Why institutional investors are still under-allocated to emerging markets
Blackstone’s $13.1 billion close for its largest-ever Asia private equity fund in June is a significant milestone for global capital markets.
The fund exceeded its $10 billion target and raised more than twice as much as its predecessor, despite a significant period of uncertainty and geopolitical turmoil in Asia.
That matters. It shows that when a major manager like Blackstone has a clear strategy, a strong local presence and a credible track record, institutional capital is still willing to commit – at scale.
But it should not be mistaken for a broader shift that is already complete. Global institutional capital remains significantly under-allocated to the region’s fastest-growing economies. Investors know that the next decade of growth, industrial development and technological adoption will not be defined solely by Europe and the US, yet many portfolios are still built around an older map of the global economy.
The opportunities are increasingly clear, but emerging markets demand more than a general allocation and a good headline.
Blackstone’s success does not represent a broad bet on “emerging markets” as one category. India, Indonesia, and Vietnam all offer strong long-term potential, but they are fundamentally different markets, with different legal systems, currencies, political conditions, and routes to growth.
In India, the opportunity is not simply the scale of its population or the strength of its growth forecasts. It lies in the interaction between a growing consumer economy, expanding manufacturing capacity and an increasingly sophisticated private sector.
There is substantial demand for better logistics, energy, infrastructure and industrial capacity. But capital needs to be deployed with an understanding of how projects are delivered on the ground, how local partnerships work and where the real constraints sit.
Indonesia presents a different, but equally compelling, case. It is one of the world’s most important economies, with a young population, vast natural resources and a strategic position at the centre of South East Asia. Its ambitions around infrastructure, industrial development and downstream processing are important.
Yet investors cannot invest in Indonesia in the same way as India. Its geography changes the equation. Delivering ports, energy systems, logistics networks or digital connectivity across an archipelago of thousands of islands demands a different level of planning and local understanding. The opportunity is there, but so too is the need for patient capital and well-structured partnerships.
The challenge is not that institutional investors lack interest, but rather that their decision-making systems are skewed to reward familiarity.
Large pension funds, insurers and sovereign investors are understandably drawn towards markets where information is readily available, legal systems are familiar, and investment teams have spent decades building relationships. Emerging markets require more work. Investors must assess currency risk, regulation, legal protections, political change and the quality of local partners. They must also distinguish between genuine risk and perceived risk, which are not always the same thing.
A market may have a volatile currency but strong demand and a growing private sector, while another may have attractive growth figures but weak protections for investors. The answer is not to avoid risk altogether, but to understand it properly and price it sensibly.
This is especially important in infrastructure and private capital. There is no shortage of institutional appetite for long-term infrastructure assets. The difficulty is that many opportunities in emerging economies are not yet presented in a form that major investors can support.
A pension fund should not be expected to commit substantial capital to a project with uncertain permits, unclear land rights, or an untested revenue model. That is not caution for caution’s sake. It is a responsibility to beneficiaries.
The solution is to improve the route between opportunity and investment. That means stronger project preparation, clearer legal and regulatory frameworks and a more realistic allocation of risk between governments, developers, operators and investors. It also means working with advisers and partners who understand both the expectations of international capital and the practical realities of the markets in which that capital is deployed.
In my experience across India, Indonesia and other developing economies, the gap is rarely between capital and opportunity. It is between opportunity and investability.
Blackstone’s fundraise is a reminder that capital will move when conviction is supported by expertise, local knowledge and a credible path to returns.
The wider question for institutional investors is not whether they need an emerging-markets allocation for its own sake. It is whether their portfolios are positioned for where economic activity, consumer demand and infrastructure needs will be over the next 20 years.
For many, the answer remains not yet.
Rupin Banker is an entrepreneur, investor and strategic adviser with more than three decades of experience in infrastructure finance, international trade, supply-chain management and private investment. His work is focused on emerging economies across South and South-East Asia, the Middle East and Africa.
