A growing number of institutions in Southeast Asia are increasing their allocations to private markets and seeking to bolster their internal capabilities to do so.

This opens huge opportunities for fund managers capable of delivering returns and providing access to quality assets, according to a new report.

Interest in private markets has grown in a radically different investment environment, characterized by higher interest rates and inflation, Cerulli Associates says in a newly released report, Asset Management in Southeast Asia 2023: Seeking New Growth Opportunities.

Malaysian institutions particularly the Employees Provident Fund, Kumpulan Wang Persaraan, and Khazanah are among the asset owners in the region that have indicated interest in private equity. 

Infrastructure remains popular because it is considered a hedge against inflation. Consequently, competition for these assets is as strong as ever.

In the Philippines, pension funds such as the Government Service Insurance System (GSIS) and Social Security System (SSS) have indicated interest in allocating more assets to infrastructure projects. 

Many institutions are also showing interest in private credit. Managers can improve the structural protection on the bonds and loans they invest in, and therefore are in a better position if there is a credit issue to deal with than if they were in public high yield, Cerulli says.

At the same time, the inflationary, high interest rate environment is bringing fixed-income allocations back into the foreground, as institutional investors reassess the opportunities in both public and private debt.

Within fixed income, dollar-denominated Asian investment-grade bonds, including corporate bonds, offer the best risk-adjusted potential. Sustainable bonds are also of interest.

Opportunities for fund managers vary according to the institution. For example, the Philippines’ SSS has no exposure to infrastructure, while Singapore’s GIC has separate teams for private equity, infrastructure, and real estate, and invests directly as well as through funds. 

“The radically different investment environment has not dulled the appetite for private markets,” says Cerulli associate analyst Justin Lee. “There are opportunities for asset managers capable of delivering returns in private equity, infrastructure, private debt, and real estate. Managers in these fields will need to demonstrate access to quality assets in a crowded and highly valued marketplace.”