Asia-Pacific's private equity market plummeted last year — as investors' appetite for risk fell in the face of inflation and geopolitical tensions, according to Bain & Company.

The total deal value for the region plunged by 44% to $198 billion in 2022, the global management and consulting firm said in a Tuesday report. That's compared to $354 billion in 2021, the analysts said adding that nearly 70% of surveyed fund managers expect the negative trend to continue into 2024.

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Lingering macroeconomic uncertainties alongside rising costs and worsening company performance that dampened investor sentiment, Bain said in its Asia Pacific Private Equity Report 2023.

"Investors, sensing a new era of slower growth, mounting inflation, and greater uncertainty, took time out to recalibrate their strategies, recognizing that what worked well in the past may not be the right approach for 2023 and beyond," a group of authors from Bain's Private Equity practice including Kiki Yang said in the report.

"If the conditions—macroeconomic uncertainty, poor company performance, and a decline in deal activity—that prevailed in 2022 persist, valuations may continue to contract as fund managers adopt a wait-and-see attitude," Bain wrote.

Deal value in Greater China fell by 53% as investors grappled with the nation's zero-Covid policy, it said, leading declines in the wider region. China and India accounted for a drop of $35 billion in total deal value for large growth deals for the year, Bain said.

While internet and technology remained as Asia-Pacific's largest investment sector, it also saw a decline from the previous year, which marked the lowest level seen since 2017, the firm said.

"For more than a decade, the Internet and tech sector has attracted the largest share of private equity capital in the Asia-Pacific region. However, its share of deal value dipped in 2022 to 33% from 41% the previous year," Bain authors wrote in the report.

"The traditional strongholds for Internet and tech deals—Greater China, India, and Southeast Asia—
all experienced sharp declines," Bain said, adding that deal value in the sector for greater China markets fell 62% year-on-year.

Within the technology sector, cloud services held the largest deal value, with consumer technology businesses such as e-commerce and online services seeing deal value drop by roughly 70% compared to a year ago.

While macroeconomic conditions dampened investors' sentiment in private equity deals region-wide, Bain saw a rise in the number of deals related to environmental, social, and corporate governance (ESG).

"In the energy and natural resources sector, investments in utilities and renewables made up 60% of deal value, reflecting the rise of environmental, social, and corporate governance considerations as an investment priority," Bain said.

The number of deals for utilities and renewables rose 47% compared to a year ago, the report said, noting Australia's Macquarie Group's offshore wind business Corio Generation secured an investment of roughly $1 billion from investor Ontario Teachers' Pension Plan.

General partners surveyed by Bain say they will continue to hone in on ESG-related investment in the following years, it said.

"Half of the GPs we surveyed plan to significantly increase their effort and focus on ESG in the next three to five years, up from 30% three [years] ago," Bain said.