The surge of investment in Southeast Asia

Growing role of private equity and venture capital in ASEAN countries

By Luca Menghini

In 2023, the private equity (PE) and venture capital (VC) sectors in ASEAN countries witnessed significant developments, despite facing substantial headwinds in the global economic landscape. The ASEAN region, with its continuously expanding and growing middle class and a very young population, continues to attract numerous investors, particularly in the technology, healthcare, and infrastructure sectors. These sectors are crucial drivers of growth in an increasingly competitive market and in a constantly evolving global market.

The Southeast Asian private equity market ended 2023 with a total of 22 deals amounting to $3.9 billion. This figure represents a decline compared to previous years, largely due to macroeconomic challenges such as inflation and high interest rates. However, experts remain optimistic, given the young workforce and increasing demand for innovative solutions, which is expected to drive future growth. Venture capital performed very strongly, with assets under management reaching a record $27.3 billion in 2023, highlighting the resilience and potential of the region's startup ecosystem.

The healthcare sector emerged as a key area for private equity investments in 2023, accounting for 36% of total deals. The growing demand for an improved healthcare sector capable of offering more advanced services, driven by the fact that the average ASEAN population is aging and simultaneously becoming wealthier and able to afford higher-level care, has created numerous opportunities for investors. In addition to healthcare, the other sector that attracted the most attention was technology and telecommunications, which accounted for around 31% of private equity investments.

Investments in infrastructure were a dominant theme in 2024, with the sector accounting for 78% of total private equity deals in the second quarter of this year. As Southeast Asian countries prioritize the transition to a low-carbon economy, opportunities in renewable energy and sustainable infrastructure projects have attracted the interest of numerous investors. Additionally, the region's strategic location as a hub for global trade has made investments in digital technologies and, more generally, in digital transformation, along with physical infrastructure, vital for its economic future. This has led private equity activities to focus on sectors aimed at redesigning and transforming regional supply chains and increasing commercial connectivity.

Despite the encouraging and optimistic trends, the private equity and venture capital sectors in the ASEAN landscape are facing significant challenges. The macroeconomic environment remains uncertain, with concerns related to inflation and interest rate fluctuations creating unfavorable conditions for transnational deals and agreements in general. Additionally, the number of exits is in sharp decline, fundraising has decreased, and investors are adopting a more cautious approach. Exit conditions remain difficult, with many private equity firms opting for secondary sales over initial public offerings (IPOs) due to a sluggish public market.

Nonetheless, there is a high level of available liquidity, which remains ready to be used, positioning investors optimally to capitalize on future opportunities. Experts predict that the consumer goods sector, education, and financial services will see an increase in investments in the coming years as ASEAN economies stabilize and continue on high-growth trajectories.

Looking ahead, the continued development of the Southeast Asian private equity and venture capital markets will be shaped by digital transformation, innovations in healthcare, and the need for sustainable infrastructure. These sectors offer the greatest promise both for investors and governments seeking to strengthen the region's competitiveness in the global economy. With a young, tech-savvy population and a rapidly growing middle class, ASEAN is positioned to remain a bright spot for private equity and venture capital investments in the years to come.

In conclusion, while the private equity and venture capital sectors in ASEAN are not without their challenges, the region's growth prospects remain strong and stable. The focus on infrastructure, healthcare, and technology, along with the availability of capital, allows Southeast Asia to continue being a key destination for investments in global markets. Investors are likely to maintain a cautious but optimistic approach as they navigate the opportunities and risks that come with investing in one of the most dynamic regions in the world.