Asia-Pacific institutional investors are retreating from emerging markets to pour capital into developed economies in a growing flight to quality, according to State Street’s survey with its 450 buy-side institutional clients.
Private funds in APAC’s emerging markets have fallen out of favour with limited partners, with only 14% of them intending to allocate there this year, a dramatic pullback from 25% in 2024, the report said. Their interest in emerging countries has waned most sharply among other regions.
The sentiment, however, remains relatively stable for managers in developed Asian markets like Japan, Hong Kong, Singapore, and ANZ. This shift mirrors a global LP behaviour that’s gearing toward high-quality investments in developed markets, spurred by economic uncertainties and rising interest rates, State Street said.
“APAC institutions are particularly looking at investment opportunities in North America and developed APAC for private debt,” said State Street’s senior managing director for global alternatives, Eric Chng. “They are focusing on developed markets because of the flight to quality.”
Funds are scarce in Asia’s less-developed economies, often managed by emerging private equity and venture capital players with limited track records. Proven performance and distributions of developed market funds could be among the reasons why limited partners favour safer bets even before the trade war erupted in April.
Meanwhile, private equity remains the top pick for investors in the region, with 75% expecting to boost allocations in the next few years, outpacing the global average of 66%. Similarly, 66% of APAC institutions expect to increase investments in private credit and infrastructure, aligning with global trends.
“Private credit generated an outperformance of 2% against the overall private market benchmark in 2024…” said Chng, citing internal research.
“The attractive returns and diversification are the key drivers for APAC investors to increase allocations to private credit.”
The investors surveyed by State Street in the first quarter of 2025 include private markets specialist managers, generalist asset managers with private markets portfolios, and institutional asset owners across North America, Europe, the Middle East and Asia-Pacific. About 27% of them are based in the APAC region.
