The slowdown in private markets fundraising that began in 2021 because of high interest rates and geopolitical uncertainties has begun to show signs of recovery, especially in private equity.
Figures from McKinsey & Company indicate that last year, buyout and growth deals valued at over US$500 million rose 44% from 2024 to more than $1 trillion.
The global private market appears to have “moved past their trough”, driven by increased liquidity in secondary markets, and growing investor appetite for alternatives as a means to diversify risk, according to Vish Ramaswami, partner and head of Asia Pacific private investments at Cambridge Associates LLC.
“Investors are increasingly considering secondaries as a strategic tool to offset unexpected primary fund investment returns and cash flows,” he says. The secondary market represents less than 5% of total private market activity so there is “significant potential for expansion”, he adds.
Private asset managers are also expanding from traditional institutional capital into new investment vehicles tailored to individuals. Ramaswami says investors have to capitalise on opportunities arising from these vehicles.
Lulu Wang, portfolio strategist, private markets solutions at Aberdeen Investments, points to digitalisation, demographic change, and transition to a sustainable economy as three key forces driving the growth of private markets and alternative assets.
“These three forces reinforce one another, compelling investors to adopt multi-strategy private market allocations that blend growth, yield and inflation protection.”
An ageing population is boosting long-term demand for healthcare, senior living and social infrastructure investments. Meanwhile, the shift towards a sustainable economy is creating new investment opportunities across renewable energy, transmission, mobility and efficiency technologies.
Asset allocation
Wang observes that asset owners are keen on private assets because they offer access to innovative fast-growing businesses and capital-intensive real asset projects that are often underrepresented in public markets.
“Institutional investors such as pension funds and insurers find that private assets’ stable income streams and lower sensitivity to daily market volatility are more effective for managing long-duration liabilities.”
According to Tuan Lam, head of Asia Pacific at US financial technology firm iCapital, allocation decisions of asset owners are grounded on balancing long-term growth, income needs and risk tolerance. Additionally, portfolio construction among Asian institutional investors tends to be highly diversified because their investment goals vary.
“Some investors rely on proprietary model portfolios, while others focus on investment commitments or third-party platforms,” Lam says. “What unites them is the growing need for flexible technology and data infrastructure capable of supporting a wide range of workflows.”
Private credit was the most in-demand private asset class in Asia Pacific last year due to its yield profile, defensive characteristics and flexibility in uncertain market conditions.
There is also growing interest in hedge funds, evergreen funds, artificial intelligence-linked strategies and real asset strategies.
Challenges and opportunities
Lam notes that investors face challenges such as assessing liquidity and risk, gaining access to high-quality institutional products, integrating alternatives into model portfolios and improving reporting clarity.
Some asset owners are facing pressure on their commitment budgets in a market environment where distributions are constrained and exits are taking longer. Ramaswami says they are likely to either maintain or reduce private market exposure and consolidate investment outsourcing this year.
On the other hand, it’s an opportune time for asset owners who haven’t reached their target allocation to private investments. According to Ramaswami, longer fundraising timelines are providing them with more flexibility to conduct comprehensive due diligence, gain visibility into early portfolio investments, negotiate more favourable fees and terms, and access managers who may have previously been closed to new capital.
“For the very sophisticated and knowledgeable investors, this is a chance to consider backing spin-offs and emerging managers,” he says. “Also, a disciplined and consistent pace of commitments enables asset owners to achieve greater diversification across geographies, strategies and manager types.”
As for investment strategies, he notes that there are signs of improvements in China venture capital funds, which have seen severe correction since 2021. But geopolitics remains a challenge.
Japanese buyout funds continue to perform well, although access for foreign limited partners has become more difficult because demand surpasses supply.
Performance of Indian strategies has been mixed. Ramaswami notes that stronger managers have performed well and a flight to quality has increased demand for their funds.
