The Rapidly Growing Alternative Investment Market in Asia

The alternative investment market in Asia has proved itself to be a strong and resilient market despite a turbulent year in 2020. With $133 billion raised in just 2020, APAC-focused private capital AUM has experienced tremendous growth in the past decade, expecting to near $6 trillion by 2025[1]. To tap into this rapidly expanding market, it is important to first understand what is fueling this growth.

Main Growth Drivers

One prominent driver of such growth in Asia, particularly in China and India, is venture capital. As of September 2020, Asian fund managers hold an AUM of $574 billion in this area, accounting for 36% of total private capital AUM in the APAC region. If we take a closer look at individual sectors, opportunities in healthcare, such as teleconsulting and telemedicine, are expected to grow significantly as alternative healthcare solutions become increasingly in demand. Digital transformation and the shifts to e-commerce are expected to give rise to other sectors such as digital payments and cybersecurity services.

Another strategy that has fueled the growth is private debt, with AUM up 181% from 2016 to 2020[2]. Not only does Asia-Pacific offer attractive opportunities to generate impressive yields, especially amid the record-low yield in the US and Europe, the region is also experiencing rising borrower demand for innovative financing solutions. The above trends, coupled with the region’s investors being more willing to explore private credit, a strong outlook for private debt in Asia can be foreseen.

Infrastructure in Asia Pacific is also worth highlighting. Even though infrastructure requirements in developing APAC countries will surpass US$22.6 trillion in 2030, there is a funding gap that the financial market is unable to meet, generating opportunities for professional investors. With asset diversification and innovative financing as the new trends, GPs in Asia Pacific have been expanding their investment strategies by providing solutions like infrastructure bonds. Appetite for these assets is especially vigorous in Asia, indicated by the much higher exposure to infrastructure debt of Asian institutional investors (81%) than the global average (70%).[3]

Market Shifts

Asia is also experiencing the shift in consumer behavior towards technology businesses, including e-commerce and delivery, alongside the rest of the world. Another shift is the replacement of traditional energy sources by renewable energy, which will drive the electric vehicle industry and the EV battery producing industry[4], including companies like LG and Samsung, bringing especially strong growth for South Korea.

Catching Up With the ESG Trend

In alignment with the shift in renewable energy, private equity fund managers have been increasing their ESG participation in Asia-Pacific, with Preqin tracking 43 firms scoring above the 50% disclosure mark for ESG transparency.[5] It is believed that what propels the fund managers to develop ESG policies is the investor demand. Another factor is the surging government support for ESG in the APAC regions. When countries such as China and South Korea both pledged to achieve carbon neutrality by 2050-2060, coupled with national pension plans and sovereign funds in China, Hong Kong and Malaysia integrating ESG in their investment strategies, Asia-Pacific will soon catch up with the ESG trend.

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