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.