Asia-Pacific private equity managers are more upbeat on the deal outlook, expecting stronger returns and fewer geopolitical risks than their global counterparts, even as deal activity in the region continues to soften, a new survey shows.
Respondents in the region expected an average net return of 17.4 per cent from the private equity industry this year, slightly higher than the 17.1 per cent expected by North American, European, Middle Eastern and African (EMEA) executives, according to Dechert's annual global private equity outlook report.
The law firm worked with Mergermarket to survey 100 senior-level executives at different private equity firms across regions in July.
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Regarding the threat of geopolitical conflicts to deal making over the next 12 to 18 months, only 30 per cent of Asia-Pacific managers cited it as a top risk, compared with 49 per cent globally and 65 per cent in EMEA.
The findings pointed to cautious optimism in Asia-Pacific, underpinned by interest in healthcare and technology deals and the wider use of flexible structures such as earnouts.
"We expect this optimism to translate into improved deal flow in Asia-Pacific in 2026," Maria Tan Pedersen, co-head of emerging markets at Dechert, said in a written response to the Post.
The life sciences and healthcare, and technology sectors were expected to lead activity in the region, Pedersen said. The focus on these two sectors reflected regional governments' priorities, the global push into artificial intelligence and demographic shifts as populations in markets such as India and the Philippines expanded while those in Japan and China aged, she added.
About three-quarters of respondents planned to invest in both sectors over the next two years.
Investments in expanding or fast-growing businesses would benefit from additional use of private credit support and earnout structures, according to Pedersen.
Such structures allow part of the purchase price to be paid only if the acquired company hits the agreed performance targets after the deal. Sixty per cent of Asia-Pacific private equity managers favoured earnout structures to bridge valuation gaps, higher than the global average of 48 per cent.
Populations in both China and Japan are expected to age, driving activity in the life science sector. Photo: Xinhua alt=Populations in both China and Japan are expected to age, driving activity in the life science sector. Photo: Xinhua>
Story Continues"We expect a meaningful uptick in deal volumes in Asia-Pacific across buyouts, bolt-ons and secondary and continuation vehicles, with improved close rates driven by flexible structures like earnouts," Pedersen said.
Asian executives saw weak economic growth as the most significant headwind to the deal environment, with half of the respondents citing it as a top threat - compared with the global average of 37 per cent.
Asia-Pacific private equity deal value fell 3.8 per cent to US$107.7 billion in the first three quarters of this year from the same period a year ago, while deal volume slid 5.2 per cent to 1,874 as deal makers assessed the impact of shifting US tariff policy on the region's export-led businesses.
In China, the region's largest private equity market, ongoing regulatory and macro uncertainty, coupled with persistent property-sector weakness, was set to depress real-estate deal flow, widen valuation gaps and curb risk appetite, Pedersen said.
Private-equity activity in China had nonetheless shown signs of a rebound, driven by a surge in domestic merger and acquisition (M&A) transactions, multinational companies reshaping their portfolios and private equity funds poised for a wave of exits, said Pedersen, who is also Dechert's partner for M&A and private equity in Singapore.
"We expect this rebound to broadly continue in 2026," she said. However, it could be "an uneven and gradual thaw" concentrated in selected verticals such as technology and data, and healthcare, she added.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.
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