Asset Owner Insights: Private equity falls out of favor in alternative asset allocation | Alternatives

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Private equity for asset owners in Asia Pacific has gone from the most popular alternative asset class to the least popular in the space of six months, according to the latest Asset Owner Insights (AOI) survey.

Its leading position has been replaced by real assets and private debt.

From October 2021 to the end of March 2022, asset owners in the region had increased their allocation to the private market from 15.3% to 21.5%. However, private equity was the only asset class that posted outflows, with the overall weight dropping from 4.9% to just 2.6%.

Asset allocation of institutional investors in Asia-Pacific as of March 31, 2022

Instead, the largest increase was seen in private debt, followed by infrastructure and real estate. Real estate remained the most popular alternative investment at 7.1%. Private equity shared the leading position at the end of September 2021.

Asset allocation of asset owners in Asia-Pacific as of September 30, 2021 (Source: AOI)

The AOI is AsianInvestor’s proprietary data intelligence platform. The latest survey was conducted in April and May 2022, bringing together datasets from 69 asset owners in the region. Respondents’ total assets under management (AUM) were $7.5 trillion at the end of September 2021.

“From the fourth quarter of 2021 to the end of June this year, we saw a slight drop in dry powder as the new funds raised were lower than the capital called during this period. This could signal a potential slowdown in private equity fundraising, driven by increased market volatility and the denominator effect,” said Eric Chng, Head of Alternative and Insurance Client Segments for Asia- Pacific at State Street.

High market volatility since the start of 2022 has caused a slowdown in investment and exit activity, he said. Asian investor.

In the area of ​​private equity, the latest data from AOI showed that investments were mainly opting for direct investments, although growth funds were also of interest. North America remained the main destination for private equity investment.

On the other hand, the allocation to private debt was up. Infrastructure debt and direct loans were still the most favorable instruments in the space, according to AOI data.

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Real estate debt came third, climbing the ranks since the third quarter of 2021, when 70 asset owners with total assets under management of $5.35 trillion were surveyed in the region at the time. .

Regionally, while North America was the most popular destination, Asia was not far behind.

“Portfolio diversification and continued pressure for yield generation is driving allocation to private debt and infrastructure, which appear to be more suited to the current market cycle,” said Janet Li, Head of Wealth Management business. in Asia at Mercer.

Queensland Investment Corporation (QIC) head of private debt, Andrew Jones, also noted that a rising rate environment is generally favorable for investing in private debt. One of the benefits is that investing in private debt usually consists of floating rate loans, which are correlated to interest rates.

Jones said Asian investor in an interview in July that she is expanding the private debt team as she sees growing investment demand from clients.

QIC is a sovereign wealth fund that also has clients who own external assets, including superannuation funds in Australia, other sovereign investors and insurance companies.

They seek differentiated but predictable return, with stability and increased portfolio diversification, Jones said.

Additional reporting by Hans Poulsen.

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