Asia has huge potential for investors and private markets: Blackstone
The asset manager wants to make private market products an important part of a portfolio alongside equities and fixed income
WITH Asia accounting for about one-third of an US$80 trillion global private wealth market, Blackstone – the world’s largest alternative asset manager – sees huge potential for growth in this area, especially among wealthy individuals.
Its Asia-Pacific head of private wealth solutions Ed Huang said that institutions such as GIC and Temasek and other large players have been exposed to private market strategies and products for a long time now. However, for wealthy investors, their exposure to such private markets is in the low single digits, which presents opportunities for Blackstone.
On the traditional concept of a portfolio which holds 60 per cent in equities and 40 per cent in fixed income, Huang said: “We’re hoping to add a third leg to that, where in addition to equities and fixed income, private market products can become an important part of that portfolio.”
One important reason is the outperformance of private markets, he noted. “If you look across different asset classes, private market products have outperformed public benchmarks over time, say over the past 15 years, the outperformance is over 600 basis points and with far less volatility than public markets,” he added.
“Therefore, such private market products are providing additional diversification, which an investor in the public markets might not get.”
Private markets and building wealth over time
“Equity markets and fixed income markets are often correlated so private market products can add an important diversification element for individual investor portfolios,” said Huang.
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Over a longer time frame, wealth can be built up, he noted, adding: “With outperformance and diversification benefits, and if you let the portfolio compound over time, this is how you build wealth. While institutions have a long time frame, wealthy individuals planning for their retirement or the next generation can probably have a 20-year time frame.”
There is also room for individuals to increase their allocation to private markets. Huang said: “Institutions allocate around 30 per cent to private markets with endowment funds which allocate as much as 50 per cent. For individuals, it could be appropriate to raise that, while not to those levels, certainly higher than the current levels of 1 to 3 per cent.”
“Equity markets and fixed income markets are often correlated so private market products can add an important diversification element for individual investor portfolios.”
Blackstone Asia-Pacific head of private wealth solutions Ed Huang
Public equities
While some investors may be more interested in public equities, Huang argued that equities offer a much smaller investment pool.
“Ninety per cent of large-scale businesses and real estate assets are private,” he said. “With private markets, there is a much broader pool to invest in. Another reason is that you do not have to sell when the market is not good.
“The value in the public markets can vary from what is the fundamental value. As long-term investors, we can not only hold assets for a longer term, we can continue to generate value and find the right opportunity to exit.”
Huang noted that within private markets, the general partner (loosely, the person or fund that does the investing) is important because of their track record, resources and capabilities.
With a lot of information available on the products, a quality general partner is required to deliver a level of support and information to clients, to advise when to sell assets and navigate the business cycle.
There are a wide range of products, catering to those who are more return-driven, as well as those who prefer income.
US economy and the Japan market
On incoming US president Donald Trump and his impact on the investment landscape, Huang noted that Blackstone – with stakes in more than 230 companies and over 12,000 real estate assets – feels that inflation is coming down. While rates are expected to fall, they may not come down to the level they were before.
“We see resilience in the underlying economy and in the fundamentals and how our companies are performing. That will likely lead to more IPO activity, more deal activity, more M&A activity,” Huang said. In the third quarter last year, for the second consecutive quarter, Blackstone invested or committed over US$50 billion.
Japan could be the second-largest market for Blackstone’s private wealth solutions business outside the US. It is a market with more than US$10 trillion worth of investable assets, and over 50 per cent of that sits in cash.
With a policy direction to develop Japan as an asset management hub and a desire to help local investors make better investment returns, this will be an opportunity for Blackstone to grow there.
Singapore market has growth potential
However, the Singapore market is not small either. The market for investable private assets in Singapore could be as much as US$2.5 trillion, Huang estimated.
To tap the pool of investors, Huang – who is based in Hong Kong – said that it is important to have a strong local team in Singapore, together with global resources.
The Singapore office has been established for 10 years and is Blackstone’s second-largest office in Asia after Hong Kong. More than three-quarters of its 100 professionals are Singaporeans.
As Blackstone seeks to build more awareness of its products, it has also launched a course available at Singapore’s Wealth Management Institute.
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