Global institutional investors are reassessing how they allocate capital across Asia, as diverging market dynamics, uneven exit conditions, and growing scrutiny on manager quality reshape private equity portfolio construction in the region.
Speaking at DealStreetAsia’s inaugural Asia Private Equity Leadership Summit in Hong Kong on Wednesday, executives from StepStone Group, Morgan Stanley, Adams Street Partners, and HarbourVest Partners said Asia can no longer be treated as a single allocation bloc, as investors increasingly differentiate between markets based on liquidity, exit visibility, and manager quality.
“I think if we look back 10-15 years ago, Asia was essentially synonymous with China. When you’re talking with investors and LPs about Asia, they’re essentially referring to China, plus, maybe a bit here and there in Korea, Japan, Australia, India, Southeast Asia, but it’s really a China play,” Randy Wang, Partner, Private Equity, at StepStone Group, said.
“I think the biggest trend over the past 10-15 years is that people are not equating Asia with China anymore. The region has become much more diversified from a portfolio construction standpoint, for better or for worse.”
The shift has forced investors to rethink the idea of Asia as one “homogeneous market”, panellists said, stressing the importance of seeing each country behaving differently in terms of risk, liquidity, exits, and trajectories.
Pamela Fung, Managing Director, Private Equity Solutions, Morgan Stanley Investment Management, said Asia’s complexity makes broad regional allocations increasingly insufficient.
“Asia has many different cultures, many different countries, many different jurisdictions,” Fung said, adding that investors now need a far more granular understanding of each market’s political, economic and regulatory backdrop.
“Think about politics, culture, everything going on in every country, there’s always a lot going on, and the reality of it is, as a global investor investing in private equity, when you look to Asia, you’re really thinking about it from a risk-return perspective.”
“These economies are newer, fast growing, less efficient, less established, so there’s a lot of potential that Asia private equity holds,” she said.
That shift, panellists said, is increasingly pushing investors towards thematic and manager-led allocation frameworks.
For Amanda Chen, Principal, Primary Investments, HarbourVest, her firm’s approach is increasingly centred on identifying long-term structural trends before selecting managers.
“How we look at the opportunity set in Asia from a portfolio construction standpoint, is that we’re increasingly focused on identifying the mega trends in the market and having a macro outlook overlay on how we think markets will play out.”
“Once we distill those trends, we work very very hard to find the GPs best positioned to capture them and concentrate capital there where we can. But diversification still has to be embedded into the portfolio from the outset,” Chen added.
The discussion also reflected how geopolitical fragmentation is reshaping portfolio construction globally.
StepStone Group’s Wang said geographic diversification has become more valuable, particularly amid rising US-China tensions.
“Clearly, the US and China are decoupling, the question isn’t if, it’s when and how fast, and I think in this new world order that we’re living in, there are real benefits of having that geographic diversification as markets become less correlated with one another,” he said.
Jonathan Goh, Principal, Primary Investments, at Adams Street Partners, said investors also need to recognise that Asia’s private equity ecosystem remains structurally different from the more mature US market.
“US private equity has around 56 years of history, Asia, maybe 20 or 30. Of course, it’s a very different kind of market development and dynamic. So, naturally, you shouldn’t be expecting the same kind of liquidity profile that you see in the US in Asia.”
“I think consistency of deployment and pacing into the market is quite important than trying to time the market. Each of us here have done investments; I think, while we try to time the investments, we usually don’t do as well as consistent deployment,” he added.
For investors, the challenge is no longer simply whether to allocate to Asia, but how to build portfolios across a region where markets are increasingly decoupling from one another in terms of liquidity, valuation, policy direction, and exit opportunities.
