Asian institutions underinvested in private assets
Despite alternatives have come to the core over recent years, asset allocators believe their clients are underexposed to private market strategies, according to a study by PGIM Investments.
PGIM Investments
The finding is cited by 76% of Asian fund selectors versus 64% in Europe, as PGIM Investments’ latest Gatekeeper Pulse study revealed.
“Asian investors are traditionally underinvested in the private markets, partly due to the lack of accessibility compared to the public markets and a lower risk tolerance. There is also a need for more education and training around the benefits of private markets and the role this asset class plays in a diversified portfolio,” Jessica Jones, head of Asia at PGIM Investments, told AsianInvestor.
The survey also found that greater availability or accessibility would be the key driving force for greater allocation to private alternatives in Asia, cited by 45% of fund selectors.
This was followed by greater transparency and more favourable fee structures at 43% and 39%, respectively.
“While alternatives continue to gain traction from Asian investors, a focus on providing education and training, as well as offering investment products in the right vehicles and fee structures would be crucial in driving flows,” Jones said.
INVESTMENT THEMES
Among other findings, surveyed allocators highlighted several different alternative asset classes that clients are targeting as priority for investment.
Globally, private equity and infrastructure are the most sought-after alternatives for diversification, followed by private credit.
When it comes to income generation, private credit is also a primary target alongside real estate.
“In Asia, the needs of investors are not dissimilar to the rest of the world. There is a continued desire to manage risk exposure against current volatility, while downside protection and diversification are also top of mind,” Jones said.
Across private alternatives, data centre stands as one of the themes gaining traction. The significant supply and demand imbalance driven by generative artificial intelligence (AI) and rental growth prospects makes it an attractive investment.
“This presents a generational growth opportunity, and we expect data centres to become a mainstream investment in the next 10 years,” Jones said.
FAVOURABLE TERMS
Some 61% of respondents in Asia indicate that recent illiquidity issues within certain alternative funds will lead to more favourable terms in the future, compared to 44% in Europe.
The expectation of more favourable fund terms could potentially boost Asian investors’ appetite for private market strategies, Jones noted.
“For instance, if managers can offer better fee structures, liquidity terms and governance provisions, it could help overcome some of the historical barriers of access to private markets and make alternatives strategies more appealing to a wider range of investors including high-net-worth investors and family offices,” she said.
PGIM Investments’ latest Gatekeeper Pulse study surveyed the allocation plans, investment attitudes and manager preferences of 210 British, continental European and Asian allocators at large global financial institutions, all of which have at least $1 billion assets under management.