Discipline in disruption: how allocators are navigating Asia’s new investment regime
Liquidity pressures reshape private markets
Liquidity remains one of the most significant structural challenges across private markets. A substantial volume of capital remains tied up in ageing private equity portfolios, as exit activity has slowed and holding periods have extended.
Average holding periods for portfolio companies rose steadily from 4.3 years in 2017 to a peak of 5.3 years in 2024 before easing slightly to 5.1 years in 2025. The modest decline does not signal a broad reopening of exit markets. A meaningful backlog of assets remains and clearing it could take several years.
Residual value in older vintages reinforces the constraint. Around 30 percent of value in funds that are already 11 to 12 years old remains unrealised. For many investors, this represents capital that was expected to have been returned and redeployed by now.
These dynamics are influencing fundraising conditions. Private equity fundraising has slowed from almost $550 billion in 2023 to just under $400 billion last year. Investors are increasingly rewarding managers who demonstrate a credible distribution track record. Funds that closed successfully in 2024 and 2025 typically showed stronger distributions to paid-in capital as well as above-average returns in earlier vintages.
Secondary markets are therefore becoming a critical release valve. Private equity secondaries fundraising reached a record $93 billion in 2025, and several large vehicles targeting $20 billion or more are expected to expand the market further.
The illiquidity premium: evolving rather than disappearing
As liquidity pressures persist, investors are reassessing the traditional assumption that private assets inherently deliver a premium over public markets.
The concept of an illiquidity premium is straightforward in theory: investors accept reduced liquidity in exchange for higher returns. In practice, however, isolating that premium has become increasingly difficult. Returns from private markets reflect many factors, including manager skill, leverage, sector exposure, and timing, making the contribution of illiquidity alone difficult to measure.
Market structure has also evolved. Secondary markets, continuation vehicles, and listed structures have introduced more flexibility than was available a decade ago. Investors are no longer necessarily committed to holding assets for the full life of a fund.
At the same time, slower distributions across private markets have reinforced the importance of liquidity itself. As capital remains tied up for longer, many investors now require greater compensation to justify illiquid commitments.
The appropriate premium varies widely depending on strategy and investor profile. Some market participants still reference around 300 basis points as a rough benchmark, but this depends heavily on factors such as investment stage, geography, and time horizon.
What remains clear is that liquidity, risk, and return must be evaluated together. Illiquidity alone does not guarantee excess return, and increasing demand for private assets may itself compress the premium over time.
Artificial intelligence transforms the investment landscape
Artificial intelligence is one of the most prominent themes discussed in the region. AI is reshaping both investment opportunities and the operational processes used by asset managers.
Deal activity increasingly reflects this shift. AI-related transactions have become a growing share of technology deals, particularly within software, fintech, and data infrastructure. The proportion of software transactions involving AI has risen sharply in recent years.
AI is also transforming investment workflow. Tools capable of conducting research, drafting reports, analysing data, and generating strategic insights are becoming embedded within investment processes.
Despite these capabilities, human judgment remains central. AI can process information quickly, but it does not replace intuition, accountability, or trust. In a world where misinformation and synthetic content are increasingly prevalent, the ability to exercise judgment will become even more valuable.
The most effective model appears to be collaborative rather than replacement-based: AI enhances efficiency, while humans remain responsible for interpretation and decision-making.
Private credit enters a more complex phase
Private credit continues to expand as a strategic allocation within institutional portfolios. For many investors, the asset class provides relatively stable income and diversification compared with private equity.
However, the environment is becoming more complex. Average loan durations have extended from roughly two to three years to four to five years, reflecting slower exit conditions in private markets more broadly.
While headline default rates remain relatively stable, selective defaults and restructuring mechanisms have begun to increase. These developments suggest the asset class may be entering a later stage of the credit cycle.
At the same time, strategy evolution is underway. Direct lending remains a core component, but growing interest is shifting toward specialty finance and asset-based lending opportunities. Investors are also increasingly preparing for potential market dislocation. Opportunistic and similar strategies have raised approximately $100 billion over the past two years in anticipation of a potential turn in the cycle.
