Asia Asset Management: 2024 Reflections

As we step into 2025, asset managers in Asia are navigating a landscape shaped by evolving regulations, geopolitical shifts, and complex market dynamics. This article, the first of a two-part series, reflects on the key themes and developments in 2024 and the critical issues and trends that emerged that are likely to influence strategies and decision-making processes in the coming year. 

In our second piece, we will look ahead to 2025 and discuss key developments that we expect Asia’s asset managers to have on their radar in the coming year. 

Regulatory Risks

Outbound Investment Security Program (“OISP”): One of the most pressing concerns for Asia’s asset managers in 2024 was the impending implementation of the U.S. Treasury Department’s Outbound Investment Security Program, effective as of January 2, 2025. While this regulation was anticipated for some time, it was at the forefront of discussions among Asia-based and Asia-focused GPs and LPs. Asset managers with potential exposure to China-related businesses or Chinese-owned businesses sought to understand how to navigate these regulations, identify sectors and investments which presented risks, and negotiate with investors on compliance undertakings. 

FDI Regulations: The regulatory environment continues to evolve with increasing restrictions on foreign direct investment (“FDI”) being a notable development. Countries across Asia, including Singapore, Japan, and Australia, are implementing stricter or new FDI regimes to safeguard national security. Navigating these restrictions is a significant challenge for asset managers deploying capital in several jurisdictions where controls are being imposed and sensitivity to national security issues are heightened.

GP/LP Dynamics 

Liquidity and Returning Capital to Investors: A significant issue that continues to dominate Asia’s asset management landscape is the challenge of returning capital to investors. Distributions to Paid-In Capital (“DPI”) remain a critical metric for many investors, as the ability for sponsors to exit investments and return their capital has been paramount. While there were improvements in exits, the industry continued facing hurdles in achieving greater liquidity. As sponsors were acutely aware that their ability to generate real returns will directly impact their fundraising prospects for subsequent funds, the pressure to demonstrate successful exits and maintain favorable DPI was a strong focus. This challenge was in turn influential on strategies and decision-making processes, as our private equity colleague Oliver Nip outlined in his 2024 reflections. 

Fundraising Challenges and Terms: Fundraising continued to be a challenge, despite some higher activity levels in the final quarter of 2024. While there are signs of improvement in North America, the fundraising environment in Asia remains tough. An outcome of the slower fundraising climate was that investors were able to negotiate better terms with sponsors. Large investors saw benefits to engaging early. In turn, sponsors who were able to secure commitments from large, blue-chip investors leveraged this to attract interest from others and drive fundraising efforts.

Increasing Secondary Activity:  Liquidity issues, investment exits, and lower DPI over the past couple of years flattened some asset owners’ annual target allocation to their private equity books, precipitating the need to divest of assets to free up capital for new commitments. These interrelated dynamics led to an increase in interest and activity levels on secondary transactions in Asia generally, despite only a few large GP-led transactions in the region. In China in particular, there was interest from sponsors to pursue more GP-led transactions, but the success rate of these transactions was somewhat low; smaller transactions, with clearer ultimate exit paths, tended to prevail. In Asia, secondaries activity was more robust on LP-led portfolio transactions. Pricing on Asian assets, while challenging, is bottoming out. Sellers received better pricing when they were divesting portfolios that include U.S. assets where pricing has been more resilient. Our recently released Viewpoint on global secondaries activity provides a deeper dive into broader market trends, and can be reviewed here. 

Co-investments: In Asia, there was an uptick in co-investment activity, which included several very large transactions requiring significant amounts of co-investment capital. This in turn resulted in deals where large investors were taking much bigger stakes than before and, in some transactions, as co-underwriters (as opposed to passive syndication parties). There were also instances of GPs seeking to introduce new revenue streams on their co-investments such as transaction fees or other economics, challenging the no-fee, no-carry co-investment arrangements that large investors have been used to.

