In 2024, family offices in the Asia Pacific (APAC) region are set to recalibrate their investment strategies, with a notable increase in allocations to private equity. This trend is expected to surpass all other asset classes in terms of relative percentage growth, as revealed by the recent Deloitte Private Family Office Insights Series report, which surveyed 354 single-family offices globally.
Source: Deloitte Private’s Family Office Insights Series-Global Edition
Drivers of the Shift Towards Private Equity
The growing focus on private equity investments in the APAC region is driven by several factors:
The private equity sector has matured significantly, providing a wide array of investment opportunities. This maturation makes private equity a more attractive and feasible option for investors. According to the CIO of Singapore-based family office JRT Partners, the expansion of talent in private markets globally, not just in the US, has enhanced the sector’s attractiveness.
APAC’s robust economic growth is a significant driver of increased private equity investments. Countries in the region have shown strong GDP growth, which, coupled with rising fund flows, creates a fertile ground for private equity activities. Investors are drawn to the high growth potential and the opportunities for substantial returns.
The APAC region offers a diverse range of investment opportunities. From mature markets like Japan and South Korea to rapidly developing markets in Southeast Asia and China, the variety of opportunities caters to different investment strategies and risk appetites.
Spotlight on Key Markets
Japan
Japan is regarded as the most mature market in the APAC region for private equity. Following the Asian financial crisis, Japan and South Korea witnessed a surge in significant deals, establishing a strong foundation for private equity activities. Japan continues to attract private equity investors due to its stable economic environment and a robust pool of investment opportunities.
China
China stands as the second-largest venture capital market globally, reflecting its dynamic and rapidly growing economy. The country’s vast market size and innovative landscape offer lucrative opportunities for private equity investors. The ongoing economic reforms and the government’s support for entrepreneurship further bolster the appeal of the Chinese market.
Southeast Asia
Southeast Asia has emerged as a promising region for private equity investments. The region now boasts not only pan-Asia funds but also single-country managers, offering targeted investment opportunities. The growing GDP and increasing fund flows into private markets indicate significant potential for future growth and maturity. Countries like Indonesia, Vietnam, and the Philippines are particularly attractive due to their young populations, growing middle class, and expanding consumer markets.
Strategic Implications for Investors
For investors, the growing focus on APAC private equity presents both opportunities and challenges. Here are key strategic considerations:
Diversifying investment portfolios to include private equity investments in the APAC region can enhance returns and mitigate risks. The region’s economic diversity and varying stages of market development provide a broad spectrum of investment opportunities.
Identifying and investing in high-growth sectors such as technology, healthcare, and consumer goods can yield substantial returns. The APAC region is witnessing rapid advancements in these sectors, driven by technological innovation and increasing consumer demand.
Partnering with local private equity firms and leveraging their market expertise can provide valuable insights and access to exclusive investment opportunities. Local firms possess a deep understanding of the regional market dynamics, regulatory environment, and business culture, which can be instrumental in making informed investment decisions.
Adopting a long-term investment perspective is crucial for navigating the APAC private equity landscape. While the region offers high growth potential, it is also characterized by market volatility and regulatory complexities. A long-term approach allows investors to ride out short-term fluctuations and capitalize on the sustained growth of the region.
Implementing robust risk management strategies is essential for mitigating the inherent risks associated with private equity investments. Political instability, regulatory changes, and currency fluctuations are some of the risks that need to be carefully managed. Diversifying investments across different countries and sectors can help spread the risk.
The Future of APAC Private Equity
Asset class of APAC family offices are concentrating mostly in real estate (19%), fixed income in developed markets (13%), private equity in direct investment (12%), and equities in both developed and developing markets (12%-13%) as at second half of 2023. Nonetheless, the future of private equity in the APAC region looks promising, driven by continued economic growth, a growing pool of investment opportunities, and increasing investor interest. The maturation of the private equity industry, coupled with regional economic development, sets the stage for sustained growth and returns.
Source: Deloitte Private’s Family Office Insights Series-Global Edition
Family offices and institutional investors are likely to continue increasing their allocations to private equity in the APAC region, seeking to capitalize on the high growth potential and diversify their investment portfolios. As the region continues to evolve and develop, private equity investments are expected to play a significant role in shaping its economic future.
Conclusion
The strategic shift towards private equity investments in the APAC region marks a significant development for family offices and investors. The region’s economic growth, diverse investment opportunities, and the maturation of the private equity industry present compelling reasons for increased allocations to this asset class. By adopting a strategic approach that includes diversification, focusing on growth sectors, leveraging local expertise, maintaining a long-term perspective, and implementing robust risk management strategies, investors can navigate the complexities of the APAC private equity landscape and achieve sustainable returns.