Long-term optimism for APAC despite short-term hurdles

The short-term outlook for APAC may appear cautious but long-term investors will remain attracted to the fundamental growth potential of the region's emerging markets, according to an Alternatives in APAC 2024 report from Preqin.

Preqin analysts maintained a positive long-term outlook for the region despite sluggish fundraising and geopolitical challenges.

The report also highlighted that investors increasingly favoured experienced fund managers over first-time managers. In 2023, the gap between the average capital raised by the two groups reached its widest divergence since 2015, at $78 million, according to Preqin data. Experienced managers raised almost $180 million on average, the highest since 2015, while first-time managers raised a hair over $100 million.

Preqin said that Japan and India markets emerged as bright spots for investors.

While most single country-specific funds struggled with fundraising, the total capital raised for Japan was $11.8 billion in 2023, exceeding the previous year's amount by 13.4%. This was primarily driven by "larger-than-usual" private equity fund closures.

Preqin said that Japan's accommodating interest rate and weaker yen supported the deal market's growth in 2023, with private capital deal value reaching a five-year high of $34.8 billion. It said this positioned Japan to be nearly on par with China as one of the most active private equity markets in APAC.

Meanwhile, for India, private capital "grew remarkably," doubling over the past five years. Notably, private debt in India has the largest single-country assets under management in APAC.

Preqin head of APAC and valuations research insights Angela Lai said APAC hadn't been spared from the global macroeconomic headwinds that plagued the global market in 2023.

"But while the region's fundraising may have reached a decade low and most country-specific funds struggled to raise capital, demand for Asia-regional funds grew amid investors' stronger preference for diversification and reduced risk appetite," she said.

Separately, the report found that capital raised by APAC ESG funds fell harder than the global average. Global ESG fundraising fell by 38% from 2022 to 2023, but APAC was hit hardest, with a 77% drop in aggregate capital raised, falling from $13.5 billion to $3.1 billion.

The proportion of ESG funds closed in APAC has continued to decline. APAC made up 14% of funds closed in 2021, and this fell to 6% of funds closed in 2023, while the global number of ESG funds closed fell 10%.

Other findings showed that the APAC office sector supported by healthy demand. The North Asian office market is becoming a focal point for deals, with office transactions in 2023 accounting for 39% of total deal value and 53% of the total number of deals in APAC.