APAC private credit and private equity secondaries to grow amid interest rate concerns, say industry panelists

_{More than 100 attendees were at Preqin’s Private Markets in ASEAN event, held at the Fullerton Hotel on April 25, 2024.}

Southeast Asia and India present the best emerging markets opportunities in the next 12 months, believe investors.

This was just one of the findings shared by Preqin's Head of APAC and Valuations, Angela Lai, with more than 100 audience members at Preqin’s conference, Private Markets in ASEAN, held at Singapore’s Fullerton Hotel on April 25, 2024.

Fig. 1: ASEAN-focused private capital AUM, Dec 2014 – Sep 2023

_{Source: Preqin Pro}

Venture capital (VC) in particular is driving growth in Southeast Asia, overtaking private equity, said Angela. In fact, APAC VC deals account for the highest proportion globally, more than North America. However, as the individual deals are smaller in size, aggregate value still lags the more developed regions.

Asset allocation and measuring performance were also hot discussion topics as other panelists from AIA Group, Azalea Investment Management, and Elham Credit Partners shared their outlook for private markets in 2024 at the event moderated by Preqin’s Harsha Narayan, Senior Writer, APAC News and Content.

_{Left to right: Harsha Narayan (Preqin), Srinivasulu Yanamandra (Elham Credit Partners), Hsiao Ching Tang (Azalea Investment Management), and Trevor Persaud (AIA Group).}

Within the broad-ranging discussion, our panelists shared three key insights:

1. Private debt has potential to grow in APAC

Srinivasulu Yanamandra, Managing Director at Elham Credit Partners: Asia is underrepresented from a private credit perspective. It accounts for less than 10% of total private capital AUM – significantly less than the much larger private equity. I think the Asia market is still very nascent, but when we compare this region to the US, Asia provides more value.

Asia is a combination of multiple markets, and each country has its own dynamics. Being exposed to Asia intrinsically makes you more diversified. For example, India is an opaque and relationship-driven market and because it's not institutional, sometimes you can take collateral, even uncorrelated collateral, when you negotiate. In contrast, Australia is a much more sponsor-driven market and the credit opportunities there are more related to acquisition. The Asia market is more stable too, so we see LPs spending more time there looking for opportunities. Managers have flexibility to choose where they want to deploy across mandates and jurisdictions.

2. Performance is not only measured by IRR

Trevor Persaud, Group Head of Investment Strategy and Solutions at AIA Group: We’ve initiated our search for performance metrics, beyond just IRR, to capture the range of performance characteristics of the objectives we associate with our private asset program. For example, this has prompted us to analyze cash-on-cash metrics in addition to IRRs to get a fuller picture of how our program is performing. So, we intend to look at and use TVPI and DPI as well as other measures going forward, in addition to MOIC at a more granular level, to improve how we monitor our investments.

_{Hsiao Ching Tang from Azalea Investment Management outlines due diligence procedures.}

Hsiao Ching Tang, Managing Director at Azalea Investment Management: In terms of benchmarking, we do use Preqin as one of our data sources. We look at fund performance, track record, loss ratios, stability of teams, team incentive structure and so on. We also do reference checks within our Temasek network, which comprises professionals across the globe with decades of experience, as well as with other institutional investors.

3. Uncertainty about interest rates is a concern, but private equity secondaries will grow

Hsiao Ching Tang: We know that uncertainty over interest rates can continue to be a dampener, causing weak market sentiment. Valuations have fallen from what was about 13x at their peak in 2021 to about 10x. However, while it is harder to fundraise, it is the best time to invest. The uncertain macro environment also highlights the importance of selecting the right GPs and portfolio diversification to manage risks – our portfolios are highly diversified across vintages, managers, and underlying portfolio companies.

We also see more opportunities in secondaries, as supply drivers have led to an increase in transaction volume and attractive discounts. It’s one of the ways we have brought about returns for investors, compared to just focusing on primaries. Secondaries constitute 40% of our fund of funds portfolio and is one of our key strategies – in addition to instant value accretion from acquisitions at discounts, secondaries allow for faster deployment of capital with earlier generation of cash distributions, allowing for the recycling of capital for higher returns.

_{Preqin's Angela Lai, presenting key findings about private markets in ASEAN.}

Download resources from this event or check out our upcoming webinars and events. The next event, Family Offices in APAC & the Middle East, takes place online on May 14 at 3pm SGT.

About the panelists

Trevor Persaud is Group Head of Investment Strategy and Solutions for Hong Kong-based multinational insurance and finance corporation AIA Group, where he is responsible for strategic and tactical asset allocation, derivative strategies, private market strategy, new investment product development, portfolio construction oversight, and quantitative investments.

Hsiao Ching Tang is Managing Director at Azalea Investment Management. Launched in 2015, Azalea Asset Management is a wholly owned subsidiary of Seviora, and indirectly owned by Temasek Holdings (Private) Limited. It has its own independent board and management team. The Azalea Group invests in private equity funds, with a focus on the development and innovation of new investment platforms and products to make private equity accessible to a broader group of investors.

Srinivasulu Yanamandra is Managing Director at India-based Elham Credit Partners, a recently established corporate credit arm of global investment firm Hillhouse Investment Management, which offers flexible credit solutions for corporates, strategics, and private equity firms across APAC.

Angela Lai is Head of APAC and Valuations at Preqin. Angela is an experienced VP on the Research Insights team, and covers the private investments industry in the APAC region. She has over 15 years' experience in investment analysis and risk management across asset classes in public and private markets – specializing in the valuation of private equity and private debt assets.

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}