To the point

Principal investors (sovereign wealth funds and public pension funds) have increased private market allocations from USD2.8 trillion in 2014 to USD6.8 trillion in 2023.  By contrast, direct investment into Asian private markets has decreased since its peak in 2021. However, not all funds are flowing in the same direction. Analysis of deals data reveals that appetite for exposure to Asia direct private investment varies by principal investor home office, with Middle Eastern funds increasing Asian direct investment as Asian and North American funds are pivoting away.

Introduction 

Over the past decade, principal investors—sovereign wealth funds (SWFs) and public pension funds (PPFs)—have underpinned the growth of private market investments with an outsized contribution compared with other asset classes.  However, private capital direct investment deployment in Asia varies by investor home market. This article analyzes direct investment trends and examines the diverging principal investor themes shaping Asia's private markets.

Pivot to private markets

SWFs and PPFs have significantly increased their allocations to private markets over the past decade.  

According to consulting firm Global SWF, the private markets assets under management (AUM) invested by SWFs and PPFs reached US$6.8 trillion in 2023, accounting for 19.3% of total AUM of SWFs and PPFs, up from US$2.8 trillion and 13.5% of total AUM in 2014.

This represents an annualized growth rate of 10% over the past decade. (See Figure 1)

                                                               Figure 1 

Source: Global SWF, includes all private market investment (Limited Partner (LP) commitments, direct investments, and co-investments)

SWFs and PPFs, with their long-term investment horizon, low leverage, and stable capital base, are particularly well positioned to invest in illiquid private assets, which often outperform public markets over the long term. 

Vanguard, in its 2025 Private Market Outlook, expects that global private equity (PE) portfolios can outperform global public equities over the long term by approximately 350 basis points annually.¹ The increased appetite for private asset allocation accelerated after the global financial crisis, fueled by ultra-low interest rates, a search for yield, and investor mandates tolerating illiquidity. 

However, interest rate hikes, the prospect of persistently higher inflation, geopolitical uncertainties, and delayed capital returns have slowed the shift into private assets since 2021. According to Global SWF (Figure 1), assets under management (AUM) grew from US$6.5 trillion in 2021 to US$6.8 trillion in 2023. This represents an annualized AUM growth rate of only 2.3% from 2021 to 2023, significantly below the ten-year compounded annual growth rate of 10%.

Multiple instances demonstrate this increased allocation.  The Abu Dhabi Investment Authority (ADIA) expanded its private equity allocation target from 5%-10% in 2020, to 10-15% in 2022, to 12-17% in 2023.² Saudi Arabia’s Public Investment Fund's (PIF) private investments have increased steadily each year from 34% of total AUM in 2021, to 40% in 2024.³ 

In line with its 2013 Policy Portfolio, the Government of Singapore Investment Corporation (GIC) has steadily increased its allocations to PE and real estate, rising from 7% and 11%, respectively, in 2018 to 13% and 18% in 2024.⁴

Meanwhile, Korea Investment Corporation (KIC) has also increased its allocation to alternatives from US$24.5 billion in 2019, representing 15% of AUM, to US$45.2 billion in 2024, 21.9% of AUM, and the allocation is set to be 25% in 2025.⁵

Headwinds in Asia direct investments post-2021 peak

Despite principal investors' increasing allocations to private investments, the direct investments of SWFs and PPFs—which include both direct and co-investments but exclude LP commitments—have declined globally since peaking in 2021. Deal activity fell from 1,836 deals worth US$402 billion in 2021 to 1,371 deals worth US$305 billion, representing approximately a a25% drop (see Figure 2). 

This pullback might represent a reassessment of capital deployment following COVID-19, reflecting increased global uncertainty, tightening financial conditions, and country-specific headwinds such as geopolitical conflicts and regulatory changes. 

Asia is no exception, experiencing a a sharper decline than the global average in both the number and value of direct investment deals. Deal activity fell from 316 deals worth US$101 billion in 2021 to 182 deals totaling US$48 billion in 2024, representing declines of 42% and 53%, respectively. However, the decreased investment in Asia is not consistent across all principal investors. There is a dynamic shift taking place as s some increase, and others decrease, their direct investment exposure in Asia..

                                                         Figure 2 

North American and European principal investors are adopting a cautious and opportunistic approach in Asia

North American and European principal investors are scaling back operations in Asia and are becoming more opportunistic when it comes to investment.

China was hit the hardest in the region.  Caisse de dépôt et placement du Québec (CDPQ), which halted new PE commitments in China two years ago, was reported in August 2025 to be exploring a secondary sale of approximately US$2 billion in China-linked assets.⁶  Following Canada Pension Plan Investment Board (CPPIB)'s scale back of Hong Kong presence in 2023, Ontario Teachers' Pension Plan (OTPP) has done the same, announcing the closure of its Hong Kong office this year.⁷⁸

Other parts of Asia also see North American and European principal investors reducing exposure.  For instance, in May 2025, Norges Bank Investment Management, responsible for the investments of Norway’s Government Pension Fund Global, announced the closure of its Tokyo real estate office as the Japanese market was ‘no longer’ a priority.⁹

Notwithstanding the scaled back operations, principal investors continue to invest opportunistically in the region. For instance, OTPP recently completed its INR 20.8 billion (~US$250 million) capital raise investment in National Highways Infra Trust maintaining its 25% stake;¹⁰ and CPPIB invested in AirTrunk along with Blackstone in 2024.¹¹

Part of this trend could be global, as Canadian pensions are scaling back direct investing in general.  

