Accelerating trends: key takeaways from the 2021 Asia Private Equity Forum

On 20 January, we proudly took part in the 11th HKVCA Asia Private Equity Forum (APEF). This marked our sixth year as a platinum sponsor for the event. This year’s forum went virtual, featuring more than 70 expert speakers and attracting more than 1,000 attendees from around the world – from venture capital and private equity practitioners to investors, and other senior-level and C-suite executives.

This year’s theme centered on the pandemic and deglobalisation, covering opportunities and challenges arising within our industry, lessons learned from Covid-19, recent regulatory updates and other topical discussions. We’ve summarised some key takeaways from this event below.

Healthcare, consumer products and education sectors are on the rise

We expect to see dramatic growth in China’s healthcare industry as public awareness of personal healthcare continues to grow, coupled with the surge in wealth in the country. Just a decade ago, almost all expensive drugs were excluded from the central government’s public medical plan, meaning that patients had to cover the costs themselves. The government is now working to increase support for public health by subsidising and including these drugs in the public drug list. This government scheme presents a huge opportunity for the healthcare sector to grow in the next 10 years.

From a consumer product perspective, online shopping is already part of everyday life in China – and this is driving significant economic activity. This trend was accelerated further during the Covid-19 pandemic, as people spent more time at home under the social distancing measures.

This global health crisis has also had an impact on China’s education sector, with online education platforms rising in popularity. The e-learning industry in general grew in the wake of Covid-19, and this is expected to continue in the coming years. In 2015, there were just 10 companies boasting more than USD 1 billion market value, but it’s expected there will be more than one hundred companies at this value in 2025.

Covid-19 forces Southeast Asia and India to adapt

India, and most other countries in Southeast Asia (SEA) such as Malaysia, Indonesia and Vietnam, have been adhering to strict lockdown or social distancing measures since the start of 2020. Vietnam, for one, is gradually getting ‘back to normality’ as there have been no local confirmed cases for three months – and as such, its economic activity is approaching pre-pandemic levels. However, the travel bans that persist in the SEA region have resulted in more and more people using virtual platforms. Fund managers, for example, adapted to conduct virtual meetings with investors or sourcing deals.

With investors in the region anticipating regional economies to bounce back in the coming months, some are considering moving their money into local stock markets. For instance, the recent daily transaction record in Indonesia’s stock market tripled. Likewise in Vietnam, major active transactions have been driven by domestic investors in the past eight or nine months.

Covid-19 has taken its toll on supply chains between China and SEA countries. In Vietnam, businesses considered sourcing local suppliers or establishing local production lines instead of importing from China. Malaysia’s government was also swift to use local contractors instead of importing labour from China, and this has largely reduced Chinese money flow into SEA.

Hong Kong Limited Partnership Fund (LPF) regime continues to evolve

At the event, the Hong Kong Monetary Authority (HKMA) discussed the latest proposal on the carried interest tax concession, demonstrating how the Hong Kong government is committed to enhancing its competitiveness to become the leading asset management and private equity hub in the region.

The soon-to-be-implemented preferential tax regime for the carried interest of Hong Kong Limited Partnership Funds (LPFs)[1] – 0% of profits tax and fully excluded employment income – is highly welcomed by private equity market players who seek an alternative structure to set up onshore funds in Hong Kong. As one of the key international financial centres, Hong Kong has deep professional expertise, a robust legal framework and a sound financial system that are beneficial to establishing a strong presence for private equity funds.

In the coming months, the HKMA will be working to finalise a re-domiciliation mechanism that provides a flexible and effective way to transform overseas Limited Partnerships into a Hong Kong LPF – so there is even more exciting news to come.

Indeed, carried interest taxation is always a complicated global topic. However, this new initiative from the Hong Kong government has been well received by the industry, with overwhelmingly positive feedback. As Asia’s fund market continues to go from strength to strength, we at Intertrust Group will be on-hand to advise you on the latest updates.

[1] The Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 was gazetted on 29 January 2021, pending the Legislative Council for final reading.