Asset owners in Asia Pacific are increasingly keen to raise their private asset investments into private equity, private debt and infrastructure property, amid a broad-based belief that a global post-Covid-19 economic slowdown will hurt their ability to hit investment return targets, according to a new survey by Schroders.

The Schroders Institutional Investor Study 2020 was released on Wednesday (October 7), and was based upon the responses from 650 institutional investors globally and 173 based in Asia Pacific. It revealed that regional asset owners aim to increase their overall private asset allocation to an average 11% position in their investment portfolios, with many likely to reduce cash holdings to do so. 

When it comes to investing more into private assets, 47% of regional respondents said they were most looking to raise their allocations to private equity, 27% pointed to private debt and 24% signalled infrastructure property as being particularly appealing over the coming three years (see chart below for more results).

“We expect an overall increase in allocations to private assets for 2021 with many Asian asset owners starting to actively evaluate new deals for 2021,” said Lily Choh, head of institutional for Asia Pacific at Schroders in the release. Schroders executives did not respond to AsianInvestor requests for further comment.

The desire of regional asset owners to invest more into private, or alternative assets, has been growing for some time. While mainstream public equities and public debt has become increasingly volatile as a result of both the impact of Covid-19 and the liquidity being pumped into the market in response. Meanwhile private asset investments are typically both illiquid and have longer lifespans – often seven to 10 years in terms of general partner-managed funds.

That lack of correlation to immediate economic concerns is being seen as either a boon or at least useful diversification by many investors. Indeed, 69% of Asia Pacific institutional investor respondents said they had been looking for undervalued investment opportunities amid Covid-19, while 20% said they wanted to do so to reduce their exposure to listed assets.

Those rates were somewhat lower than investors respondents in the US seeking Covid-related bargains (85%) or to cut their listed asset exposure (32%).

RETURN CONCERNS

Despite these efforts, Asia Pacific asset owners are concerned about whether they will reach their investment targets over the coming few years, as major economies have to pay down the large debt burdens they have accumulated and economic activity takes time to recover.

All-told, 70% of regional investors said they anticipated returns to be 5% to 9% over the next five years, but just 32% said they are confident they will achieve their anticipated returns, down from 52% in last year’s survey. That compared to respective figures of 79% and 37% for the US, and 55% and 32% for Europe. 

When it comes to picking fund managers, Asia Pacific respondents said that fees were their top priority (58%), closely followed by performance track record (57%) and the ability to structure/meet local requirements (47%).

“The threat of Asian asset owners not meeting their investment return objective in the next 3-5 years is very real,” said Choh, noting that this concern had “affirmed the value of private assets in generating robust long term risk-adjusted returns and diversification”.

  North America Europe Latin America Asia Pacific
% of investors who think global economic slowdown will have biggest impact on portfolio performance over next 12 months 88%  75% 70% 78%
% of investors who think Covid-19 will have biggest impact on their portfolio performance over next 12 months 74% 67% 76% 69%
% of investors expecting 5%-9% returns over next five years 79% 55% 70% 70%
% of investors who are confident of securing their anticipated returns 37%  32% 31% 32%
% of portfolio expected to to be allocated into private assets in the next 12 months 19% 14% 9% 11%
% of investors investing in private assets to generate higher returns over the long term 86% 75% 81% 74%
% of investors investing in private assets to diversify portfolio 79% 81% 84% 70%
% of investors investing in private assets to better manage risk 56% 37% 46% 51%
% of investors who said Covid-19 prompted them to look for unlisted assets 85% 60% 80% 69%
% of investors who said they would continue to diversify into alternatives and private assets to reduce listed assets 32% 25% 28% 20%
The main three private asset classes wanted

Private equity (41%)

Private debt (34%)

Infrastructure property (32%)

Infrastructure property (33%)

Private equity (28%)

Private debt (25%)
 

Private equity (34%)

Real estate (32%)

Private equity (47%)

Private debt (27%)

Infrastructure property (24%)

Source: Schroders Institutional Investor Study 2020