As global LPs seek to rebalance portfolios that became exaggeratedly US-centric post-pandemic, non-US private equity funds logically stand to benefit. To date, the outcome has been a slow reduction in concentration risk rather than a dramatic reallocation. Yet it is not without drama.

The setup is drenched in geopolitics, which means scaling back US exposure is not purely a matter of mathematical diversification, and home-market bias has become an important factor. It suggests there will be more US capital for the US, more European capital for Europe, and more Asian capital for Asia.

Much of the debate stems from a volatile backdrop of erratic US policy, but concerns around the impact of artificial intelligence (AI) on software and the energy-related economic implications of conflict in the Middle East may also be contributing factors. Diversification can be a friend in the face of disruption.

Samantha Wong, a Singapore-based senior investment director at Cambridge Associates, said she has not yet observed Asian LPs fundamentally restructuring geographic allocations in a meaningful way, and she expects the US to remain a significant portion of their portfolios. But their composure appears to belie an important evolution in priorities.

“As portfolios get more mature and private investment opportunity sets outside the US continue to deepen, a rebalancing away from the US is a natural long-term outcome for portfolio construction reasons. This is a trend not unique to Asian LPs,” Wong observed.

“That said, within Asia, uncertainty around US trade and foreign policy may be putting some pressure on how quickly LPs want to rebalance. In addition, US dollar weakness has also prompted Asian LPs to think more actively about diversifying toward non-dollar assets, as reported short-term returns can come under pressure when funds’ US dollar returns are translated into base currencies.”

Innate conservatism

Caution in diversification agendas is largely rooted in a perceived lack of good non-US options. Kazushige Kobayashi, a managing director at MCP Asset Management, noted that Japanese LPs have looked at doing more in Europe but found market depth wanting. Asia is even harder, resulting in typical exposures of 70% US, 15% Europe, and 15% Asia, mostly Japan.

“Japanese LPs still aren’t investing in China. India is gradually getting better, but there aren’t many quality GPs. India and Southeast Asia are generally very challenging. Australia is interesting, but the market is unfamiliar to many LPs,” Kobayashi said. “They could go into pan-regional funds, but exposure to China and increasing exposure to Japan isn’t ideal.”

To some extent, it speaks to a pragmatic brand of conservatism among Asian LPs. There is a desire to diversify, but little faith in diversification for its own sake. When capacity for geographic diversification becomes available, Europe will get the first look, and Asia will benefit at the margins.

This mindset is evident even in emerging private equity programmes that have more flexibility to build a portfolio with relatively modest US exposure. One Japanese insurance company that launched its private equity programme mid-pandemic offers a case in point. The portfolio is 50%-60% in the US, 20%-plus in Western Europe, and the rest in Asia.

“We want to keep that blueprint, regardless of external factors like COVID or interest rates or the Ukraine war, or tariffs. Whenever situations come up, we review our ideas and so far, every time we’ve decided to stick to our existing strategy,” said a PE-focused investment professional at the insurer.

“We’ve looked at managers in Southeast Asia and India, but we find median US managers outperform these options, regardless of favourable demographics and growth in Asia. We would like to increase our allocation to Asia, but we need to see more managers that have delivered exits and actual realisations.”

These sentiments were on display last week at the AVCJ Private Equity Forum Australia & New Zealand 2026, where LPs espoused a bottom-up approach to the asset class that downplays the virtues of diversification in favour of GP-level due diligence.

Marina Pasika, head of private markets at superannuation investor Rest, described the US as attractive for having more managers with repeatable track records. This was held up as justification for maintaining US-centric portfolios despite macro encouragement to diversify.

“We may, as an organisation, have certain views on the US versus other geographies. Whatever those may be, I think there’s a secondary question of, ‘Is private equity the asset class where you actually want to play that?’” Pasika said. “You are typically in funds – at least in pooled, closed-ended vehicles – for a very long time, and the world can change in many different ways.”

New Zealand Superannuation Fund (NZ Super) also has the luxury of newness, having returned to PE buyouts less than two years ago after a decade-long absence. Allocations are expected to roughly match public equities exposure measured via the MSCI World Index, which means two-thirds US, just under one-third Europe, and a smattering of Asia. But there would be no rush to rebalance.

“It’s very hard to say what the world will look like two years from now. Maybe the US suddenly looks super-attractive, and Europe looks terrible. We don’t want to be rushed into repositioning our portfolio,” Doug Bell, a director focused on investment strategy at NZ Super, told AVCJ. “You’re an oil tanker when allocating to this space. You make a commitment and capital is gradually drawn down.”

Turning to Asia?

AustralianSuper’s behaviour, however, does suggest that some institutional LPs are beginning to augment GP-level track record comparisons with a top-down view of opportunity sets.

Australia’s largest superannuation fund, with AUD 410bn (USD 287bn) in assets, has leaned into the US more aggressively than its peers. A 2022 statement that this market would receive AUD 9.5bn out of AUD 13bn global PE budget over the next two years presaged a rapid scaling of the team in New York. AustralianSuper pursued partnerships with brand-name GPs underpinned by sizeable co-investments.

