Nearly half (46 percent) of the family offices surveyed expect their private equity portfolio to perform worse in the next 12 months than in the previous 12 months, said Preqin in its recent report.

This is mainly due to valuation concerns resulting from the stock market decline, which 27 percent of respondents cited as a market concern at the time of the survey, according to the report named APAC Family Office Report 2023.

The report also found that despite falling valuations, family offices expect a further correction as they view private equity as overvalued given the gap between public and private equity valuations.

These views are also shared by global institutional investors.

In the global Preqin Investor Outlook survey in November 2022, 60 percent of institutional investors surveyed said that they think private equity will perform worse in the coming year than in the prior 12 months.

The outlook for the asset class remains uncertain and depends on multiple factors, such as how the public market recovers, how the banking system issues are resolved, and how much interest rates rise.

Nevertheless, family offices in Asia Pacific (APAC) are not deterred from investing in private equity, said the report.

The report found that only 21 percent of them plan to reduce their capital commitments to the asset class in the next year.

It said that they see opportunities to deploy capital at lower entry valuations and to benefit from long-term growth prospects.

However, it said they also recognize that they need to be more selective and strategic in their investment decisions.

Lucas Zorzo, Managing Director of Richmond Hill Group believes that family offices will diversify their portfolios and reduce risk by accessing a broader range of funds and deals.

According to him, investors are expected to adopt ‘more of a manager-of- managers approach and choose funds that have exposure to a wide range of start-ups and deals, increasing diversification and reducing overall risk’.

Zorzo also said that family offices may continue to pursue direct deals, but with more caution and prudence.

As with other investors, he intends to ‘continue to target direct deals, but be more selective and realistic around pricing given the current sentiment and capital requirements’.

Meanwhile, the story is similar for venture capital (VC) as family offices adopt a cautious approach, pending more clarity and confidence in the markets.

A larger proportion of investors (31 percent) now plan to allocate less capital, rather than more (23 percent), in the asset class over the next 12 months, according to the report.

The low interest rates and high money supply that boosted valuations in the past are no longer present, it said.

Along with the poor exit environment, this has affected the return generation of VC portfolios, it added.

The report also highlighted that almost half (48 percent) of the surveyed family offices expect their VC portfolios to perform worse in the next year compared with the previous 12 months.

According to Preqin data, the value of exits backed by APAC private equity and VC in 2023 so far are only 15 percent of those during the same period in 2022.

In this weak exit environment, some APAC family offices told Preqin that they have been drawn to the rising number of secondaries opportunities that are available at attractive prices.

Secondaries strategies can help investors alleviate the J-curve effect in their portfolios and generate cash flow more rapidly, while Preqin data also shows historical outperformance of secondaries strategies for vintages during periods of crisis.

In addition, family offices shared their growing preference for early-stage over later-stage deals, which can be competitive and expensive with lower growth prospects and exit options.

Early-stage strategies are also less affected by short-term market volatility, according to the report.

Despite the challenging market environment, it said favorable factors such as the rising population and increasing technology adoption continue to create opportunities in different sectors in APAC.

In its roundtable discussion and interviews, it said several family offices spoke about the potential for innovation and growth in sectors such as healthcare, electric vehicles, biotech, and manufacturing, which could provide ample investment opportunities.

The survey also asked family offices in APAC about the asset classes they believe present the best opportunities over the next decade, and private equity was the most popular choice, selected by 37 percent of respondents.

Venture Capital growth to remain solid despite headwinds, says Preqin Global Report 2023