Asia-Pacific Alternative Assets: Five Key Trends in 2021

Industry experts discuss emerging trends in Asia-Pacific’s alternatives markets at Preqin’s webinar

According to Preqin Markets in Focus: Alternative Assets in Asia-Pacific 2021, the alternative investment market is experiencing explosive growth. Asia-Pacific private capital assets under management (AUM) surged to $1.7tn as of September 2020, expanding eightfold in the past decade. What are the key trends and possible obstacles ahead? 

During the panel session of Preqin’s Alternative Assets in Asia-Pacific Webinar on 15 July, we heard from Schroders Capital’s Associate Client Director Aaron Tan, STIC Investments’ Executive Managing Partner Jin Ho Chai, HarbourVest’s Managing Director Kelvin Yap, and Mercer Alternatives AG’s Head of Private Equity Asia-Pacific Mei-ni Yang. The panel session was moderated by Maggie Kwok, Asia Head of Funds and Regulatory Practice at Harneys. 

Here are five key trends in Asia-Pacific that our panelists noted: 

1. Asia-Pacific’s private equity & venture capital sector will grow the fastest globally
Yap: “There are three key reasons why PEVC’s growth has accelerated. The PEVC asset classes have long delivered alpha on a macro basis, therefore, they will become a larger part of more investors’ portfolios. With higher allocation, clearly, we expect growth. The second reason is simply because Asia started from a much lower base compared to the West. Coming from a much smaller number, growth is higher. The third reason is that countries in Asia, particularly China and India, have become large markets for growth and venture strategy. From a geographical perspective, growth is larger in Asia-Pacific than in the US by more than 50%.” 

2. Consumption will be facilitated by Asia’s young millennials and the middle class, who are mobile enabled
Tan: “Asia has come to the forefront thanks to the four Ms: millennials, middle class, metropolitan areas, and mobile users. Asia-Pacific has 800 million millennials, with 660 million from China and India – which is where the real economic power is. Of these, 65% expect to be better off than their parents. Secondly, Asia-Pacific’s middle class, by 2025, is expected to exceed that of the rest of the world. Next, consumption is further facilitated by populations that are in very dense metropolitan areas, with more than a million people. There are 300 such areas in Asia, compared to 10 in the US and 18 in Europe. Lastly, populations are mobile first, enabled by low-cost data.” 

Tan adds that A-shares – Mainland China stock listings that are denominated by RMB and predominantly traded by a Mainland investor base – are underrepresented in the public indices. Investors that wish to invest in Asia would find that private equity is the place to capture opportunities arising from these four factors. 

3. More asset class diversification can be expected in Asia-Pacific
Yang: “In the past decade, the industry has moved beyond plain vanilla products to a Baskin Robbins ice cream shop, with different ‘flavors’ such as direct lending, mezzanine debt, infrastructure, and real estate – and each asset class also has sub-categories. This development is not only happening in the US but also across Europe and Asia. The upside is that there is more flexibility in portfolio construction. Investors can use the private market to achieve objectives for risk and return, and for duration.” 

4. The technology and renewable energy sectors will experience rapid growth 
Chai: “There are two big shifts that are happening concurrently in the world. The first is a structural shift in consumer behavior toward e-commerce, delivery, financial, and mobility services. Technology businesses, which create huge disruptions, are outperforming others. The second is that renewable energy sources are replacing traditional sources. This shift will propel the growth of electric vehicles (EV).” Specifically for South Korea, Chai expects that EV battery producers, such as LG, Samsung, and SK, will experience rapid growth. 

5. Geopolitical tensions and regulatory risks will continue to cast doubt among investors 
The recent geopolitical tensions between China and the US have led to regulatory risks for institutional investors and managers. Yang says: “Recent regulatory restrictions on overseas listings for companies that are deemed to have sensitive information have caused some volatility in listed shares, and raised questions about the prospects of these companies and their future listing options. These regulations are still in the process of development. We have yet to see how stringent the actual implementation will be. It is difficult to price regulatory risk. But we are cautiously optimistic that ultimately what the government is looking for is long-term social stability. We believe that the government will be more sensible in adjusting policies that will have a significant impact on employment and the overall society. We have also seen in the past that they have dialed back on their most stringent policies.”

While the risks have led GPs to reconsider if a US listing is the best route, Yang adds that in the past couple of years, financial liberalization in Asia has resulted in new exit avenues, such as the STAR Board and the ChiNext board, as well as the Hong Kong Stock Exchange. 

Tan also suggests: “With all the tension, this may cause more institutional investors to make Chinese RMB funds their first choice. From an investor’s perspective, focus on domestic growth may be the key to participating in China’s growth while mitigating some of the geopolitical risk as well as regulatory risk, although it does not shield completely.” 

Yap also comments that there is certainly a cautious attitude, which has an immediate feedback loop to valuations and volume of investment activity. He concludes: “It will be interesting to see how compressed the volume of transactions will be. Companies still need financing; hence regulation doesn’t mean no investing. The key question is where the equilibrium in pricing will end up falling.” 

To find out more about the most important trends in Asia-Pacific’s alternative assets markets, watch our webinar recording. Additionally, you can download Preqin Markets in Focus: Alternative Assets in Asia-Pacific 2021 to better understand the region’s alternatives market.