KKR exited its 22% stake in Indonesian bakery brand Sari Roti last month to Leafgreen Capital and Gateway Partners, hinting at the potential for liquidity in one of Asia’s most difficult exit markets. It is also potentially symptomatic of pan-regional GPs looking to simplify bloated portfolios as they head into a new fundraising cycle. But prospective buyers are not holding their breath.

One source close to the Sari Roti deal described a regional landscape in which many large-cap managers have been sitting on portfolios of 30-35 positions for seven to 10 years. Many of these are considered quality assets despite being difficult to match with a buyer or to take public in emerging Asia.

As these assets wait to be processed through the post-pandemic downturn, geopolitical uncertainty has escalated dramatically. Many long-held businesses with significant upside will not be let go until the macro outlook stabilises. Strong performers like Sari Roti may sporadically come to market but only for idiosyncratic portfolio management reasons.

“I wouldn’t say there are desperate sellers,” said the source. “People understand there is a two- to three-year blip post-COVID, and with Trump that’s been extended longer. If you’re happy with your investments, you should hold them.”

Bert Kwan, formerly of BDA Capital Partners and Northstar Group, sees other obstacles as well. For the past 18 months, his new firm, Center Black Capital, has explored the possibility of taking out positions held by other financial sponsors in Southeast Asia, yet found that 90% of businesses are overmarked.

Kwan believes there is a willingness to sell, but the bid-ask spread has proven challenging. This is perhaps exacerbated amongst large managers that hold Asian assets as part of a global pool, allowing them to more easily mask questionable performance metrics and holding periods.

“A lot of positions are marked at mid-teens forward EBITDA, which you don’t really see anymore. If a company in Vietnam or Indonesia were raising new capital, that would be a non-starter in this market, so why could you pay that valuation for a secondary asset?” he said.

“The other dynamic is, to the extent you still have assets under management, you can extract fees. There is some zombie-like behaviour in the market, which cuts against the type of commercial negotiations that allow deals to get done.”

Pressure to realise

A wide bid-ask spread suggests there are few openings for secondary investors, which often rely on negotiating a large discount to net asset value (NAV). However, there is also an argument that the current market merely encourages them to take a more subjective and qualitative approach to valuations, rethinking how they weigh asset quality versus discount.

Paul Robine, founder and CEO of Asia direct secondaries specialist TR Capital, believes prevailing conditions are well-suited to an active secondaries strategy based on assertive underwriting, due diligence, business monitoring, and exit management. He estimates unrealised assets in funds of five years old or more will reach close to USD 2trn in APAC in 2025.

“Not all of that will be good quality or interesting, but even if only 10% is good quality and priced appropriately, we’re talking about a USD 200bn opportunity,” said Robine. That’s what we’re targeting.”

TR backs companies where it sees an exit in three to five years and claims an average holding period of 3.9 years. It does not seek severe discounts, reasoning that they signal risks around asset quality. The philosophy is based on the understanding that NAVs in most of Asia are generally less reliable than those in developed markets.

In June, TR acquired stakes worth over USD 50m in three Indian companies from Eight Roads Ventures. They include enterprise software platforms Whatfix and MoEngage, as well as logistics provider Shadowfax – companies that Eight Roads backed across several rounds between 2015 and 2021.

TR prefers companies that have been held by private equity for four to five years, deeming them more reliable in terms of projecting performance. This aligns the firm’s current target market with the pandemic-driven boomtime around 2021, a period associated with exuberant deployment despite poor macro visibility and therefore potentially dubious investments.

“At that time [2021], the valuations were particularly high, so you have to do a lot of work to agree on a price, but it’s always a negotiation, irrespective of vintage,” Robine said. “Is it the best vintage? Probably not, but that doesn’t mean there aren’t opportunities with tremendously growing companies.”

Bain & Company compares the 2020-2022 vintages globally with those of 2005-2006, noting both periods featured an explosion in deployment followed by a tighter macro environment that restricted exits. It expects that investments from 2020-2022 will take about 1.5 years longer, on average, to return capital to LPs versus the historical norm. This would be on par with pre-global financial crisis deals.

Meanwhile, there is an added sense of urgency in the rising mountain of unrealised private equity investment value. Bain estimates there were 29,000 unsold companies in buyout portfolios globally in 2024, representing USD 3.6trn in unrealised value. This compares to 22,000 companies and USD 1.5trn five years prior. In the five years to 2024, the median holding period has gone from 5.4 years to 6.1.

