Asian LPs eye more alternatives – UBS

"The negative interest rate environment in Japan has pushed local pension funds to shift their allocations to alternatives, which used to be highly concentrated on fixed income. Over time, they would probably build up 20% or so of their portfolio in alternatives," said Paul Moy, global head of infrastructure and private equity at UBS. "These are very large pension funds. So their allocations are going to be very, very big."

LPs from China, Singapore, South Korea, Taiwan, Malaysia and Thailand are also looking either to start investing in private markets or to increase their allocations to the space. These alternative strategies broadly include private equity, infrastructure, real estate and hedge funds.

With the global economy slowing, absolute returns on all asset classes are expected to decline in the medium to long term. However, private equity has shown in the past that it can outperform public markets, Moy said.

On the investment side, China's structural reforms - the shift from investmente and export-led growth to domestic consumption-driven model - as well as aging populations across Asia are creating interesting themes. In this environment, LPs will gravitate to GPs that can really add value to portfolio companies.

"Many LPs are new, or they don't have large internal teams to manage investment valuation, strategy selection and portfolio construction. That's where large multi-managers can offer them value," said Moy.

Most of the assets UBS currently manages are in mandates. The firm's wealth management arm has also established separate accounts with large LPs that primarily want to make direct investments.

"Co-investment potentially is a very attractive strategy for LPs because they can get more money allocated," Moy added. "However, it does put a lot of pressure on their internal resources and structures. The reality is that many people asked for the right to do co-investment but didn't actually do it. One of the reasons is that they can't execute very quickly due to insufficient internal resources."

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• Topics
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• South Asia
• Asia
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