Asian institutions, family offices eye 'recession-era' vintages in alts drive
Three out of four institutional investors in Asia intend to increase their exposure to alternative assets within the next 12 months, undeterred by concerns over fund vintages, according to a survey by Cambridge Associates.
“Our research has shown that recession-era vintages, invested at more moderate valuations, have historically outperformed growth expectations and achieved multiple expansion at exit,” Audrey The, managing director at Cambridge Associates, told AsianInvestor.
The poll, conducted among 55 of the firm’s clients across institutional investors, private clients and family offices in Singapore and Hong Kong, found that about 90% of them are currently allocating to private investments.
The challenging fundraising backdrop as well as higher interest rates present an opportunity to reset and are a reminder to general partners (GPs) and founders that capital is precious and should be invested judiciously at sensible entry valuations and capital structures, she said.
The most popular strategies include growth equity, venture capital, private credit and buyouts, which remain the most popular strategies for increased allocation over the next year.
“For instance, early-stage venture capital provides exposure to disruptive and innovative technologies that cannot be easily accessible in the public markets. That said, investors will need to exercise patience given the generally longer gestation periods required for such early-stage companies to grow and commercialise,” she said.
Private equity buyouts are also a growing space, while investors seeking quicker distributions or income focus on secondaries and private credit.
MANAGER EDGE
Compared to public markets, private markets are significantly more diverse, contributing varied exposures and returns, The said, emphasising that manager and asset selection continue to be paramount given the wide dispersion of returns.
“Managers need to be differentiated and have an edge in how they execute their strategies and create value, whether it be sector knowledge, use of operating partners, or how they source transactions,” The said.
She believes managers can no longer rely on multiple expansion or leverage alone. Instead, they will have to work harder, helping portfolio companies grow and position them attractively for the next buyer to achieve targeted returns.
“A strong degree of alignment with LPs (limited partners) continues to be critical. This is a long-term asset class and an illiquid one.
“In fact, as we look to commit to GPs over multiple fund cycles, that relationship can span decades, so we want to make sure that there is a strong and authentic partnership mentality between GPs and LPs,” The said.