Global private equity giant EQT increases investment in Asia: betting on early-stage innovation and domestic demand sectors

One of the world's largest private equity firms, EQT, is making significant bets on the Asian market, viewing the region as a core growth engine and adopting a differentiated strategy in the Chinese market, focusing on early-stage innovative companies and demand-driven industries.

On November 19, media reports stated that EQT CEO Per Franzén said, "Asia represents a huge growth opportunity for us... Some of the most attractive projects in our investment pipeline come from Asia." In the Chinese market, EQT believes that an early-stage investment strategy is more promising than an acquisition strategy, favoring innovation-driven growth opportunities over traditional mature market M&A transactions.

The report pointed out that EQT's Asian strategy focuses on the domestic demand market rather than cross-border trade, aiming to avoid geopolitical risks by investing in sectors such as services, software, education, and financial services. The company's long-term Asia chairman, Jean-Eric Salata, noted that this strategy allows its assets to better withstand external shocks such as trade tensions.

Notably, the report also mentioned that, unlike some private equity managers attributing weak exits to high interest rates, EQT stated that its investment decisions and outcomes are largely independent of monetary cycles.

China Market Strategy: Focus on Early Innovation Rather than Traditional Acquisitions

The report stated that EQT sees different opportunities in China.

"What we see as more interesting opportunities in China is the early-stage strategy, where there is a lot of innovation and huge growth potential," Salata said.

This judgment aligns with market data. According to a report released by Bain & Company this year, China accounted for more than half of the private equity deal value in the Asia-Pacific region in 2020, and this proportion is expected to be 27% by 2024.

Asian Market Becomes a New Focus for Global Private Equity

The report stated that EQT's heavy investment in Asia reflects a trend shift in the global private equity industry. The company noted that more global private equity investors are seeking portfolio diversification, directing more funds toward the Asian region.

In April of this year, EQT raised over $10 billion for the BPEA private equity fund IX, which is set to launch in August 2024 with a target size of $12.5 billion. Additionally, the company plans to invest approximately $930 million in South Korean enterprise software provider Douzone Bizon.

Competitor KKR recently revealed that half of the private capital it returns to investors in 2025 will come from Asia. The New York-based American company even held its board meeting in Tokyo for the first time, highlighting its emphasis on the Asian market.

The company emphasized that its investment focus in Asia is on domestic demand-related businesses rather than companies reliant on cross-border trade flows, allowing the portfolio to better withstand geopolitical risks.

The company illustrated the effectiveness of this strategy. Salata mentioned, "We have one of the largest hospital groups in India, specializing in gastrointestinal surgeries. This business is thriving and is completely unrelated to complex situations like trade or trade tariffs."

The report stated that EQT's Salata indicated that the level of inefficiency in the Asian market is higher than in the U.S. and Europe, providing investors with "structural alpha opportunities." Salata said:

"The market here is quite inefficient, and in many ways, it is more inefficient than in the United States and Europe. Therefore, to capture this alpha return, you really need to be rooted locally and build a localized team."

EQT currently has 350 employees in Asia. He pointed out that the complexity and relatively high entry barriers in Asia make localized operations crucial for sourcing deals, recruiting talent, and driving exits.

Investment Logic Independent of Interest Rate Cycles

In the face of the challenges posed by a high interest rate environment to the private equity industry, EQT emphasizes that its decisions and outcomes are largely independent of monetary cycles.

Franzén stated that the company does not expect interest rates to decline, "We certainly do not expect interest rates to go down... It is important that you continue to invest in value creation capabilities."

EQT cites its acquisition of international school operator Nord Anglia Education in March, which was valued at $14.5 billion. Salata stated:

"People want to invest more in their children's education, especially in this region, and we returned $10 billion in distributions to investors, which was achieved in a very challenging interest rate environment."

He emphasized, "If you have the right assets in the right industry and are adding value to the business, we are trying to create an all-weather strategy that is not necessarily correlated with interest rate trends."