A radically different investment environment, characterized by higher interest rates and inflation, has seen many institutions in Southeast Asia increase their allocations to private markets, and seeking to bolster their internal capabilities to do so. This presents opportunities for fund managers in the region, according to Cerulli Associates’ newly released report, Asset Management in Southeast Asia 2023: Seeking New Growth Opportunities.

There is a great deal of dry powder in private equity, in Southeast Asia and worldwide, and managers are still raising capital. Malaysian institutions Employees Provident Fund, Kumpulan Wang Persaraan, and Khazanah are among the Southeast Asian asset owners that have indicated interest in private equity.

Infrastructure remains popular because it is considered a hedge against inflation. Consequently, competition for these assets in Southeast Asia is as strong as ever. The Philippines’ two large pension funds, Government Service Insurance System and Social Security System (SSS), are among asset owners in the region that have indicated interest in allocating more 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.

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

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

Generally, however, Southeast Asia remains a market of great potential. “The radically different investment environment has not dulled the appetite for private markets,” says Justin Lee, associate analyst. “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.”