Institutional capital in Asia-Pacific is eyeing the Anglosphere

The region’s investors will increasingly look to broaden its geographic footprint in English-speaking countries outside of the US, writes CJ Morrell, head of Japan at Fiera Capital.

Institutional investors in Asia-Pacific are in a particularly acute bind, given various demographic, political and economic factors. Large ageing populations are putting pension funds under pressure to keep pace with payouts. At the same time, historic overallocation to lagging domestic economies – be that public debt or exposure to local stock markets – is capping portfolio growth.

Against this backdrop, investment committees have had to change their allocation thresholds more quickly than expected. That has meant looking further afield for solid returns in excess of the risk-free rate, and into geographies where they have been typically underweight due to a lack of familiarity or poor information.

That reallocation – further underpinned in incumbent governments’ efforts to hedge portfolio and currency risks – bodes well for an array of real estate and other alternatives strategies.

According to ANREV’s Investment Intentions Survey 2025, APAC-domiciled investors are not only under allocated to real estate relative to their peers but have a growing preference for exposure to strategies higher up the risk curve. Increasingly, the demand is for value-add, though there is some appetite for opportunistic strategies among this institutional group, which has almost always found most comfort in core.

Changing preferences will not necessarily translate into sudden shifts in allocation criteria – especially among pension funds that tend to be more conservative. That has been reflected in a ‘wait-and-see’ mentality when entering new asset classes and geographies, and a general reticence to engage with highly granular strategies.

However, we do anticipate that institutional capital will prioritize more liquid options to access real estate. These include asset-backed private debt and open-end fund structures that accommodate for position resizing, in addition to avenues to gain defensive exposure such as listed real estate.

Geographic ‘broadening’

While we may see some degree of offloading of US exposure, a wholesale shift away from the most-preferred destination among institutional investors would not be realistic. This is, if anything, what I would describe as a “broadening”, in a way that will bring Asia’s most sophisticated investors (which are typically overweight in domestic equities, bonds and derivatives) into a similar allocation split to what we see in the West, which tends to be more diversified.

As such, investors in Asia-Pacific will increasingly look to deploy in geographies with tangible evidence of strong repricing and greater resilience to macroeconomic headwinds due to more conservative fiscal policy. Specifically, I am referring to the ‘Anglosphere’ of Western Europe, Canada and Australasia, which offer potentially more attractive yields as these markets recover from high inflation.

As pressure continues to build to achieve higher, more consistent risk-adjusted returns, then, more institutional investors in Asia will mirror the path that the Maple Eight has taken, too. In other words, investors will get closer to the ground in partnership with highly specialized, selective investment managers on the private real estate side.

Meanwhile, they will also retain defensive liquidity through exposure to listed real estate, which is also relatively cheap in Europe, Canada, Australia and New Zealand relative to the US.

To some degree, we are already seeing this play out anecdotally in the debut of several new names in core markets, such as Sumitomo’s residential joint venture with Mirvac in Australia in December and Daibiru, a subsidiary of Mitsui OSK Lines, entering UK prime office in June. This is a trend we expect to strengthen even as Japan continues its gradual recovery through 2025, as the desire to broaden overseas exposures outweighs domestic bias.

Understanding the mega-trends that are dictating capital deployment decisions in Asia-Pacific should therefore be a paramount consideration for anyone looking to raise and sustain capital, or to develop capital solutions to support the necessary scale institutional investors in APAC need to achieve to meet the intensifying pressures they are set to face.

Getting closer to these institutions is complex from a cultural perspective, as well as a regulatory one. But doing so promises greater potential interest from a segment of the global investor community actively seeking partnerships.