Asia's private equity industry largely shrugged off last year's global credit crunch, with assets under management, fundraising and investment rising at double-digit levels, an industry publication said on Friday.

At the same time, the industry saw pockets of weakness, including a fall in fundraising for Japan and South Korea and a decline in private equity investments in Australia. China has also been a frustration for buyout firms looking to deploy their war chests, Asian Venture Capital Journal (AVCJ) data showed.

This year, weakness gripping stock markets could help to fuel private equity activity in Asia, said David Pierce, chief executive of Squadron Capital, which manages portfolios of private equity funds for investors.

Valuations may become much more attractive to private equity investors, and so the funds that have been raised may be put to work in a much more rapid manner, he told an AVCJ briefing.

Asian private equity funds under management rose by 14 percent to $190.7 billion last year, AVCJ researchers said.

Private equity investments rose 33 percent to $84.2 billion last year, while funds raised to invest in the region rose more than 23 percent to $50.9 billion.

The value of private equity-backed IPOs rose 21.9 percent, while sales of private equity-owned companies to other firms or investors more than tripled.

The Western industry has had a huge hit with the credit crisis, but in Asia, things have pretty much continued on a smooth pace, said AVCJ Managing Editor Paul Mackintosh.

A lot of Western money that has been encountering a worse and worse market in the U.S. and Europe is now finding its way over here as Asia becomes a much more attractive story comparatively.

STRONGER GROWTH LURES

The U.S. and European private equity industries were hit hard last year by the global credit crunch, which curtailed their ability to raise debt capital for leverage transactions the industry has become known for.

But the credit market freeze has been less of a problem in non-Japan Asian markets, given their stronger economies and the fact many deals involve growth capital and are less reliant on borrowing, industry watchers said.

Firms which raised Asia-focused funds last year included Kohlberg Kravis Roberts & Co, CVC Asia Pacific and Pacific Equity Partners.

Other private equity managers active in Asia include Carlyle Group, Boston-based Bain Capital LLC and TPG-Newbridge, the Asian private equity arm of Texas Pacific Group.

Hong Kong and fast-growing China were the two largest markets in terms of funds raised. Hong Kong fundraisings rose 43.2 percent to $15.4 billion, while cash raised to invest in China rose 94 percent to more than $10 billion.

Mackintosh noted that many of the funds raised for Hong Kong and Singapore invest on a regional rather than single country basis. Funds raised for Singapore rose 186.3 percent to more than $4 billion.

By contrast, funds raised for Japan fell 34.9 percent to $4.6 billion, while South Korean fundraisings dropped 84.5 percent to $848 million.

For South Korea, part of the problem is regulatory trends in that market, with some resistance by the authorities to foreign private equity investments, have made fewer people wish to target Korea, Mackintosh said.

Challenges facing foreign private equity firms in South Korea were highlighted by Lone Star's efforts to sell its stake in Korea Exchange Bank (KEB). Regulators have said they can't start the approval process until all legal problems over Lone Star's purchase of KEB are resolved.

Lone Star's legal battles have been seen by some as a sign of discrimination against foreign investors, who reaped huge profits from buying distressed Korean assets in the wake of the 1997-98 Asian financial crisis.

Private equity managers also faced challenges in putting money to work in China last year, with investments rising just 3 percent to $10.6 billion, compared to a 133 percent increase to $17.2 billion in India.

There is considerable regulatory resistance (in China) to certain types of investment flows and that has cooled the markets ... actual investment has not reflected the large amount of fundraising, he said.

Private equity investments in Australia fell 12 percent in 2007 to $14.6 billion.

Australia has been the one market in this region that's been worst hit by the credit crisis. The credit crisis has stopped many deals that depended on a large amount of leverage, and Australia is one of the few markets like that, he said. (Editing by Anne Marie Roantree)

Japan Australia China South Korea