Why Malaysia’s wealthy investors are lukewarm on private credit
Wealthy investors in Malaysia have shown less interest in private credit, even though institutional investors have signalled growing interest.
One of the main reasons for the reluctance among high-net-worth investors (HNWIs) is that they don’t like holding investments for long periods, said Sedek Jantan, head of investment research at UOB Kay Hian Wealth Advisors.
Private credit offerings, for instance, can require investor commitments for 8-10 years, he noted.
“Most HNWI like to hold [investments] for about 3-3.5 years on average.”
Jantan made his comments during a panel discussion at AsianInvestor’s 3rd Malaysia Global Investment Forum in Kuala Lumpur on October 8.
HOT AND COLD
Several institutional investors such as sovereign wealth funds and insurers have told AsianInvestor in the past 12 months that they are raising allocations to private credit. Even family offices have participated in the boom.
However, some family offices have voiced caution about private credit and one fund selector recently told AsianInvestor that private credit is resonating less with the region’s wealthy.
Meanwhile, Malaysian state-owned investors such as KWAP and Khazanah are moving ahead with plans to increase bets in private markets, including private credit and venture capital.
Investment managers and advisors need to consider wealth clients' reluctance and find different routes for investing in private credit plays.
“If an asset manager can wrap a private credit offering under a fund structure, the fund distributor or wealth advisor will find it much easier to encourage clients since the offering can be packaged and split into shorter durations over the investment period,” Jantan said.
“Anyone looking to tap HNWIs in Malaysia, like private banking clients, need to look at engaging with local funds to create offerings that can be wrapped into their set of funds.”
Asset managers also need to be prepared to also become a ‘secondary market’ when an investor wants to liquidate over the holding period, he added.
RETURNS EXPECTATIONS
Nevertheless, a shorter holding period will also affect returns.
Over the long term, the returns for private credit can be in double digits "but when you shorten the period, it can be go to 6-7%,” said Jantan.
There are other avenues for wealthy investors to invest that can generate similar returns, he said.
Jantan said it is important to understand what investors need given this backdrop.
“We are quite open to looking at investments in private credit [for clients]," he noted.
"...You dont need to make them ‘sexier’ like tech or artificial intelligence. But it is important to show how private credit can sustain in light of current monetary policy, and what changes [are occurring] in developed and developing markets."
The investment house, which manages and advises on client portfolios, targets absolute returns of 9% to 12% every year.
“We are quite optimistic that this year and next we will achieve more than 10% for our portfolios,” he said.