Nearly half of the family offices in Asia Pacific are expecting returns from their private equity (PE) and venture capital (VC) portfolio to be lower in the next 12 months than in the previous 12 months, according to the Apac Family Office Report 2023 by data company Preqin.
About 46% of family offices surveyed predict a drop in their PE returns over the next 12 months, largely driven by valuation concerns amid the recent stock market decline, according to the report.
This pessimistic sentiment echoes globally, with 60% of institutional investors sharing a similar outlook.
Yet, these concerns are not deterring family offices in the APAC region from PE investments, with only 21% planning to reduce their capital commitments over the next year.
“They see opportunities to deploy capital at lower entry valuations and to benefit from long-term growth prospects,” the report said.
APAC family offices’ return expectations for the next 12 months compared to the last 12 months
The VC sector is encountering similar apprehensions. About 48% of the surveyed family offices expect a downward shift in their VC returns in the next 12 months, as the previously high-liquidity environment due to low-interest rates is fading.
The report also noted that more family offices (31%) also intend to cut capital allocation to the VC class than those planning to increase it (23%), over the next 12 months.
The trend is underscored by the reduced exit values in the region’s PE and VC sector. According to Preqin data, “the value of exits backed by APAC private equity and VC firms in 2023 so far are only 15% of those during the same period in 2022”.
This slump has resulted in the rise of secondary opportunities at enticing prices. “In this weak exit environment, some APAC family offices told us they have been drawn to the rising number of secondaries opportunities that are available at attractive prices,” the report said.
Secondaries strategies can help investors alleviate the J-curve effect in their portfolios and generate cash flow more rapidly.
Early-stage over late-stage deals
Amid these market challenges, family offices exhibit a growing preference for early-stage over later-stage deals. Early-stage investments are less influenced by short-term market volatility and could offer a higher growth trajectory and more exit options.
The report added that several family offices spoke about the potential for innovation and growth in sectors such as healthcare, electric vehicles, biotech, and manufacturing, which could provide ample investment opportunities.
Preqin said the report was based on its data, as well as insights from more than 50 single-family offices (SFOs) and multi-family offices (MFOs) across APAC based on a Preqin-powered survey, a Preqin-hosted roundtable, and individual interviews with industry experts and practitioners.
When asked about the asset classes that they believe present the best opportunities over the next decade, family offices in APAC expect PE (37%) and private debt (20%) to be the top choices.
APAC family offices’ expectations of asset classes presenting the best opportunities over the next decade
“The conviction toward alternative investments is expected to keep growing, as family offices seek to achieve their long-term financial goals while managing risks,” the report added.