Despite regulatory headwinds, Asian asset owners’ appetite for China’s private market remains high in the coming year, a recent Asset Owner Insights (AOI) survey showed.

Meanwhile, North America, the world’s most mature financial market, remains Asian asset owners’ top source for private assets.

According to AsianInvestor’s flagship data platform, China’s alternative assets, ranging from real estate to infrastructure and private equity, are all high on Asian asset owners’ shopping lists for the next six to 12 months.

It is believed that as regulatory overhauls die down, the world’s second-largest economy still offers attractive alpha for investors who are looking for diversification in their portfolios, as well as lower risk and return correlation.

The latest survey collected feedback from 70 asset owners across Asia, with combined assets under management (AUM) of $5.3 trillion as of end September. About 35% of the asset owners are from Greater China, and 19% are in Korea; the rest are from Singapore, Japan, Australia, and other Southeast Asia countries.

TOO BIG TO IGNORE

The survey showed that China (17%) followed North America (34%) and Asian markets excluding China and Japan (23%) to rank third on asset owners’ private equity investments in the coming year.

Asset Owner Insights: AsianInvestor's proprietary data platform

In the second half of this year, Chinese regulators dealt a heavy blow to its fast-growing technology, internet, and private education sectors, prompting companies to suspend or cancel their initial public offerings on Wall Street.

As a result, attracting new private equity investments in those sectors has become rather difficult, and the fair value of invested capital remains a question mark, an analyst at a China-based mid-cap private equity investment firm told AsianInvestor.

But as the market cools down from the crackdown, foreign limited partners (LPs), such as pensions funds and sovereign wealth funds from Singapore, Korea, North America, and other Southeast Asia countries, have started to warm up to China’s private equity market again, eyeing its growth potential in the long run, the analyst noted.

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High-tech, healthcare, and carbon-neutral themes are hot picks for these overseas shoppers, she added.

Meanwhile, asset owners expect private equity to be the only asset class that can provide them double-digit returns of 10.3% over the next six months, followed by public equities at about 7%.

Asset Owner Insights: AsianInvestor's proprietary data platform

GOING DIGITAL

With the Evergrande crisis still looming, Chinese real estate investment ranked fourth when it came to asset owners’ preferences. China had taken 11.8% of the vote, behind North America (34%), Asia ex-China, Japan (19%), and Western Europe (16%).

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Digital assets such as towers, fibre, and data centres were favoured by 32% of asset owners, followed by commercial (23.5%), residential buildings (16%), and warehouses (16%), amidst a recovering global economy mindful of supply chain disruptions.

Asset Owner Insights: AsianInvestor's proprietary data platform

“We understand that the definition of infrastructure has significantly extended towards digital and energy transition, especially during the recent pandemic period,” said Samsung Life Insurance’s head of infrastructure Jiho Park during an AsianInvestor event in September.

“Samsung Life is trying to redefine our target sectors by including digital infrastructure such as fibre and data centres. And we are also trying to actively study the recent theme of energy transition,” Park said.

In line with the survey, Samsung Life has focused on developed markets such as Western Europe, North America, Japan, and Australia to date.

Enthusiasm in hotel investments remained gloomy, with only 1.5% of asset owners choosing the option.

On the infrastructure side, North America (32%) and Western Europe (21%) remained asset owners’ favourite regions. Meanwhile, Asia ex-China and Japan, as well as China, have each attracted 17% of asset owners, surpassing Australia, New Zealand, and Japanese markets.

“We continue to have a positive outlook on the beneficiaries of China’s new infrastructure,” said Kyna Wong, head of China technology and telecom research at Credit Suisse, during its China investment conference on November 3.

China’s new infrastructure investments refer to digitalisation-related areas such as 5G networks, internet data centres, and electric vehicle charging stations.

“The 5G roll-out is expected to continue in 2022, while data communication growth is expected to accelerate despite the regulatory concerns in 2021,” Wong said.

The survey was conducted by Asset Owner Insights, AsianInvestor's proprietary data platform.