THE Asia-Pacific (Apac)-focused venture capital (VC) and private equity (PE) funds growth rate has overtaken North America and Europe, a report by data platform Preqin indicated.

The combined assets under management (AUM) for VC and PE grew 2.5 times since 2018, exceeding North America and Europe. This was also a faster growth rate than public equities, with the market capitalisation of public equities only growing 1.5 times since 2018.

But Apac VC and PE AUM was only 5.5 per cent of the total equity market, compared to 7.8 per cent in North America and 6.4 per cent in Europe. Long-term investment returns for Apac are expected to improve against the previous five-year period, the report showed.

Preqin’s fund search data also showed more investor interest in Apac than before, with 46 per cent of VC investors targeting the region in the first quarter of 2023, up from 32 per cent the year prior.

In South-east Asia, PE and VC represented over 80 per cent of the total private capital AUM of US$59.6 billion. Fundraising increased in 2022, with VC funding almost doubling to US$4.2 billion from US$2.8 billion in 2021.

This signals that investors were less pessimistic about the region in 2022. South-east Asia was relatively insulated from macroeconomic headwinds during that time period. The region has potential for expansion, with a gross domestic product of US$3.1 trillion, and a projected substantial increase in the middle-income population from 172 million to 472 million by 2030.

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“Despite the macroeconomic headwinds that have swept the world, Preqin maintains a positive outlook on Apac, supported by the fundamental growth potential in several large, under-represented markets,” said Angela Lai, head of Apac and valuation, research insights, Preqin.

Preqin expects PE and VC capital to continue being drivers of private markets in the region, especially in countries with policies geared towards investment and innovation. Apac-based investors are continuing to invest in PE and VC funds, with the majority not changing their capital allocation.

Early-stage VC funds are getting more investor attention, with more funds closed compared to general and late-stage VC funds in 2022.

The Apac region has an abundance of early-stage opportunities with smaller ticket sizes due to low valuations. This allows for risk diversification for investors, as well as getting the benefit of being better insulated from market volatility.

VC investments in Apac have remained smaller on average than other regions with seed stage at US$2.3 million, compared to US$3.8 million in Europe and US$5 million in North America. Other countries in Apac outside of China have seen smaller deals, with investors targeting markets such as India and South-east Asia.

The outlook for South-east Asia remains bright, as it accounts for 12 per cent of the 346 unicorns in Apac. Should the investments successfully progress to the next stage, there could be potential pipelines for larger deals.

“Apac-focused investors currently show increased caution towards China, shifting interest to other markets, which may drive growth in the region pending an economic rebound in China,” said Lai.