Cerulli Associates writes that interest in onboarding alternative investments is growing among Asian distributors as they seek to promote these strategies to wealthy investors, who have increasingly warmed up to the asset class amid volatility in public markets.
The research finds that most Asia ex-Japan bank distributors expect the adoption of alternative funds by affluent, high-net-worth (HNW), and ultra-HNW investors to increase over the next two years. While 76 per cent of banks see HNW clients increasing their allocation to alternatives in 2023, this proportion jumps to 86 per cent by 2025.
In terms of strategies, 77 per cent express interest in promoting private equity. Most banks recommend up to a 10 per cent allocation to private market strategies. Among the various strategies, 24 per cent of banks suggest an allocation exceeding 10 per cent to private equity. Four-fifths of retail and private banks recommend allocations of up to 10 per cent each to private debt and liquid alternatives.
High investment limits and long lock-in periods have been key hindrances to expanding the reach of alternatives to individual investors. In markets such as Hong Kong and Singapore, semi-liquid vehicles with regular liquidity features are coming under the spotlight as there are more efforts to make alternatives accessible to individuals. Other markets, including China, India, Taiwan, and Korea, are also showing promising potential.
“Despite challenges surrounding liquidity and investor education, the growing interest in alternative investments presents opportunities for fund managers to effectively cater to the changing needs of their clients in Asia,” says Leena Dagade, associate director at Cerulli.
“Some managers are aiming to diversify their client markets beyond institutional investors, who often have caps limiting their allocation to alternatives. These managers believe that with the generally low penetration rate of these products among individual investors, there is significant room for growth,” she notes.
The research also shows that a majority (76 per cent) of bank distributors still prefer to work only with established brand names. Expertise in alternative assets is important for most distributors, with 95 per cent of private banks placing a premium on expertise. A substantial proportion (86 per cent) of private banks are willing to collaborate with traditional managers who are developing their investment capabilities. However, such managers need to be well-known asset management firms.
While banks are key distributors of alternatives, digital wealth platforms have the potential to enhance accessibility for retail investors, while family offices are emerging as another noteworthy channel seeking private market opportunities, Dagade adds.