Is private capital the new portfolio must-have?
Asia’s private investors are eager to go in on alternative investments, as returns from traditional markets fall short
Private capital is fast becoming a key component of investment portfolios in Asia, as muted public markets and interest rate fluctuations impact returns on traditional assets and intensify interest in alternatives.
Asia-Pacific investors hold about half of the US$30 billion (S$40 billion) in non-US assets on alternative investment fintech platform iCapital. The platform’s users include wealth managers Bank of Singapore and HSBC Global Private Banking, and asset managers JP Morgan Asset Management and Schroders Capital.
“In the APAC region, wealth managers are generally less risk-averse
and more willing to increase their allocation to private markets,” said iCapital’s head of international Marco Bizzozero. “There is a strong demand from wealth managers to make alternative investments more accessible to their clients.”
Expected growth
APAC accounts for 12 per cent of the private market pie, which has quadrupled in size from US$3 trillion in 2010 to over US$12 trillion in assets in 2024, according to iCapital’s analysis of data from Preqin’s September report. Preqin is a private capital database provider.
The figure is projected to surpass US$23 trillion by 2029.
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Driving demand are financial hubs such as Singapore and Hong Kong, cities that recently charted exceptional growth in wealth accumulation and family offices.
“Investors are tapping into the private markets in the pursuit of risk-adjusted returns, diversification, and to enhance their investment universe in the face of the shrinking number of public companies,” Bizzozero said, adding that “this trend is expected to intensify in the future”.
Rise of alternatives
Alternative investments were once the domain of institutional investors, occupying nearly half the portfolios of pension and sovereign wealth funds. But this is changing now, and private banks are recommending wealth clients allocate between 15 to 25 per cent of their portfolios to this asset class, Bizzozero said.
iCapital data in February showed alternatives outperformed the traditional investment portfolio approach of a 60-40 allocation to stocks and bonds, over a three, five, 10 and 15-year period.
“Private equity will become an integral part of an equity portfolio and private credit, for example, will sit alongside government and corporate bonds. Investors will combine them to reach the portfolio outcome they are looking for,” he added.
As this trend strengthens, iCapital has poured some US$600 million to date into its modular investment platform, which streamlines access to private market investment opportunities and asset managers.
However, the illiquid nature of alternative investment products requires education to grasp the specifics of underlying assets and performance benchmarks, Bizzozero warned.
“Hedge funds, for example, are increasingly popular with Asian investors, but understanding of them is often falling short,” he said. “Private wealth investors and their advisors are looking for education and guidance on how to build portfolios incorporating alternatives.”
This was produced in partnership with the Monetary Authority of Singapore and the Global Finance & Technology Network.
For more stories, go to https://bt.sg/sff2024
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