The investment landscape in Southeast Asia is undergoing significant change with the growing presence of family offices and sovereign wealth funds.
They are playing a key role in driving demand for private market assets, according to alternative investment data provider Preqin's latest Southeast Asia LP Fact Sheet.
The rapid increase in family offices can be primarily attributed to the rapid growth in high net worth individuals (HNWIs) and ultra-high net worth individuals (UHNWIs) in the region.
Additionally, active efforts by countries such as Singapore to attract family offices also play a key role, according to Harsha Narayan, author of the Preqin report.
Harsha Narayan
Prekin
“We have seen significant wealth growth in Southeast Asia, and the wider Asia-Pacific region,” Narayan told Asian Investor.
“Family offices will account for one-third of Southeast Asian-based investors by June 2024, up from one-fifth in 2020,” the report said.
He further noted that nearly 50% of family offices are now headquartered in Hong Kong or Singapore.
About 39% of family offices in Asia-Pacific plan to increase their exposure to alternative investments, according to Preqin.
According to Knight Frank, the ultra-high net worth population in Asia Pacific is set to grow by around 51% in the five years to 2022.
In Southeast Asia, markets such as Singapore, Malaysia and Indonesia rank among the top 10 fastest growing ultra-high net worth markets, with their HNWI populations growing by 7-9%.
“As wealth grows, so does the complexity of managing it, leading families to seek solutions like family offices to assist with a range of issues from investment management to estate planning, wealth preservation, tax savings and intergenerational wealth transfer,” Narayan said.
The regulatory environment in Southeast Asia is also evolving, with countries introducing frameworks to facilitate the operation of family offices.
“Singapore in particular has introduced structures such as variable capital companies (VCCs) and favourable tax regimes, making it particularly attractive to family offices.”
Alternative Allocation
The high interest rate environment and geopolitical risks are having a major influence on Asia Pacific family offices' decisions to increase their exposure to alternative investments.
“This is according to a survey we conducted among family offices in Asia Pacific in April 2023. The survey revealed that the main concerns of these investors are inflation (80%), rising interest rates (70%) and geopolitical risks (67%),” Narayan said.
The survey also highlighted the important role that alternative investments can play in weathering these uncertainties.
“Some 73% of respondents indicated they plan to maintain or increase their exposure to alternative investments, with 39% specifically aiming to increase their allocation over the next 12 months,” she said.
These market concerns have led family offices to seek alternative investments that offer uncorrelated returns, better protection against inflation and higher yields in tough markets.
“Continued strong performance has made asset classes, especially private debt, attractive to investors due to their floating rate nature in a high interest rate environment,” Narayan said.
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Additionally, institutional investors are more optimistic about private equity than they have been in previous years.
“Our Global Investor Outlook Survey shows that the proportion of investors who believe the asset class is overvalued has fallen by 20 percentage points compared to 2022,” Narayan said.
For Southeast Asian investors, the increased interest in private equity and venture capital is also being driven by favourable regional conditions, she said.
“Southeast Asia has emerged as one of the most attractive emerging markets after India for LPs looking to invest in private equity and venture capital.”
SWF Boost
Some of Southeast Asia's strongest sovereign wealth funds have played a pivotal role in driving the growth of the region's private capital markets, according to the Preqin report.
For example, Singapore's Temasek Holdings has significantly increased its allocation to unlisted assets from about 20% to 52% over the past two decades.
The company's senior management acknowledges that private markets have delivered returns above the cost of capital and outperformed its listed portfolio.
Similarly, Malaysia's Khazanah Nasional has consistently allocated around 20% to the private market from 2018 to 2023, with an increasing proportion earmarked for the global private market in recent years, the report said.
“Temasek and Khazanah are strategically balancing their global diversification efforts while continuing to prioritise domestic investments. Both funds continue to invest significantly in their home countries, in line with their country's economic priorities,” Narayan said.
Temasek Holdings continues to hold a significant portion of its portfolio (27%) in Singapore, while more than half of Khazanah's portfolio is held in the Malaysian public market.
Moreover, Khazanah is actively investing in Malaysia's venture capital industry alongside domestic funds, Narayan added.
“In April, Khazanah said it would invest up to 3 billion ringgit ($627 million) in Southeast Asian startups in collaboration with local pension fund Kumpulan Wang Persaraan Diperbadankan (KWAP) and Blue Chip Venture Capital.”
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