Future of Alternatives 2025: The Great Awakening in Asia

The new era of deglobalization is accelerating a shift in the center of gravity away from the West and toward Asia

Asia will solidify its lead in driving global growth in alternatives over the next five years. Asia-Pacific already accounts for more than half of the world’s middle class, and the OECD expects that share to keep rising. Mass urbanization across the region will increase infrastructure funding needs in sectors like healthcare, transport, logistics, and utilities. Pension assets are forecast to grow at a pace of 3.5% a year to reach $6.8tn by 2025, according to PwC, while the expanding class of high-net-worth individuals (HNWIs) with investable assets in excess of $1mn presents another growing pool of capital for asset managers to service. There are currently 6.5 million HNWIs in Asia-Pacific with combined financial wealth of $22.2tn, and Capgemini expects this number to surpass $42tn by 2025. By comparison, North America’s HNWI population is 6.3 million with combined wealth of $21.7tn.

Fund managers are most bullish about their prospects of raising capital from Southeast Asia, with China in second place. Nearly half (48%) of managers surveyed for Future of Alternatives 2025 expect Southeast Asia to account for a greater proportion of their assets under management (AUM) over the next five years (Fig. 1). 

New Sources of Capital
Preqin forecasts that Asia-Pacific’s private market AUM will grow from $1.62tn in 2019 to $4.97tn in 2025, at a world-beating CAGR of 25.2% (Fig. 2). This is faster than any other region and more than twice the forecasted growth rate of 9.8% for global private markets. Historically, private equity and venture capital have been the biggest drivers of deal activity in Asia-Pacific, with 7,567 deals worth $156bn inked in 2019, before COVID-19 hit.

Asia-Pacific will be a prime hunting ground for private equity funds going toward 2025. The new era of ‘slowbalization’ has accelerated a shift in the center of gravity away from the West and toward Asia. The flaring of US-China tensions in 2018 forced more companies to diversify their sourcing origins and reroute supply chains, strengthening intra-Asia trade and the region’s position as a global manufacturing powerhouse. Vietnam, the second-largest electronics exporter in Southeast Asia, is a key beneficiary and could surpass Malaysia by 2025 if historical growth keeps pace. Wage costs in Vietnam are about a third of those in China, and the country has a balanced population age profile and one of the highest shares of women in work in the world.

Technologies for the Future
In parts of Asia, population aging is a concern, but investments in robotics and other productivity tools have also put the region at the forefront of the automation revolution. South Korea, Singapore, Thailand, and China are far ahead of Europe and the US in terms of robot adoption, after controlling for different wage levels (and hence different costs savings) in each of these markets. 

Governments in Asia-Pacific are also focusing on productivity reforms to sustain growth. South Korea’s Digital New Deal program will invest in building out its data, network, and artificial intelligence industries in the years to come. Policy-makers in Japan, Singapore, Malaysia, Indonesia, and the Philippines are also pushing for digital transformation. China is far ahead of other countries in 5G mobile communications architecture development, while Asia-Pacific is the leading region in 5G adoption. Mobile operators in Asia-Pacific will invest over $400bn in their networks between 2020 and 2025.

Asia’s Innovation Economies
China’s race to out-innovate Silicon Valley will remain a priority in 2025. How this economic powerhouse transitions from creating world-beating consumer tech firms to building world champions in industrial-based applications will be a major factor to watch. China is also poised to overtake the US as the world’s largest consumer market before 2025, even as its export share looks set to keep growing faster than its import share over the next five years. For private equity investors, the ability to create operational efficiencies may be a more important source of return in 2025 than user-acquisition and capacity expansion that has characterized past investments. China’s rapidly liberalizing financial services sector will be fertile ground for deal-makers over the next five years.

Venture capital will remain one of the fastest-growing opportunities in Asia-Pacific through 2025, with internet and technology investments attracting the most interest. Google and Temasek project that Southeast Asia’s internet economy is on track to hit $300bn by 2025, after growing 40% year on year to exceed $100bn in gross merchandise value in 2019 across the e-commerce, ride-hailing, online food delivery, and travel sectors. Preqin data shows that the value of venture-backed e-commerce deals in Asia-Pacific reached a nine-year high in 2018 ($35bn), before slipping to $20bn in 2019 amid US-China frictions and slowing growth in China.

Indonesia is the largest and fastest-growing internet economy in the region, but the archipelago still punches below its weight in terms of competitiveness. This could change, however, if Indonesia moves forward with reforms to achieve a more competitive and efficient tax and labor system. Indeed, India, Indonesia, and the Philippines have the most favorable demographics in the region as their working-age populations are still expected to grow, unlike in most parts of Asia. These markets thus have huge potential for growth, if the right structural reforms are undertaken.

Download a data pack containing all the charts in our regional articles for Future of Alternatives 2025. For more predictions and projections on the future of the alternatives industry, visit Preqin's Future of Alternatives 2025 Content Hub.