As of March 2025, OTPP is aiming to lean more on partnerships (rather than owning entire firms) to mitigate risk¹², and CDPQ said in February 2025 that it would scale back its direct investing and team up with third-party managers.¹³ The Ontario Municipal Employees Retirement System (OMERS) halted direct PE investments in Europe in 2024, shifting its exposure by investing alongside partners and third-party managers.¹⁴

Asian principal investors are pivoting to the West

Asia’s homegrown SWFs have also shifted their deployment away from Asia and toward North America and Europe, leading to a decline in Asian investments. According to Deloitte analysis, both the number and value of direct private investments by Asian principal investors in Asia fell from 192 deals worth  US$57.2 billion in 2021 to 96 deals totaling of US$9.5 billion in 2024.

GIC reported a decade-low Asia exposure of only 26% of investment portfolio as of 31 March 2024.  In 2019, GIC had 32% of its portfolio in Asia and dedicated a section of its annual report to feature “Asia’s Growing Importance in the Global Economy and Financial Markets” with expectations for the region to continue to grow. At the same time, there is a shift favoring US exposure, which increased from 32% in 2019 to 39% in 2024.¹⁵ Furthermore, US headcount at GIC has reportedly grown 30% in three years to almost 360 in December 2024.¹⁶ GIC Chief Executive Officer Lim Chow Kiat told Bloomberg in July 2025 that GIC will continue to have a large US exposure and United States will remain an important investment destination, signaling GIC's renewed interest in United States will continue.¹⁷

Middle Eastern principal investors are leaning into Asia

Middle Eastern principal investors are increasing private investments globally, with Asia playing a significant role.  Preqin's 2025 Middle East Investor Survey¹⁸—which covers the region's SWFs, family offices, asset managers, and other investors—found that nearly 80% of Middle East investors plan to increase their allocations in PE over the next year.

The number and value of Middle Eastern principal investors' direct private investments in Asia, based on Deloitte's analysis, have more than doubled, from 16 deals worth US$5.8 billion in 2019 to 43 deals worth US$18.6 billion in 2024. This shows that Middle Eastern principal investors are decisively increasing their activities in Asia, perhaps capitalizing on others' retreat from the region.

In addition to traditional direct and co-investments, we have seen a range of strategic initiatives and collaborations by Middle Eastern funds in Asia private markets, targeting technology, infrastructure, and renewables, as governments seek to diversify their economies and bring innovation and technology to their home markets.

As such, Middle East SWFs are not just passively allocating capital but actively seeking direct investment and co-investment opportunities through partnering with Asian General Partners (GPs), government agencies and technology giants.  Alongside increased investment, Middle East SWFs are opening offices and rapidly building teams in Asia.  For example, CPPIB's Asia PE head, Frank Su, left for the Abu Dhabi Pension Fund to become Global Head of Private Equity in December 2024.¹⁹ The Qatar Investment Authority (QIA) announced in September 2024 that it would be bolstering its presence in Australia and Korea and doubling its team in Japan.²⁰

Select initiatives and investments by Middle Eastern based SWFs

A structural realignment in global capital: Will Asia Investment rebound?

The shifting tide of investment strategies among SWFs and PPFs continues to redefine Asia's financial landscape.  While SWFs and PPFs have broadly increased their allocations to private markets, regional uncertainties and shifting risk appetites have led to divergent deployment patterns in Asia. 

Appetite and capital allocations for Asian investment are changing but not dissipating.  This dynamic investor environment reflects the same dynamism seen across the varied markets in Asia Pacific, and it requires deal teams and GPs to continually expand their co-investor and LP partner network.

Looking beyond the short- to medium-term uncertainties, the long-term opportunities in Asia, with its strong growth profile and large, growing consumerclass, will continue to attract investment from around the world.  While allocations may vary over the short term, we anticipate increased investment in the long run.

In fact, Invesco's Global Sovereign Asset Management Study 2025³² survey shows China re-emerged as a strategic priority with a growing number of SWFs positioning China as a core allocation perhaps a reversal after several years of lowered exposure.

Principal investors are adapting and shifting their priorities, calibrating their exposure, and focusing on sectors and targeted opportunities that promote portfolio resilience and long-term value creation, of which Asia will undoubtedly play a key role.

Conclusion 

• Over the past decade, principal investors have been key drivers of private market growth, increasing allocations from US$2.8 trillion in 2014 to US$6.8 trillion in 2023
• Principal investors' private capital direct investments in Asia peaked in 2021 at US$101 billion and have since declined, but the mix of investors has shifted
• North American and European-headquartered principal investors have retreated or become more cautious and Asian investors are pivoting toward Western markets
• In contrast, Middle Eastern SWFs are ramping up activity in Asia, more than doubling deal flow since 2019