Other geographies seldom received a mention in terms of private equity. Then last month, CEO Paul Schroder flagged appetite for deployment in Asia, suggesting the region could grow from 4% to 10% of the portfolio in an unspecified timeframe.

“We are diversifying and thinking about Asia, especially through the PE lens,” he told Bloomberg. “We’re just at the beginning of our plan to expand our PE exposures in Asia.”

An Asia push following a years-long build-up in the US is not the stuff of kneejerk reactions to political developments, nor the result of a bottom-up discovery of Asian GP talent. It signals a recognition of Asia as a future beneficiary of macro trends that put the region on track to represent the bulk of global GDP growth and the global middle-class population in less than 20 years. Still, the shift will be gradual.

“I’ve not seen too much action yet. It’s mostly talk, but I think it will happen eventually. With private equity, LPs often look at the past rather than the future. Looking at the past, you might get a decision wrong, but no one gets fired because it was based on historical facts,” one pan-Asian GP observed, adding that public markets are already exhibiting a shift towards Asia.

To the extent that geographic diversification is happening, it is against a backdrop of reduced overall commitments to private markets. Alternatives managers raised about USD 1.3trn in 2025, on par with 2024 but buyout strategies were down 16% year-on-year, according to Bain & Company.

There was slight traction in Asia, with total fundraising in the region, excluding renminbi funds, rising 12.5% year-on-year to USD 69.3bn, according to AVCJ Research. However, a couple of pan-Asian funds received a disproportionately large share of the capital by historical standards.

Asian LPs remain relatively minor actors amid this stagnation. Several country-focused mid-cap managers point to increasing Asian institutional representation in their investor bases – and Japan is part of this – but it remains relatively small in volume.

Creador arguably represents the extreme end of the spectrum. Its sixth Southeast Asia and India-focused fund in 4Q24 on USD 930m, with USD 300m coming from new relationships. LPs from Japan, South Korea, and Southeast Asia were meaningful contributors.

“We’ve reached a state of evolution where I see a lot of Japanese groups setting up direct offices in India now, which cover India and even Southeast Asia,” Creador CIO Kabir Thakur told AVCJ earlier this year.

Eyeing Europe

Feedback from the advisory side indicates that geopolitical issues are, at least to some extent, directing allocation decisions. Chloe Cheng, a partner at Clifford Chance, observed that LPs are asking for side letters or even dedicated structures to avoid investing in certain jurisdictions. This has come with requests for stricter diversification ratios to limit deployment in any one country.

“Stronger excuse rights have come into play, allowing LPs to opt out of investments in specific jurisdictions,” she said. “We’re also seeing more separately managed accounts (SMAs), which give LPs greater control over where the manager invests and what types of investments are made.”

In addition to being a relatively mature substitute for US exposure, Europe benefits from a perception that top-quartile performers are of equal quality to those in the US and that most tend to cover a spread of countries. Lower competition among GPs is believed to increase deployment efficiency, in turn keeping distribution timelines on track.

Challenges mostly revolve around access. There is a smaller universe of top-tier pan-regional funds to invest, and there can be language barriers around more prevalent subregional and country funds covering the lower middle market.

But there is also a sense that even relatively weak performers in Europe may enjoy an enhanced profile due to currency exchange trends. The euro, Swiss franc, and British pound are among the few major global currencies that have appreciated against the US dollar in the past two years.

“The most obvious change has been with mainland Chinese institutions, particularly all the large sovereign-backed funds. As of the past at least 12 months, by policy, they cannot invest in the US. In this case, I’d say the net beneficiary of this trend has been Europe,” Ricardo Felix, head of Asia at placement agent Asante Capital.

“I feel that 50% US, 30% Europe-opportunistic and 20% APAC, if at all, is still the trend for the most part, with the exception of big ticket mainland Chinese investors that literally had 60%-65% US exposure that’s now gone down to zero [in terms of new commitments], aside from a handful of re-ups.”

Vincent Ng, co-head of client solutions Asia at Partners Group, added that he has received increased interest from Greater China clients about diversification. Often, these investors are looking for structurally unique and flexible mandates to navigate changing market conditions.

Charles Wan, head of Asia at Rede Partners, another placement agent, framed 2025 as a big year for Asian LPs targeting Europe, noting that many European funds his firm advised became quickly oversubscribed. The trend is expected to continue this year in parallel with snowballing interest in Asia.

Rede has collected some statistical evidence for this outlook via its internal liquidity index, which tracks institutional investor sentiment for private equity via biannual LP surveys.

The index revealed a significant uptick in global LP appetite for Asia between 2H24 and 2H25, with the region’s score rising from 29 to 45 (on a scale of 1-100) during the 12 months. This compares to a subtler rise of 53 to 60 for Europe and a striking fall from 65 to 48 for North America.

