New investments in Asia-Pacific ‘slowly returning’

Pension funds on the lookout for alternative investment opportunities, says report

New investments in Asia-Pacific ‘slowly returning’

A new report from Cerulli states that new investments are “slowly returning” as it has seen an increase in the number of requests for proposals in the Asia-Pacific market during the first half of 2023. This comes despite cash hoarding among institutions and allocations being skewed toward local fixed income since 2022. 

According to The Cerulli Edge—Asia-Pacific Edition, 3Q 2023 Issue, there was also an increase in the number of searches for non-local assets in the alternatives and traditional assets. With recovery being seen in the public equity market and tighter controls on policy and member loans, asset owners have seen improved liquidity conditions over the last six months. In addition, demand from large public institutions are continuous, with targets for five- to 10-year investments still looking positive. 

Many sovereign wealth funds and public pensions have been actively looking to increase allocation to new alternative assets. However, asset owners are searching for local investments due to poor investment returns seen in all major public institutions in Asia in 2022.  

Private credit has become an attractive alternative over the last 18 months for its inflation-protected interest rate feature and provision of enhanced interest rates against public fixed income. 

In a press release, Soo Ah Ran Cho, associate director at Cerulli, however, noted the increased risk factors for some private credit issuers and private equities may be revealed over the next 12 months. 

“Private equity valuations are due for downward adjustment due to inflated valuations in 2020-2021,” she said. “As for private credit, with the current high-interest-rate environment, there might be higher delinquencies in the next 12-18 months given that many issuers will have difficulties refinancing once their principals are due.” 

The Cerulli report also has seen infrastructure to remain to be “popular” for “its inflation-tracking, long-term, income-delivering features.” It also noted a decreased rate in the demand in real-estate investment, with concerns over US commercial real estate experiencing difficulty from increasing vacancy rates. On the other hand, Asian commercial real estate is looking positive with low vacancy rates. 

“Cerulli believes asset owners should make conservative and careful selections, particularly in private credit and private equity,” said Cho.