Alternatives in APAC webinar recap: Three positive trends in APAC’s alternatives industry

^{Webinar participants (clockwise): Henry Lam, Preqin; Peter Graf, Ares Management; Angela Lai, Preqin; Gerard Minjoot, Preqin; Jeremy Choy, CapitaLand Investment; Nobuyuki Inomata, Nomura Asset Management}

Fundraising and deal-making in APAC have fallen as investors turn cautious, a trend that has continued through 2024. However, at our recent Alternatives in APAC webinar, Preqin’s Angela Lai, VP, Head of APAC and Valuations, Henry Lam, AVP, Research Insights, and Gerard Minjoot, Analyst, noted three positive trends.

Panelists from Ares Management, Nomura Asset Management and CapitaLand Investment also shared their views.

1. Japan continues to be an investor favorite

Thanks to a weaker yen, relatively lower valuations, and an accommodative interest rate environment, Japan has been the most active private equity market in APAC since 2023 (Fig. 1), and venture capital (VC) deal flow has been relatively strong in the past two years, second only to China in the region (Fig. 2). In real estate, Japan’s office transactions have amounted to more than $1.6bn in Tokyo, boosting office deal value in the first half of 2024. As a result, it has been the most active APAC capital market for office assets, ahead of South Korea.

Fig. 1: Private equity-backed buyout deals in APAC by location

^{Source: Preqin Pro}

Fig. 2: VC deals in APAC by location

^{Source: Preqin Pro}

Fundraising focused in Japan has also bucked the year-on-year decline seen in most other markets since 2021, thanks to mega funds such as the $2.8bn Carlyle Japan Partners V, which closed in May this year. The outperformance of Japan’s private capital funds has generated a median internal rate of return (IRR) of over 20%, the highest within APAC, while having a relatively moderate risk profile.

Nobuyuki Inomata, Head of Fund Investment Team, Alternative Investment Solution Department at Nomura Asset Management, said that despite the language barrier and differences in accounting standards, more Japanese GPs are aggressively attracting non-Japanese LPs, since fund sizes are increasing and money from Japanese investors may not suffice.

He also added that investors could be shifting investments from China to Japan due to geopolitical reasons. On the flip side, Inomata points out that Japan’s aging demographic and slow economic growth are long-term risks for the market.

2. Demand for private debt grows in APAC

High interest rates and tight credit availability has put private debt in the spotlight globally. APAC accounts for just 7% of the global private debt market due to the dominance of traditional banks, indicating potential to grow. Peter Graf, Partner, Partner, Head of Sponsor Direct Lending Asia at Ares Management said that Asia is further behind in the journey relative to the US and Europe, but the opportunity set in APAC is ‘tremendous’. Distress, mezzanine, and venture debt strategies have all been popular, but direct lending is also starting to grow.

Due to the higher proportion of high-risk strategies, Angela noted that Preqin’s performance forecast for private debt is higher in APAC than in other regions.

Peter believes that with $500bn in dry powder and over 500 firms investing, private debt firms have been focusing on growth equity or growth capital, serving businesses that need debt to grow as their EBITDA expands.

Among APAC markets, India has grown to become the largest single-country market for private debt in terms of assets under management.

3. APAC real estate transactions recover

Preqin’s Henry Lam pointed out that real estate transactions in APAC, which reached $16.3bn in 2023, notably contracted from 2022’s $29.1bn. However, quarterly deal values in the second half of 2023 showed signs of recovery, rising from $2.5bn in the second quarter to $4.7bn in the fourth quarter (Fig. 3). Compared with Europe and North America peers, investor sentiment toward the APAC real estate market has started to show signs of improvement.

Fig. 3: APAC real estate deal value by property type, Q1 2019 − Q2 2024

^{Source: Preqin Pro}

Jeremy Choy, Managing Director, Private Funds at CapitaLand Investment said that retail has made a comeback in APAC due to limited supply and high levels of tourism underpinning demand. Asia’s workforce has also returned to working in offices, which is sustaining office demand.

To watch the webinar, register to access the replay and presentation slides in full. All insights and data points are from our latest report Alternatives in APAC 2024, a premium report available for Insights+ subscribers.

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}