“Asia LPs used to say, ‘This is our backyard and our core business is here, so we have enough exposure.’ But now, they’re back: there’s growth here, and it’s accretive for their portfolios,” Wan said.

Relative mobility

Much depends on organisation type. Sovereign wealth funds and government-tied institutions are most sensitive to geopolitical risks and seen as relatively nimble in swapping geographic exposures. Family offices and individual investors are even faster movers, but often lack sourcing and diligence resources to address unfamiliar markets.

Anthony Chan, CEO of Hong Kong-based multi-family office Isola Capital, noted that the macro scenarios family offices hedge against are much more extreme than what a typical retail investor would contemplate. This includes giving serious consideration to a political meltdown in the US if Donald Trump remains president for another term.

“There’s a lack of certainty about how the US is evolving and the geopolitics around that. Some families will stay around 70% US exposure. Many are dialling back toward 50%-60%. But it will never get below 50% because there’s just not enough to absorb it,” Chan said.

“So, it’s not the demise of US private equity, but it’s not going to be easy for US funds to raise capital from a lot of families in Asia now. Families in Asia are very negative on the US right now.”

Pension funds and insurers tend to have more institutional constraints and lower risk appetites, with insurers sometimes cited as having particularly US-centric portfolios. One Chinese insurance company executive said his peer group is cutting relationships with US managers at different levels, but progress is incremental.

“We have invested in mega managers and have diversified a bit to Europe, but not too much because there are not many that we can invest,” the executive said.

“It’s more about the interpretation of policy and sentiment. Our programme in private markets is small, but other Chinese insurance companies in Hong Kong have largely sold their positions in US managers and are seeking new managers in Europe.”

Sectoral agendas

Niklas Amundsson, a managing partner at placement agent New Peak Partners, described insurance companies in Asia as often affected by what’s happening overall in their product portfolios, subject to the denominator effect, and tied to the tides of public markets. More broadly, he is not observing a significant shift in Asian LPs’ portfolios from the US to Europe or Asia.

“There are some Asian LPs that are doing more Asia now, I don’t know if that’s necessarily because of what’s going on in the rest of the world,” Amundsson said. “What we do see is that particularly some of the North Asian LPs – Koreans or Japanese – have definitely shown increased interest in Southeast Asia, for example. The way that we see that is they’re establishing local presences in Singapore.”

JICT, a public-private investor mandated to support global expansion of Japanese information and communications technology (ICT) companies, is an unusual case study. The organisation considers itself heavily weighted in Europe and therefore in need of an expansion in the US. Southeast Asia and Africa are also on the agenda.

Amane Oshima, president and CEO of JICT, said that geography-agnostic and geography-specific plays were both of interest. The more important consideration is whether JICT’s internal capabilities around information and communications technology can be leveraged.

“The US market has depth, maturity and breadth, especially for hard infrastructure in the ICT space – such as data centres – with greater deal flows and regulatory resilience, which have borne fruit in recent deals,” he said.

JICT serves as a reminder that for some investors, the search for sectoral diversification will precipitate a kind of incidental geographic diversification. Greater demand for exposure to AI, for example, is behind warming sentiment for China. Part of this is also tied to cheaper valuations in the country. Part of it is a new perspective on political risk.

“The security of capital is more important than making money now. Investors from Asia looking at energy plays and data centre plays in the Middle East are going to wait,” said Lorna Chen, co-managing partner of Greater China and regional co-head of funds and asset management at A&O Shearman.

“We don’t know yet what will replace that, but it might be China because there is already an AI and technology story there. Investors didn’t think China looked stable enough before – now, by comparison, it looks a lot better.”

The long haul

Regardless of LPs’ motivations or preferred destinations, the prevailing mantra is that meaningful portfolio diversification is a long game. Adding a handful of new fund positions in a new geography represents years of due diligence and relationship building that still may not move the needle for a large organisation.

Secondary trades of fund positions – with a view to redeploying in other markets – remain a marginally exploited tool in Asia despite a handful of notable transactions in 2025. Bell of NZ Super cited co-investment as a more immediate means of toggling geographic exposure, but the impact depends on an institution’s activity in this area. Many Japanese LPs, for example, do not co-invest overseas.

Hamilton Lane, meanwhile, is positioning evergreen products and SMAs as a relatively quick-hit solution. Collwyn Tan, the firm’s co-head of Asia investments, believes that in some cases a US-Europe-Asia allocation can go from 80%-10%-10% to 60%-20%-20% in as little as two years.

He concedes that building primary GP relationships will take longer because the capital must flow through funds. In contrast, evergreens start working straight away, and they tend to be co-investment and secondaries-heavy – a fleet-of-foot response at arguably just the right time.

“Deployment and fundraising are picking up again on the back of pretty solid distributions over the last few years,” Tan said. “Each market [in Asia] is also becoming more mature. Capital markets are returning in China and India. We’re in a good position to capitalise on this.”