Nearly 48% of Asia Pacific-based family offices surveyed by Preqin expect returns from VC investments over the next 12 months to be lower than the previous 12 months. Family offices had a similar sentiment toward PE investments, with 46% anticipating a drop in funding, per Preqin's APAC Family Office Report 2023. APAC region investors are not the only ones with a pessimistic outlook for the next 12 months. 60% of global investors share a similar view, per Preqin's previous survey done in November 2022. Capital deployment from APAC family offices is expected to remain fairly muted throughout the year, in line with global trends. The primary reason behind the pessimistic outlook is the disparity in valuations between private and public equity. The alternative investments segment has faced a decline in recent times due to global macroeconomic pressures. Inflation, rising interest rates, and geopolitical risks were the top three concerns for investors, as confirmed by 80%, 70%, and 67% of the survey respondents, respectively. As a result, family offices expect a further correction in private equity valuations, closing the disparity between them and their publicly listed counterparts. The recovery in alternative investments is contingent upon the recovery in public markets, a drop in interest rates, and the stabilization of banking systems. Despite the uncertainty in the alternative asset class, only 31% of respondents intend to decrease their commitments toward VC investments in the next 12 months. The majority of family offices hope to take advantage of lower valuations in a bid to profit in the long term. However, family offices intend to be selective and strategic about their investment decisions. Diversification will be a top priority for family offices, which will not only provide them with broader access to deals but also help reduce portfolio risks. With that in mind, family offices will remain very cautious about direct investments, especially with valuations and deal terms. Family offices will likely choose funds with broad exposure to different types of startups across various sectors. The macroeconomic headwinds have hampered VC returns due to the frozen IPO market, which is causing portfolio startups to delay their listings, which in turn is delaying VCs' timeline to cash in the returns. Per Preqin, the value of exits of PE and VC-backed startups in the APAC region so far this year is only 15% of 2022's tally from the same period. The poor exit environment is causing family offices to look at the secondary market. Additionally, family offices are finding investment opportunities in the secondary market, allowing them to take up stakes in promising startups at attractive prices. Despite the challenging market environment, family offices remain optimistic about investment opportunities across the healthcare, electric vehicles, biotech, and manufacturing sectors, all of which have the potential to generate strong long-term returns. Investors are also buoyed by the opportunities in the region due to rising population and increased technology adoption. |
