, chasing what she described as investments that are “truly being top quartile.”

“You need to have your private markets beating your public markets … because otherwise, why do you exist?” Tan said in conversation with CNBC’s David Faber.

One way fund managers are coping with the demands of the private equity space is by streamlining their operations, Tan said. For instance, she said many are now putting in “extra focus on having their operational team in place,” which involves setting up the right governance structure and hiring the right talent to ensure that the funds are able to grow their revenue and optimize costs right from the start.

Going forward, Tan is expecting a “boom” in investments by sovereign wealth funds in Asia, given that the likes of Singapore’s GIC and Temasek are growing their teams.

“There’s a proliferation that’s going to come out, starting, obviously, in places like Singapore, Hong Kong, but really across the region around Southeast Asia,” Tan added.

Over in Japan and South Korea, Scott Hahn, CEO of Hahn & Co, a private equity investment group based in South Korea, sees opportunities given the high level of domestic liquidity in the markets.

“If you look at more of the value markets in Japan and Korea, you are seeing the opportunity to do multi-billion dollar transactions with ownership and change opportunities at high single digits,” Hahn said.

“We can do acquisitions where, really, whatever leverage we want at approximately 5% — that’s pretty attractive,” he added, comparing the market to the U.S. and its higher costs of capital.

“Businesses here, you have the opportunity to get more idiosyncratic returns, because … these capital markets aren’t as efficient, and the competition for deals is not at the levels that you would see, I think, at the U.S.”