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Banking & finance
BusinessBanking & Finance

State Street says Asia-Pacific institutional investors keen on private assets even as inflation, elevated borrowing costs subdue appetite

  • Private debt is the most appealing asset class for Asia-Pacific investors, State Street’s Eric Chng says
  • Real estate is also gaining traction among Asia-Pacific investors: State Street survey

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An underconstruction residential building in Shenzhen. About 64 per cent of respondents said they expected to grow their holdings in real estate over the medium term, State Street says. Photo: Bloomberg
Yuke Xiein Beijing
High inflation and elevated borrowing costs are dampening the attractiveness of leveraged private-market investments, but institutional investors across Asia-Pacific are still determined to increase their allocations in private assets, especially in real estate and private debt, US-based financial services firm State Street said.
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According to an annual report published on Monday by the firm, among the 120 Asia-Pacific-based institutional investors it surveyed, 58 per cent expected inflation to continue to rise in the region, while 65 per cent said elevated borrowing costs linked to high inflation could pose “a key challenge” to the return of leveraged private-market investments.

Despite these macro headwinds, financial institutions across the region are still optimistic about private markets and said they are planning to increase allocations in the short and medium terms, with private debt emerging as a clear winner.

“Private debt is the most appealing [asset class] to Asia-Pacific investors, with 78 per cent planning to increase their allocations in the short term,” said Eric Chng, global head of hedge commercialisation at State Street.

“We have seen high levels of dry powder and a marked slowdown in deal flows, which indicate that valuation gaps between buyers and sellers still persist. In an attempt to seek alpha in a crowded marketplace, investors have increasingly been exploring fresh market niches,” he added.

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Moreover, the survey showed that across Asia-Pacific, just under half of institutional investors are allocating more than 30 per cent of their portfolios in private markets. About 60 per cent said that they would raise their allocations to this level over the next three years.

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