Sebastien Lamy, co-head of Bain’s Asia Pacific private equity practice, said these trends have led to his firm spending more time on helping GPs grow their portfolio companies into their valuations. In essence, this means finding ways to make meaningful operational improvements and lift EBITDA.

“The exit glut in APAC is just as dire as in the rest of the world. Beyond the stats, it’s something that we as practitioners see and feel on the ground, where there is significantly more work being done on exiting companies. There’s significantly more tension,” Lamy said.

“There’s a realisation among GPs that they need exits and distributions to start fundraising again. We feel the link between that exit glut and the slowness of fundraising in 2024 and 2025.”

Valuation conundrum

Research from MSCI has revealed reasons to be circumspect about the valuations of these assets. It found that between 2022 and 3Q24, exited buyout assets globally were sold at lower median multiples than those of the remaining portfolio. This raises questions about the reliability of held asset valuations, particularly since they are generally observed to be weaker performers than the exited assets.

Uncertainty is compounded by an unusually high use of leverage in 2021. In a go-forward market characterised by higher for longer interest rates and higher cost of capital, this appears to leave these companies with little headroom to finance the growth initiatives necessary to meet claimed valuations.

MSCI found that, on average, 2021 vintage investments breached their leverage cap within two years due to interest rate hikes since 2022. By 4Q24, 45% of buyout holdings from that vintage sat in breach of their leverage cap. This compares to a median of 13% for 2010-2019.

The implication is that unless rates fall quickly or these companies manage to increase EBITDA without taking on more debt, they will have little headroom for growth.

Abdulla Zaid, a vice president of private assets research at MSCI, said this development is encouraging GPs to be selective about their exits, protecting claimed valuations by only letting go of their best performers in the trendiest industries. The rest will have to demonstrate their validity with higher leverage burdens and weaker performance amidst the spectre of stagflation.

“In this market, the question is now for LPs. Are those valuation multiples going to be achieved at exit? They were acquired in a different market. If multiples compress, what are GPs going to do to protect NAV? How much revenue and margin can you increase?” he said.

“These questions are more important than in the past. Value creation used to come 50-50 from multiple expansion and revenue growth. Now, margin expansion is more important, and GPs are expanding margins four to five percentage points just before exit. The question is, is that an accounting tweak?”

Essentially, LPs and buyers assessing held assets will need to look beyond NAV, especially in terms of considering the tenability of a company’s debt burden in a higher-rate environment. In a more uncertain macro backdrop, this could require analyses across multiple scenarios to assess different possible outcomes.

Regulatory intervention

Storytelling about a given company’s outlook in a presumed macro context has become less convincing, yet LPs and buyers are forced to create their own narratives on how markets and opportunities will play out. As a result, the assessment of held asset valuations is becoming a more subjective process, according to four industry professionals contacted for this story.

This can be a problem for regulators. Last month, the Australian Securities & Investments Commission (ASIC) filed its first report into the auditing of superannuation funds, determining that they provide insufficient evidence on the valuation of some investments.

Rishi Dua, a private equity portfolio manager at Aware Super, said market uncertainty has resulted in LPs pursuing more independent valuation reviews in recent years. These can be initiated by the GP or at the request of the limited partner advisory committee (LPAC) or, for material positions, by the LP itself.

Aware Super has flexibility embedded into its valuation policy to allow for this to occur outside of regular cycles. It requires independent valuation reports on a quarterly basis for at least two of its major positions.

“As LPs, we definitely need to be more active participants in valuation committees and LPACs. One of the things we’re increasingly asking for is direct in-camera sessions with the auditors or the independent valuers to talk about some of the assumptions they’ve made,” Dua said.

“I think going forward, there really needs to be a lift from the LP community toward making sure transparency is at the forefront of how we monitor and judge some of those independent valuations.”

LPs are likely to subject GPs to more rigorous due diligence around valuation policies and more immediate liquidity, even if it means a lower return. A second superannuation executive described the phenomenon of GPs holding assets for longer as a misalignment of interests with LPs that would prefer to put money to work elsewhere than wait for a bigger payday.

