More alternative investment opportunities for ultra-rich Asian clients

“We’re offering qualified individual investors investment solutions that are easier to access and typically provide greater liquidity, with the same experienced teams investing in Blackstone’s institutional strategies. The global PWS business continues to expand, and the receptivity to date has been very favourable,” she says in a media briefing on July 28.

But Blackstone is not the only game in town, as other private banks have been on a hiring spree to beef up their Asian desks. JP Morgan Chase, HSBC, Citigroup and Standard Chartered have all announced plans to significantly increase private banking headcount within the last year — particularly in Singapore and Hong Kong, the main offshore wealth hubs for clientele from across Asia.

Local players DBS Bank, United Overseas Bank and the Oversea-Chinese Banking Corporation also continue to beef up wealth management services after the 1QFY2021 ended March results season saw double-digit q-o-q growth in wealth-related fee income.

According to Knight Frank, despite the global pandemic last year, Singapore’s number of ultra-high net worth individuals (UHNWIs) climbed 10.2% to 3,732 people, making it the second-highest Asian country in terms of UHNWI percentage growth after China. The data, disclosed in this year’s The Wealth Report — Knight Frank’s annual prosperity, property and investment publication — underscores the growing momentum of Asia’s wealth landscape.

Over the next five years, Asia’s UHNWI population, which Knight Frank defines as individuals with a net worth exceeding US$30 million ($40.5 million), is expected to increase by 39%, making it the fastest-growing region globally. In June, a Credit Suisse report estimated that the number of Singapore millionaires will jump 61.9% by 2025 to some 437,000 people.

Wealth boom

The boom in the wealth management market has been partially shaped by macroeconomic factors pushing investors to look beyond traditional assets. Amidst persistently low interest rates and a turbulent year for markets throughout the pandemic, investors looking for both yield and return are finding it increasingly difficult to achieve that with the conventional, 60/40-style split between equities and bonds.

Thus, investors are casting their nets wider to boost their portfolios, with more tolerance for risk. There is a growing interest in alternative investments, which refers to assets that do not fall within the traditional classes of stocks, bonds and cash. Mainstays of alternative investments include private equity, private debt, venture capital, hedge funds and real assets such as real estate and infrastructure.

The appeal of alternative assets lies in the opportunity to access deals not readily available to the public markets, such as becoming an early investor in a promising start-up or exploring niche markets like art or wine. The wide spectrum of opportunities runs the gamut in terms of risk and complexity, offering the potential for enhanced returns for investors.

Alternative investments are also often argued as a way to incorporate assets that are less correlated to the performance of the traditional asset classes, thus offering diversification benefits and portfolio resilience.

But there is a catch. For one, less regulation and fewer reporting requirements for such assets result in a murkier environment where investors may face challenges in terms of valuation or pricing transparency. In addition, alternative investments tend to be illiquid, often resulting in investors’ money being subject to long lockup periods that cannot be readily cashed out.

Alternative investments also often have a sizeable minimum investment threshold along with higher fees — factors that have traditionally kept the space exclusive to institutional and HNWI investors, though this is slowly starting to evolve in recent years given the growth in the mass affluent segment and technological advancements making the process more accessible and cost-effective.

Solotar notes that private investing has inherent advantages over public investing, such as the ability to conduct extensive due diligence and gain a strong conviction about a company when making an investment, proactively manage and control investments, and time entries and exits accordingly.

For Blackstone PWS, qualified individual investors could benefit from the firm’s scale that enables it to tackle larger transactions where competition is limited, she adds. The firm currently has over US$130 billion in assets under management (AUM), making up some 15% of Blackstone’s AUM of US$684 billion as of June 30.

She also claims that the firm’s breadth of investments across industries and asset classes also enables it to gain proprietary knowledge and draw overarching investment views. “The firm has been very focused on what we call good neighbourhoods. These are leaning towards sectors that are naturally growing faster than the general economy such as technology and healthcare nowadays, and the adjacent industries that serve them,” she adds.

The Asian market

Blackstone established its private wealth solutions presence in Asia about seven years ago — partnering with global banks and wealth managers with a substantial US or European presence, as well as regional firms headquartered in Asia — to offer opportunities for investments in private markets such as private real estate and private credit.

Initially focusing on qualified high-networth individuals in Singapore and Hong Kong, the PWS business has grown rapidly to reach multiple markets. Today, the team has strong relationships with leading wealth managers and financial institutions across Greater China and Southeast Asia, including Thailand where it recently partnered with a specialised wealth management firm.

Herbert Suen, Blackstone PWS’s Singapore-based Asia Pacific representative, says the firm’s offerings have since evolved to better cater to qualified individual investors’ needs. “I think the game changer here in Asia was our ability to innovate,” he adds.

‘Positive feedback’

Blackstone PWS began offering a more flexible structure that allowed qualified investors to access capital more easily with relatively lower minimum thresholds. “We started out with a semi-liquid private real estate strategy and then a semi-liquid private credit strategy — both have seen positive feedback from our investors. The solutions we offer are income focused and are designed to help investors diversify their portfolios, which are increasingly important in today’s low interest rate environment.” Suen adds.

Commenting on Asian investors’ preference for liquidity, Suen says the expansion of Blackstone’s products resonated in the market, in tandem with an increasing awareness of alternative investments in general.

Blackstone PWS started widening its distribution channels, partnering with local private banks and wealth management firms to offer products to their clients. Suen stresses that education is also a key component of the firm’s strategy. Blackstone has partnered with banks and financial institutions to provide training to front office staff and financial advisors, while also collaborating with educational institutions such as the Wealth Management Institute.

Like the US, accessibility to alternative investments in Asia is growing. Suen points out that with the rise of the mass affluent class, there are significant pools of investors who have the same needs to diversify and supplement their traditional portfolio assets that are still under-allocated in terms of alternative investments. This population includes HNWIs and other eligible customers with assets ranging between US$1 million to US$5 million.

As the cohort of the wealthy and affluent grows in Singapore and the surrounding region, the wealth management and private banking industry will likely continue seeing steady momentum.

Photo: Bloomberg