Hamilton Lane: The risk of investing in Asia is overstated

Asia private markets have significantly outperformed other regions, particularly in the last five years, according to the firm’s MD and head of international, Juan Delgado-Moreira.

Geopolitical instability, weak governance and currency risk are often associated with investing in Asia-Pacific. However, the region has been leading emerging markets in terms of structural reforms and boasts a strong GDP growth of about 6 percent, translating into a healthy entry and exit environment, according to data from Hamilton Lane.

“Asia private markets is expanding and outperforming significantly the rest of the markets. The risk of investing in Asia is overstated,” Juan Delgado-Moreira, managing director and head of international at Hamilton Lane, said at the firm’s Market Overview 2018 briefing in Hong Kong on Wednesday.

Asia private market total exposure, which Hamilton Lane defines as net asset value plus unfunded capital, almost quadrupled in the last 11 years, from $124 billion in 2007 to $472 billion as of October, according to the firm’s Gravity’s Rainbow, Market Overview 2018 report.

Asia represented as much as 4 percent of global private markets as of 30 June, 2018.

“The asset class [private equity] in Asia is in good health. We are closing a year of record fundraising, record investing and record exits at the same time. The region is the strongest performing geography in recent terms and that’s happening in an environment where the industry is successfully able to triple in size and achieve that with a mix of strategies,” Delgado-Moreira said.

On the impact of the US-China trade dispute, Delgado-Moreira said that the effects are more mixed than perceived, and that China is now more insulated and services-oriented, relying much less on the global integration of the supply chain. One potential effect, he noted, is that holding periods could increase.

“The holding period in Asia is slightly shorter than global holding period of over six years. But because the IRRs are strong recently, GPs have runway to hold assets a bit longer if top-line growth eases off a little bit as a result of the trade war.”

Mingchen Xia, managing director of Hamilton Lane’s fund investment team in Asia, added that in China short-term challenges for the country are outweighed by sector-specific opportunities.

“Activity in China has been strong, including investments and exits. As a private equity fund if you pick the leading company in those growing sectors such as consumer, services and healthcare, you can still enjoy healthy and sustainable growth,” Xia said.