Asia’s Private Capital Industry to reach $6 trillion by 2025

The alternative investment market in Asia is set to experience explosive growth in the coming years, with private capital assets under management (AUM) on course to reach $6tn by 2025, according to the first ever comprehensive ‘Alternative Assets in Asia-Pacific’ report published by Preqin, the global leader in alternative assets data, tools and insights.

The report also indicates that Asia-Pacific-based private capital (excluding hedge funds) dry powder held by fund managers sits at a record $446bn as of April 2021 — up from $416bn in December 2020. The majority (77%) of this capital ready for deployment is held by private equity and venture capital fund managers in the region, followed by real estate (10%).

Private capital is playing an increasing role in asset allocations across Asia-Pacific, as demand to access this fast growing and diverse region remains robust. Asia-Pacific-focused private capital AUM has already expanded almost sixfold over the past decade, reaching $1.71tn in September 2020, with $133bn raised during 2020 alone. Along with $156bn in Asia-Pacific hedge funds as of Q4 2020, the region is fast approaching the $2tn mark. According to Preqin forecasts, Asia-focused private capital AUM will grow at a world beating compound annual growth rate of 28.3% from 2020 until 2025.

A key driver behind the growth of the alternatives industry in Asia-Pacific is venture capital, with AUM of $574bn held by fund managers in the region as of September 2020. Almost 36% of total Asia Pacific-based private capital assets under management are held by venture capital funds — the most prominent strategy in the region. Hedge funds have faced more difficulties: New fund launches in the region — a key barometer of industry health — tumbled over 20% in 2020 to 117 on the back of the COVID-19 pandemic.

AUM growth is being seen across Asia-Pacific, with Greater China’s private equity and venture capital industry maturing fast, with an AUM of more than $1.04tn. This equates to more than 13% of the global total and 61% of capital targeting the Asia-Pacific region. By opening up their innovation ecosystems to global capital and talent and encouraging domestic start-ups to go global, Japan and South Korea are gaining global prominence.

Despite significant growth, navigating Asia-Pacific’s private capital market remains complex. While many uncertainties remain, the industry has learned to play the long game. As the search for global diversification and return-enhancement intensifies, we expect investors to support the continued expansion of the alternatives industry in this fast-maturing region.

Mark O’Hare, founder and CEO at Preqin, said: “Asia-Pacific has been an engine driving global growth for more than a decade now and is in the middle of an historic transformation. Investor demand to access this fast-growing and diverse region remains robust, while structural challenges to deploy capital are easing. The dawn of the Asian Age – or rather the re-emergence of the region’s economic dominance on the world stage – has been widely anticipated.”

Additional key highlights of the Alternative Assets in Asia-Pacific report include:

• Australia:
  • $14bn total dry powder held by Australia-focused private equity & venture capital firms at the end of H1 2020, a new record.
  • 20% increase in total capital raised by Australia-focused private capital funds in 2020 compared with 2019.
• Greater China:
  • Venture capital remains the dominant private equity strategy in Greater China with 46% of total AUM as of September 2020.
  • As of September 2020, PEVC funds based in Greater China had combined AUM of over $1.04tn.
• Japan:
  • Japan-based private equity AUM focused on buyouts reached $22bn, double the total of five years ago.
  • Dry powder as of September 2020 stood at $24bn for Japan-focused private equity and venture capital funds combined, up 40% from the previous December.
• South Korea:
  • South Korea private equity AUM has been driven to a record $102bn as of September 2020.
  • South Korea-focused buyout funds raised a record $17bn in 2020.
• ASEAN:
  • ASEAN-focused PEVC industry assets under management (AUM) stood at a record $33bn as of September 2020, almost doubling in five years.
  • In 2020, ASEAN saw the completion of 400 venture transactions valued at a combined $8.2bn.