Asian investors chase private market exposure despite hazards
Despite challenging funding conditions in private equity, institutional investors and family offices across Asia are increasing allocations to private markets.
61% of APAC institutional investors say they increased allocations to private markets in 2024, with 59% saying they are now looking to new private market niches, including AI, according to data collected by Natixis IM’s Institutional Investor Survey 2024, provided to AsianInvestor.
“Asian investors have always favoured private markets; today, when it comes to alternatives it’s all private, all of the time,” Dave Goodsell, executive director, centre for investor insight, Natixis IM in Boston, US, told AsianInvestor.
The proportion describing themselves as bullish on the sector increased from 53% in 2023 to 78% this year, according to the survey, which polled 72 institutional investors in APAC, collectively accounting for $6.7 trillion, and was published on 5 December. 67% said they believed the delta between private and public markets remained elevated compared to historical levels.
APAC investors’ growing optimism exceeds that of their global peers; worldwide, respondents declaring themselves bullish on private markets increased from 60% to 73% over the period.
"From what I’m hearing from clients, including Australian superannuation funds, there is a growing appetite for private equity as investors look to diversify away from expensive-looking equity valuations and well-established fixed income portfolios to reduce risk and maximise the chances of higher returns,” Louise Watson, country head for Australia and New Zealand for Natixis Investment Managers in Sydney, told AsianInvestor.
Across all major private markets sectors, APAC investors plan to increase allocations faster than the worldwide average, with 49% planning increases to private equity and venture capital, 48% planning increases to infrastructure and 37% planning increased to private debt. For global investors the proportions are 45%, 47% and 36% respectively.
Asian investors growing bullishness endures despite current allocations that exceed the global average. Next year APAC investors predict mean allocations will be 20.9% of total portfolios, compared with 17.9% global average.
Goodsell said that variations in the mix in private asset allocations, both between developed market and emerging market, and among emerging markets, had been a feature of the surveys over the years.
“In the US there’s not as much demand for [private assets] whereas for Latin America it’s huge,” he said.
Among the 30 institutions surveyed by Natixis in IM in Latin America, 93% were bullish in private equity, and 87% had increased their allocations since last year.
FAMILY WEALTH FOLLOWS
Data on institutional allocations is matched by anecdotal accounts from those managing wealth for Asia’s wealthiest families.
“Demand from our clients has increased exponentially. We are substantially more interested in private market investments than we were a year ago or even three years ago and have turned bullish on the asset class broadly speaking,” Cameron Harvey, CEO of Landmark Family Office in Hong Kong told AsianInvestor, adding that the company is in the process of raising money from clients for its first private equity fund, Landmark Family Office Future Fund, which will target AI, cybersecurity and clean energy.
“Private equity as an asset class has contended with several challenges such as slower exits, valuation corrections, and fundraising headwinds,” said Harvey.
APAC investors’ growing demand for private markets contrasts with a shortage of opportunities in private equity in recent years, as high interest rates have seen the flurry of dealmaking and fund raising that characterised the pandemic years sharply curtailed.
$132 billion of deals have been completed this year in the period to 5 December, 33% below the total in 2023 and 43% below the average over the five years between 2019 and 2023, according to data provided to AsianInvestor by Asian Venture Capital Journal (AVCJ), a private markets data and publishing company in Hong Kong.
“There's a lot of dry powder in Asia because deployment has been slow,” Tim Burroughs, managing editor of AVCJ, told AsianInvestor.
However, Andrew Thompson, head of private equity at KPMG Asia Pacific, based in Singapore, said that a tighter supply of deals and the tougher funding environment could benefit investors by making funds more disciplined in seeking and creating value, and providing deals at lower prices.
“In the last several years, higher borrowing costs and persistent inflationary pressures have pushed private equity funds towards a more disciplined approach, focussing on fair valuations, post-deal value creation plans and generally more cautious capital deployment. This has helped bring the region’s valuation metrics closer in line with historical norms,” he told AsianInvestor.
Harvey agreed, adding that current depressed valuations provide an opportunity to add to exposure.
“Investors are shifting toward resilience-focused strategies, regional diversification, and mid-market deals, particularly in under-penetrated APAC markets. The recent inflection point in global interest rate cycles and the prime valuations we are able to obtain now, are compelling reasons for us to invest,” he said.