Family offices in Asia are reshaping alternatives industry
Family offices and private wealth investors in Asia are increasingly influencing the landscape of alternative investments. As investment innovation progresses, these investors are gaining access to a wider variety of alternatives through an expanding selection of strategies and structures.
At JP Morgan Asset Management, Gary Leung, head of alternatives for Asia Pacific clients, has seen an increased uptake of alternatives by family offices and private wealth investors.
He believes these asset owners will continue to outpace the growth of institutional investors in terms of alternatives assets under management.
“It is a massive market with secular growth potential for alternatives,” Leung told AsianInvestor.
“The potential for private wealth alternatives in APAC is very rich, and we are just getting started.”
For private wealth-orientated strategies, asset managers will need to think differently in terms of investment strategy, product structure, terms and service model.
“It is the same philosophy of building an EV [electric vehicle] versus a traditional fuel car. They serve similar purposes, but their designs and constructions are different,” Leung said,
VAST POTENTIAL
Private wealth investors’ need for product structure and terms are very different from institutional investors. The key differences being a stronger need of liquidity and smaller ticket sizes.
In addition, eligibility for asset owners and private wealth investors varies across markets, so regulatory considerations are another key area to tackle.
The asset owner segment’s entry might be what the Asia-Pacific alternatives market is looking for to fuel the transaction volume.
For instance, private equity and venture capital investments in Asia Pacific, excluding Japan, dropped 30% year over year in 2023 to $25.08 billion, representing the lowest annual total in at least five years, according to S&P Global Market Intelligence data and analysis released January 23.
In Asia Pacific, the private wealth investor population amounts to $25 trillion, according to Capgemini’s Global Wealth Report 2023.
Despite an increased uptake of alternatives by private wealth investors in the past decade, on average it only composes of a mid- to single digit percentage of their portfolio today, Leung pointed out, making the potential for more alternatives in the portfolio vast.
INSTITUTIONAL LIMITS
Today, institutional investors are suffering from a problem of capital return – where funds of earlier vintages are not returning capital, with little exit opportunities due to poor capital market performances and the absence of the projected IPOs, for instance.
This means many institutional investors cannot re-up into subsequent fund vintages or are forced to reduce exposure to some managers.
Private wealth investors are actively seeking diversification in return source and income stream – and these characteristics are what alternatives have been providing and will continue to do, Leung pointed out.
That is further backed with the low base effect of private wealth investors’ allocation in alternatives, compounding with recent volatility in traditional markets, and the increased, inconvenient correlation of equities and bonds.
“We expect alternatives will become further democratized for private wealth clients, taking centre stage, and will no longer be an ‘alternative’ in clients’ investment portfolios,” Leung said.