In a world beset by low yields and volatility in traditional asset classes, private markets are becoming increasingly attractive for APAC’s highly dynamic wealthy individuals – client allocations to private markets could even exceed 20% in the coming years.
However, with more options also come increased challenges and complexities. As such, through insights gathered from 69 wealth management advisors, end-client investors and private markets professionals in December 2021 and January 2022, this report seeks to shed light on the phenomenon of private markets investing in Asia Pacific, answering key questions surrounding the asset class and their opportunities for investors.
Strong demand for private market investment opportunities
Over three-quarters of respondents (77%) believe that current client demand for private market investment opportunities is strong or very strong, with investors turning towards the asset class as a means to achieve a wide range of goals.
The potential for outsized returns is seen as the strongest driver, with 50% of respondents citing this as the most important factor in driving demand, followed by achieving greater diversification (29%). However, interesting investment opportunities, the ability to participate in real innovation, and to a lesser extent, ESG aims, were all cited frequently as top three factors.
For many of the region’s ultra-wealthy, excitement and conviction are often key as such individuals seek to expand their knowledge by investing in something that is highly innovative and disruptive. Along with the dynamic entrepreneurialism that has defined APAC’s explosive wealth creation in recent decades, the report also found that APAC investors tend to be more meaningfully involved with their investments – aligned with private markets’ feature of offering better control than with a listed stock.
Who is the typical investor in private markets?
The typical private market investor in APAC was found to be younger than the average private client, likely male and a net worth of US$40m+ made through their own business ventures. However, the extensive range of responses gathered suggests that diverse interest needs to be catered for, with the industry offering various solutions for different client profiles. These profiles include potential female investors, as respondents also share that the demographic is becoming increasingly interested in private markets.
Investors from Mainland China and Hong Kong SAR are showing the greatest enthusiasm for private markets – this trend is aligned with the particularly strong belief in the story of entrepreneurship among Chinese clients – although those from Singapore, Australia and New Zealand are also very keen.
The route to high returns
With the burgeoning growth of wealth in APAC, clients have become generally more demanding than their Western counterparts when it comes to returns. Investors in the region have highly ambitious returns targets from their private market investments. Respondents say the majority (42%) expect a minimum 11-15% Internal Rate of Return (IRR), 16% target a 16-20% IRR and 14% target a 21-25% IRR.
In achieving such results, 36% of respondents believe that North America, the traditional epicentre of dynamic wealth creation, exerts the strongest pull for investors. However, Southeast Asia comes in as a strong second (33%), with China and North Asia not far behind (29%).
Technology continues to dominate
Technology dominates in terms of investor interest (62%), followed by healthcare/life sciences (21%), with a fifth of respondents also seeing investors favouring energy, infrastructure, consumer or other opportunities like education. This finding aligns with EY’s 2021 Global IPO Trends report, which found that globally, the technology sector saw the highest number of IPOs (611) for the sixth consecutive quarter since Q3 2020, raising the highest proceeds (US$147.5bn) for the seventh consecutive quarter since Q2 2020. While Covid may have accelerated these sectors’ growth, it is not the fundamental reason behind this heightened focus. Technology and healthcare are long-term themes transforming our daily lives.
Meanwhile, there is a strong preference for direct investments into private markets, with 67% in favour of the strategy compared to 33% citing collectives. However, although the former might be many investors’ ideal route, this may not always be practicable nor desirable from a risk management perspective – there are also many other strategies such as growth and venture capital that are proving to be popular.
Private markets see high demand, but what are the barriers?
While demand for private market opportunities has grown exponentially, there are undeniably several barriers which may prevent their interest from translating into actual investment. Lack of visibility over opportunities was cited as a key obstacle for end-clients by half of respondents. With that, it is crucial for relationship managers to present such opportunities – aligned with 19% of respondents believing that advisors’ reluctance to bring opportunities to the table is the biggest barrier to private markets investors face.
Aside from this, almost a quarter (24%) of respondents think that a lack of confidence or knowledge is the biggest factor holding investors back from making private market investments. Hottest sectors for these investments – particularly technology and healthcare/life sciences – are exceptionally fast-moving. Relationship and wealth managers that have significant research capabilities must then comprehensively inform end-investors to add value.
Paving the way for private market investments
Recognising the huge growth trajectory in private market investments, VP Bank had launched its ORBIT platform last year, combining traditional wealth management with the advantages of digital ecosystems. The platform redefines access to private markets for partners and participants, offering both direct and collective investment opportunities as well as related structuring services to professional investors which have typically been difficult to invest in until now.
In doing so, VP Bank is paving the way for greater growth in demand for this attractive asset class. “By some reports, in Asia alone there is around US$385bn of ‘dry powder’ waiting for deployment in private markets, and that statistic alone should have wealth managers sitting up and taking notice. We are proud to be leading on this front along with Hywin Wealth, not only for the benefit of our clients, but also for the growth prospects of the region too,” said Pamela Hsu Phua, Chief Executive Officer Asia, VP Bank.
Madame Wang Dian, Chief Executive Officer, Hywin Wealth, added, “The volatility and fluidity of the past few years combined with the potential to be involved with really interesting, innovative endeavours have created perfect conditions for private market investing to flourish in APAC. This study confirms what we have been hearing from our own clients, and validates our decision to invest in both expertise and products to cater to this esoteric area.”
“We are delighted to have partnered with Hywin Wealth and VP Bank to once again probe an important but perhaps neglected area of growth for the industry in APAC. Our research reach is global, but it is always particularly interesting to perform deep field work among clients in a particular region to really see what makes them tick. My conversations with clients tell me wealth managers in APAC need to really watch this space,” said Wendy Spires, Head of Research, WealthBriefingAsia.
For more information on the report, please refer to the following link here.
About VP Bank Group
VP Bank Ltd was founded in 1956 and ranks amongst the largest banks in Liechtenstein with offices in Vaduz, Zurich, Luxembourg, Singapore, Hong Kong and British Virgin Islands. VP Bank Group offers tailor-made asset management and investment advisory services to private clients and financial intermediaries. With its Open Wealth platform for wealth-related services, it provides innovative financial services with a strong focus on sustainability and easy access to difficult-to-invest or illiquid asset classes. VP Bank is listed on the SIX Swiss Exchange and has received an “A” rating from Standard & Poor’s.
About VP Bank in Asia
VP Bank Ltd Singapore Branch provides specialised wealth management solutions and family office services for high-net-worth clients and professional asset managers and is dedicated to the protection and growth of clients’ wealth. The bank offers a holistic suite of services in wealth management. Apart from private wealth management, VP Bank Ltd Singapore Branch provides comprehensive services for asset managers and other financial intermediaries. The service offering comprises a trading platform, banking services – including e- banking and mobile banking – and operational support. Partnership arrangements with professionals include tailor-made investment advisory, discretionary management solutions, and custodian services.
For more than 15 years VP Wealth Management (Hong Kong) Ltd has concentrated on wealth management and family office services for wealthy private clients. Through our location in Hong Kong we have a presence in one of Asia’s leading centres for wealth management.
VP Bank was awarded Best External Asset Manager Service Provider and Best Private Banking Regional Partnership at Greater China WealthBriefingAsia Awards for Excellence 2020 and Best Asia EAM Service Desk at Citywire Asia EAM Desk Awards 2020. In 2021, VP Bank was named Best Private Bank – Intermediary Services by Asian Private Banker and ‘Best Boutique Private Bank’ at the 9th annual WealthBriefingAsia Awards 2021.
About Hywin Wealth
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