Separately Managed Accounts: SMAs and fund-of-one structures continued to be attractive to both sponsors and investors, but are usually limited to investors with the ability to commit substantial amounts of capital. As sophisticated investors sought more bespoke terms and customized exposure, sponsors leveraged this to establish deeper relationships with their bigger and more strategic investors. 

Key person governance: In 2024, we noticed a heightened focus from investors on key person governance and time commitment standards to a fund. This has been important given that there have been some examples of GP restructurings and key person spinouts, all of which speak more generally to investor concerns about the longer-term vision and viability of a fund sponsor. 

Increasing Defaults: We also noted a slight uptick in potential default situations, with some investors missing payments of scheduled drawdowns. Whether or not this is attributable to factors such as regulatory developments, geopolitical concerns, macroeconomic issues, liquidity challenges or other considerations, sponsors have been revisiting default provisions in LPAs to understand the consequences of an investor defaulting and to limit potential contagion effects. On the other side, investors are focusing more on default provisions in fund documents, understanding what recourse GPs have against a defaulting investor, and making sure that non-defaulting investors do not end up bearing costs arising as a result of another investor’s default.

Strategy Shifts

Pan-Asia Focus Funds: With some notable exceptions, single-jurisdiction funds in Asia have generally been less prominent as investors increasingly sought to mitigate country-specific risk. However, at the same time, certain investors expressed interest to deploy more into specific geographies, such as India and Japan. This put pressure on some sponsors who were seeking to raise broader “Asia-focused” funds.

• Some sponsors addressed this by (1) raising separate pools focused on specific geographies, which effectively gives investors a menu of funds to opt in to, or (2) country-specific “sidecar” vehicles that give investors the ability to double down on geographies of interest. These structures introduce more complexity to fund structuring, invite more questions on how a sponsor’s investment teams devote time to specific geographies (and how investment teams are compensated and incentivized, particularly if the sponsor’s overarching thesis is still to show a broad pan-Asia regional capability) and potentially lengthening fundraising timelines.

Notable Markets: 

• Japan and India were notable hotspots in Asia. Japan continues to attract interest in the fundraising space as asset managers were eager to increase exposure and deployment there. Sponsors with a strong track record in Japan had the upper hand in terms of negotiations with investors. In India, fund investments as well as co-investments were in demand, driven by the growing investment appetite in the country. 
• Malaysia and Indonesia attracted significant investment interest due to their large populations and strong integration with Singapore, where many investors and managers operate. These factors made them notable investment destinations in Southeast Asia.
• Despite geopolitical tensions, asset managers remained interested in opportunities within China. As the world’s second largest economy, many investors cannot simply ignore such a huge economic block and continue to evaluate opportunities for deploying capital in this jurisdiction in a meaningful way. Many adopted a “wait and see” approach on the sidelines but continue to monitor for if/when the timing may be more favorable to increase their exposure. 

Infrastructure Funds: Interest in infrastructure-focused funds has been noticeable as the sector grows in Asia. We have noticed that the term has been used quite loosely, with definitions of this ranging from traditional infrastructure (e.g., toll roads; power lines; cable towers) to a broader category of assets (e.g., digital infrastructure; energy transition; transportation and logistics; social/health care infrastructure; infrastructure logistics). The expectation in Asia is that decarbonization and energy transition investments will remain buoyant, notwithstanding the possible dampening effect of a Trump administration on this space.

Look out for our next article where we will examine the significant trends that Asia’s asset managers are expected to monitor in 2025.

About our practice

Ropes & Gray’s Asia asset management team serves as trusted advisors to top asset managers, sovereign wealth funds, pension funds, and institutional investors globally. We advise sponsors, investors and investment advisors on all aspects of their business and have deep experience across the funds spectrum including buyout, growth equity, venture capital, distressed, real estate, funds of funds as well as co-investments, secondaries and related transactions. Our team assists both emerging and established sponsors with management company structuring, corporate governance, securities law, and compliance. 

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