Is Asia set to become the global force in private markets?

On a global scale, the growth of private markets has accelerated consistently and significantly over the last two decades. McKinsey’s most recent Private Markets Review highlighted that the value of private assets under management had grown by $4tn or 170% in the last ten years, with investors being increasingly drawn to longer-term, less volatile opportunities that have consistently out-performed their publicly listed counterparts.

This huge growth in interest has predominantly been focussed in the Western world, with ‘emerging economies’ such as Asia and the Middle East being slower to react to the growing demand for alternatives. However, while Asia may have been slow to embrace private markets, there are now signs that it will become the global force in this sector over the coming years.

What is driving private market growth in Asia?

Firstly, the growth of the Asian economy in recent years has seen a clear shift in economic activity to the East, with its share of the global GDP increasing consistently over the last few decades and predicted to continue to do so over the next 20 years.

The APAC region already accounts for half of the world’s middle-class population. This demographic trend is also set to accelerate between now and 2030, which would position Asia as the largest and wealthiest region of the world. The OECD predicts that Asia will account for 66% of the world’s middle-class population by 2030, compared to just 21% in Europe and North America. As a result, the wealth and spending power of this demographic cannot be underestimated.

Finally, the diversity of industrial activity across Asia means that it is well-positioned to drive private investment across multiple sectors. The region’s huge infrastructure projects, its reputation as a manufacturing powerhouse, and its already highly successful technology industries are just some of the opportunities that are likely to be seeking investment in the short to medium term.

Asian private assets under management predicted to triple by 2025

The combination of these factors means that industry commentators are making bullish predictions about the pace of growth that Asian private markets will experience over the next five years.

According to forecasts from Preqin, Asia-Pacific’s private market AUM will treble between 2019 and 2025, from $1.62tn to $4.97tn. This level of growth would represent a CAGR of 25.2%, faster than any other region and more than double the forecasted growth rate of 9.8% for global private markets.

This unprecedented increase is likely to be driven by the ongoing economic shift towards the East, with increased intra-Asia trade, low wage costs and an increasing focus on technological innovation. Analysts at Hamilton Lane also point out that despite total private markets exposure in Asia tripling over the last decade, it still makes up less than 10% of global exposure. As a result, there still appears to be a significant opportunity for greater market penetration and future growth. 

“For private markets investors, Asia is simply too important a region to ignore”

The ongoing growth in private markets across Asia, combined with a shift in global economics and market conditions, appear to point conclusively to a significant acceleration of the sector over the next decade.

Whether the performance of alternatives can live up to some of the expectations of industry specialists remains to be seen. However, there can be little doubt that private markets will play a significant and increasingly important role in Asia’s growth as the region strives to become the world’s prominent economic powerhouse.

If you would like to find out more about how Delio can support your private markets proposition, in Asia or beyond, please get in touch with our team.