“There is the argument that assets are compounding, but the IRR clock is still ticking,” the executive said. “Is everything compounding faster than IRR is degrading? Are managers really confident that they will get to 1x DPI [distributions to paid-in] at the current rate of compounding? We are benchmarked on IRR every year, and public equities are beating us.”

Kelvin Yap, a Singapore-based managing director at HarbourVest Partners, acknowledged that while mid-2020 to 2022 investment vintages were arguably distinguished by overvalued companies, it was more a question of timing than identifying zombies. Many investors got their predictions wrong about how the pandemic would play out, so they just need longer to reorient the affected businesses.

“It’s not simply to do with asset owners having unreasonable expectations of value versus what buyers are willing to pay,” he said.

“It’s more about private markets taking a very long-term view but wanting to get the short-term pricing right, because if you buy at the wrong price, that’s a recipe for disaster. Meanwhile, sellers are not forced to sell. Why should they sell today if they have a strong view that the interest rate is going to go down?”

Narrowing spread?

There is evidence that the bid-ask spread is narrowing. Bain found that the global strategic M&A market grew 11% year-on-year by deal value in the first five months of 2025. MSCI’s Zaid added that his firm’s data revealed a narrowing between the valuations of exited assets and held assets during the first six months of the year.

“Pricing has fallen because buyers are less willing to pay up. If you’ve got a top-quartile asset with good cash flow, a good revenue profile, then it will sell. For a second-quartile asset, it’s harder. For third and fourth-quartile assets, you’re stuck,” said a third superannuation fund executive.

“These are often assets for which investors paid too much, and they are choosing to wait it out because they don’t want to take a haircut. At the same time, they might be able to explore other ways to realise liquidity.”

Jonathan Chan, a Hong Kong-based partner in the valuation advisory services team at PwC, said private equity exits would be one of the main themes of the M&A market in the coming year. He observed public market valuations have picked up significantly in 2025, especially in areas including artificial intelligence (AI), healthcare, and biotech.

It comes with a prevailing sense of caution. Two quarters of momentum is not enough to declare a reversal in a years-long slowdown in exit markets. But while the backlog of unrealised companies continues to grow, it appears that there is at least more optionality for addressing the congestion and a resilient sense of confidence about the quality of apparently stuck companies.

“We have seen in the past few years quite a bit of write-downs of investments that are underperforming. Sometimes they are written down based on other valuation methodologies or a liquidation analysis if they’re not considered as a going concern. But that’s not necessarily a phenomenon of companies from 2021 and 2022. Some of them are really performing,” Chan said.

Optimism in Asia stems from the idea that private equity firms in the region generally use less leverage, suggesting highly valued companies have more headroom to finance growth programmes. This is tempered by a lack of depth in many exit markets, notably IPO channels in Southeast Asia.

Likewise, sponsor-to-sponsor deals may not sustain exit markets in much of Asia as well as they have in more developed regions because weaker fundraising in the recent term has pinched dry powder for such transactions.

A bandwidth issue

There is, however, also the view that the Asian secondaries market is so undersized, it could expand fast enough to keep pace with the climbing unrealised value in funds. TR’s Robine said adding USD 10bn of secondaries capital to the region would be “a good start.”

This speaks to the notion that pricing is not the only issue stalling exits. In some instances, quality assets don’t have a valid offramp simply because there isn’t sufficient exit bandwidth to accept them.

“The typical narrative is to say private equity was less discerning in what they were buying. I don’t think that’s the case,” Bain’s Lamy added. “Yes, there are periods where valuations get frothy, but there’s been no rush toward non-quality assets. That’s not what the industry’s about.”

William Yea, a Hong Kong-based investment principal at secondaries-focused Coller Capital, is unconvinced by the argument that assets in Asia are relatively difficult to value because of a lack of liquidity or relevant benchmarks.

He observed that for many buyout, growth and venture assets in the region – including those said to be multi-billion-dollar businesses – there’s often a secondary market of investors buying direct stakes as small as USD 5m. While such positions would not be sold to the likes of Coller, they at least establish some pricing.

“You have higher proportions of growth and venture assets across Asia, which may mean there are more valuation issues. So, we will come across that, but it’s not the biggest impediment to us doing a deal,” Yea said. “There are growth and venture markets in the US and elsewhere with similar dynamics, and we can use other ways to triangulate value.”