APAC asset owners ready with dry powder for alternatives
With capital waiting to be deployed, some of the larger assets owners in the Asia Pacific are building up their capacity for private debt opportunities, while also starting to look beyond primary markets for real assets.
“Bigger asset owners in the region have a lot of dry powder,” Eric Chng, global head of hedge commercialisation and head of alternative solutions for APAC and Middle East at State Street, told AsianInvestor.
Some large asset owners have been expanding their direct investments teams to tap into the growing demand for private credit either via a syndicate or direct structure.
“This gives them access to a fresh niche at a lower cost,” Chng said.
Beyond private debt, asset owners are exploring alternative opportunities in real assets such as infrastructure and real estate.
“Bigger asset owners in APAC are starting to see buying opportunities in real assets in the secondary market. They think valuations are attractive from a long-term perspective,” Chng said.
TAPPING CREDIT DEMAND
Investors in Asia generally see near- to medium-term opportunities in private credit asset classes and are favouring these over other asset classes. The main reason for the trend is driven mainly by demand from corporates that are seeking to refinance in a high interest rate environment.
“The high levels of dry powder have meant that specialised private credit managers can tap this demand in a more nimble fashion and can offer more favourable terms than traditional bank financing,” Chng said.
In Hong Kong, for instance, incoming regulatory changes and fundamental shifts in the market are making private debt increasingly attractive for insurers, according to Carol Mo, deputy chief investment officer at FTLife Insrance.
"The implementation of RBC [Risk-Based Capital] regulation actually makes direct lending or private debt very attractive compared to the old days," Mo said at a panel discussion at AsianInvestor’s Insurance Investment Briefing on March 19.
Also read: FTLife Deputy CIO sees rising appeal of private debt for insurers
Elsewhere in the region, Japan-based investors, or limited partners (LPs), are anticipated to add private debt to their portfolios in the next 12 months, and 60% already had allocation plans in the first quarter of 2024, according to a global investor survey by alternatives data provider Preqin.
Also read: Japanese asset owners looking for private debt bets
ROOM FOR GROWTH
Real assets remain a challenging segment for investors in Asia Pacific, as asset prices remain relatively high and investors are taking a cautious approach in the near-term, Chng explained.
But most believe that over the medium to long term - asset prices will catch up with fundamental demand patterns and would remain committed to real assets long term.
One reason is a continued huge demand for infrastructure investments in Asian economies to achieve growth potential.
“Philippines, India, and Indonesia are all modernising core infrastructure. Vietnam is benefitting from increased levels of FDI (foreign direct investment) as an alternate manufacturing hub and this increases demands on infrastructure projects. In contrast against China, this is a region with differing dynamic,” Chng said.
Beyond this trend for developing countries potential, the real assets trend among the Asia’s larger asset owners is evident at the world’s biggest, Japan’s Government Pension Investment Fund (GPIF), with ¥225 trillion Japanese ($1.5 trillion) in assets under management as of December 2023.
Earlier in April, GPIF announced a joint investment programme with APG Asset Management that will focus on strategic infrastructure investments in developed markets overseas.