Considerable sums of money have flowed into private assets in recent years and it appears that Asian investors aren't yet satiated.
The vast majority of institutional investors in Asia (86 per cent) polled by Schroders plan to boost or maintain allocations in private assets in the next three years, attracted by the presumed ability to generate attractive returns.
The Schroders Institutional Investor Study 2019, based on views drawn from 650 respondents (175 in North America, 250 in Europe, 175 in Asia and 50 in Latin America) showed that private equity is most favoured: 41 per cent of Asia-Pacific investors said they intended to increase their allocations. That compares with 23 per cent planning to hike private debt expoures, 23 per cent raising real estate holdings, and 18 per cent pushing up infrastructure exposure.
A decade of ultra-low, or often actually negative interest rates has cut yields from mainstream, public markets such as equities, encouraging a move into private markets instead. In private equity, for example, 3,637 funds are were seeking an aggregate $751 billion, compared with 3,749 funds targeting $972 billion at the start of this year, according to end-October figures from Preqin, the research firm. The popularity of private assets has caused some concerns that the area is getting overheated, pushing up valuations of firms to unsustainable levels which might be tested by an economic downturn.
Among other findings, the Schroders study found that Asia-Pacific investors said liquidity and fees were the greatest challenges to investing in private assets, and also flagged high valuations as the primary concern when investing in the asset class.
“Institutional investors in Asia Pacific are increasingly looking at private assets both as an alternative source of returns and as a way to diversify risk. This is not surprising given we are in a late cycle economy with peak equity valuations and low fixed income yields," David Seex, head of alternatives, Asia Pacific, Schroders said.
"The valuation of a private asset tends to reflect its own fundamentals more than what’s happening in markets which are highly sensitive to sentiments. So investors can reduce their capital market dependency and potentially achieve higher long term returns. As the private markets continue to mature, we can expect to see new investment strategies, wider access, and multi private asset solutions that can deliver a range of target outcomes for investors," he continued.
However, as private markets grow, they are also impacted by the greater availability of capital. Finding segments where capital supply has not overwhelmed the investment opportunity is key," he added.
This study was commissioned by Schroders for the third consecutive year. In total, respondents oversee a total of about $25.4 trillion in assets.