Manager selection is therefore becoming more important. A large proportion of private credit managers were founded after the global financial crisis and have not yet navigated a severe downturn. As a result, investors are placing greater emphasis on underwriting discipline, portfolio diversification, and track records through different market environments.
Infrastructure and the AI-driven energy transition
Infrastructure remains a central pillar of long-term portfolios, particularly as investors seek stable cash flows amid market volatility.
Fundraising rebounded strongly in 2025 following a weaker period the previous year, reflecting renewed demand for assets linked to energy transition and digital infrastructure. The development and demand for artificial intelligence is accelerating this trend. The rapid expansion of data centres and high-performance computing is driving significant increases in energy demand, reinforcing the need for new generation capacity, grid expansion, and energy storage.
Transmission infrastructure is emerging as a particularly important bottleneck. Renewable generation capacity cannot scale effectively without investment in the networks that connect it to end users.
The definition of infrastructure itself is evolving. Traditional assets such as airports and toll roads remain relevant, but digital infrastructure, smart metering systems, distributed energy networks, and energy-as-a-service models are attracting increasing investor interest.
Despite the enthusiasm surrounding certain segments, investors emphasised the importance of discipline. Some areas, particularly data centres, are experiencing strong investor demand that may lead to stretched valuations.
Macro uncertainty and the allocator’s dilemma
Allocators face an unusually complex macro environment. Geopolitical fragmentation, regulatory unpredictability, and changing monetary regimes are reshaping global markets.
Rather than attempting to predict macro outcomes, many investors emphasize the importance of maintaining disciplined investment frameworks. Strategic asset allocation should continue to reflect long-term objectives rather than short-term political developments.
Diversification across geographies and asset classes remains critical. Investors are increasingly placing greater emphasis on country risk, recognising that policy decisions can materially influence investment outcomes.
We are aware of a shift toward shorter-duration exposures, stronger balance sheets, and real assets that may provide protection against currency volatility and inflationary pressures.
In this environment, the most consistent message was simple: remain disciplined, avoid excessive macro bets, and focus on areas of genuine expertise.
Hedge funds and diversification in a volatile world
Hedge funds are experiencing renewed interest as investors seek diversified sources of return. The past year marked a turning point for the sector, with net inflows recorded in every quarter for the first time in several years.
Top-tier multi-strategy platforms have dominated allocations, although capacity constraints mean many investors are exploring opportunities with smaller or more specialized managers.
Portfolio construction increasingly reflects the need for decorrelated return streams. Hedge funds are often positioned within portfolios as risk mitigation tools rather than primary return engines, with expected returns typically in the mid-single to low-double-digit range depending on strategy.
Risk management remains central to this allocation. Many investors emphasize that process, rather than outcome targeting, should guide investment decisions.
Focusing too heavily on achieving specific return targets can encourage excessive risk-taking, whereas a disciplined process provides a more reliable foundation for compounding capital.
The rise of the total portfolio mindset
Portfolio construction frameworks are evolving as investors adapt to this more uncertain environment. The total portfolio approach is gaining traction among large institutional allocators seeking greater flexibility.
Rather than allocating capital strictly by asset class, investors are increasingly focusing on underlying risk-return drivers. Capital is deployed dynamically across opportunities that best meet overall portfolio objectives.
For insurers and long-term investors, liability considerations remain central. Investment strategies must generate sufficient returns while supporting long-term obligations.
Implementing a total portfolio framework requires robust governance and analytical capability. Many investors are increasingly relying on quantitative tools and AI-driven analysis to monitor factor exposures, macro sensitivities, and unintended correlations across portfolios.
Concluding thoughts
The investment landscape is defined by uncertainty but also by opportunity. Artificial intelligence is transforming industries and investment processes. Infrastructure and energy transition are creating large-scale capital deployment opportunities. Private credit continues to evolve as a core allocation.
Yet the dominant theme is discipline. Liquidity constraints, geopolitical complexity, and technological disruption all reinforce the importance of clear investment processes and diversified portfolios.
In an environment where predicting macro-outcomes is increasingly difficult, long-term success will depend less on forecasting and more on maintaining robust frameworks, strong partnerships, and the patience to navigate an evolving market landscape.
