This is the second of a two-part extensive report of a recent Hong Kong funds conference, with detailed insight on trends in this sector, from law firm Mourant.
This is the second half of a two-part report on a recent Hong
Kong conference on funds, which comes from Danielle Roman, a
partner at the offshore law firm Mourant. (See the first half
of the article here.)
Shaping the future: Opportunities in APAC’s investment
fund landscape
Various geographical considerations shape the investment
landscape in APAC:
— China faces cyclical fundraising and consolidation with
periods of contraction and consolidation. Currently, US dollar
fundraising for China has slowed, and RMB-denominated funds and
Chinese companies expanding beyond their domestic markets are
growing in popularity.
— India’s ongoing economic growth and the emergence of GIFT
City (Gujarat International Finance Tec-City) present investment
opportunities.
— Japan thrives in private equity and venture capital,
driven by generational changes in business ownership. The key
challenge for fund finance will be understanding the complexities
and regulatory issues related to onshore/offshore structuring in
Japan.
— Australia attracts investors interested in infrastructure
but it is key to understand the regulatory landscape for
non-Australian fund managers wanting to invest in the region.
Shifting markets reveal Asia as a fragmented and diverse market
with various assets and sectors and the flexibility of managers
to navigate away from China while remaining ready to pivot back
when conditions improve. Middle Eastern investors are becoming
more engaged in conversations with lenders, potentially leading
to a rise in Islamic financing options. Secondaries are still
relatively new in APAC, but are increasingly becoming a critical
source of liquidity, especially for GP continuation funds, with a
focus on high-quality assets and sponsors. All stakeholders are
highly engaged with ESG, from investment committees to regulators
– who are increasingly putting parameters around sustainable
investing and mitigating greenwashing. Managers with prior
experience in ESG are well-positioned to thrive in this evolving
landscape.
The Cayman Islands remains the preferred jurisdiction for funds,
with a significant increase of 3,800 private investment funds
over the past three years, bringing the total to 16,500
registered private funds.
Fund administration activities in Luxembourg, Singapore and Hong
Kong are gaining prominence, fostering healthy competition and
attracting significant wealth into Singapore.
GPs are increasingly targeting the private wealth sector as a
source of capital. This shift entails moving from a small number
of large LPs to a larger pool of LPs with smaller commitments.
Effectively using technology to manage and
nurture these relationships is key, though regulatory
scrutiny may increase as more quasi-retail money enters the
space, and managers who can navigate this evolving regulatory
landscape will be better positioned for success.
GP/LP panel
Private Equity GPs are actively seeking proprietary investment
opportunities, particularly in early-stage ventures, focusing on
establishing close relationships with companies and adding unique
value, GPs adopt a more “hands-on” approach and focus on
identifying companies that demonstrate resilience against global
trends. Given today’s challenging markets, GPs place significant
emphasis on analysing three-to-five-year exit solutions for their
investments.
From an LP perspective, spinoffs are viewed positively, offering
incentives and attracting external talent. An LP may consider
acquiring stakes in spinoffs, either as a GP stake or an LP
stake, which can present interesting investment
opportunities.
Private credit is a hot topic in APAC, with lenders requiring
conviction in underlying assets and seeking higher returns with a
larger equity buffer. Smaller businesses benefit from private
credit financing, overcoming liquidity challenges. The private
credit market in APAC differs from Europe or the US due to
various factors, such as currencies and sovereign ratings.
Regional discussion
In India, recent developments indicate robust credit growth,
especially in sectors such as manufacturing and commercial real
estate. There is a strong demand for lending and credit in India,
driven by the need for infrastructure and financing for small and
medium-sized enterprises.
In China, GPs are exploring opportunities in technology,
innovation, biotech, artificial intelligence, clean energy and
the consumer market. GPs are also exploring opportunities in
China’s consumer market, fuelled by the rising middle-class and
increasing urbanisation.
Southeast Asia, including countries such as Indonesia,
Malaysia, Thailand and Vietnam, offers significant growth
potential and GPs are drawn to the region.
The APAC region is adaptable and resilient. It can manage
financial challenges at the same time as seizing opportunities
for growth and innovation. The dynamics in APAC’s fund finance
and investment landscape continue to evolve, offering valuable
insights for market participants.
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