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Private Equity

Private Equity is one of the most exciting and potentially profitable sectors in Asia . As the markets in Asia continue to expand and industries develop there will be numerous opportunities for private investment. When companies look for the "diamond in the rough" it is essential they remain focused while avoiding the common problems that are inherent in every private equity investment.

"Private equity" refers to privately transacted equity investments in firms, which are typically small but growing companies. Private equity investments can cover anything from seed and expansion capital to pre-ipo financing. Private equity also includes buyouts and turnaround investments.

Since the 1980's Asia has been a premier locale for private equity investment. However, despite high expectations the road to profit has been arduous and replete with failure. Private equity in Asia has gone through a conceptual change in recent years as a result of lessons learned from the past two decades. Today private equity investors look at Asia with more skepticism and utilize more sophisticated analytical methodologies before they will support any project.

Increased sophistication has helped to pump new life into the Asian private equity markets. In 2003 a total of $17.5bn in private equity capital was invested in Asia . Of the $17.5bn Japan accounted for $7.7bn, South Korea $3.1bn, Australia $2.1bn, China $1.3bn, India $0.8bn, and Other $2.8bn. These figures illustrate that private equity investors have primarily focused on the markets in Asia that function the best. Liquidity, transparency and rule of law are very important to the private equity markets.

Private equity in Asia has been tied to the development of the regional economy growing during the 1990s and shrinking in 2002. In 2003 private equity investment in Asia increased 90%, with Japan and South
Korea leading the market. Despite what many people believe, China was not a leading market for private equity investment (accounting for less than 1/10 th of Asian private equity). China does however remain a regional leader in attracting foreign direct investment. However, the PRC has made substantial progress
with the introduction of new and more favorable regulation. In 2003 China attracted a record $1.3bn in private equity (up from a fraction of that in 2002), of which $1bn was in the form of venture investments.

The above figures suggest that the private equity sector in Asia is still developing. As Asian regulatory schemes continue to progress and the markets gain depth private equity investment will increase as well.
If Asian development continues on its current path there is no doubt that private equity will become an increasingly important aspect of the regional economy.


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