Corner Office Views | Q3 2021
How to Meet the Needs of the HNW Segment in Asia
Managers should pitch the right strategies to and seek partnerships with private banks
- The booming family office business in Asia will create more opportunities for asset managers.
- Thematic equity strategies, particularly in the healthcare, technology, and environmental, social, and governance (ESG) sectors, have been most sought after by the high-net-worth (HNW) in Asia ex-Japan.
- HNW interest in digital asset investments has pushed some banks and asset managers to build their cryptocurrency offerings.
Shannen is one of the main analysts at Cerulli Associates covering SEA markets. She is a member of the Institutional practice and provides qualitative analysis support for all Asian reports. She also contributes to The Cerulli Edge series.
Prior to joining Cerulli Associates, Shannen worked for trade publications, covering the asset management industry in Asia for four years.
Full biography here.
Asia Pacific is expected to be home to almost a quarter of the world’s ultra-HNW population by 2025. According to Knight Frank’s 2021 Wealth Report, the region’s population of ultra-high-net-worth individuals (HNWI)–those with a net worth of over US$30 million or more, including their primary residence–is predicted to grow 33% in the next five years to 2025, faster than the global average of 27%.
And the HNW are getting wealthier. In 2019, Asia’s HNW population and their wealth grew by 7.6% to 6.5 million and 7.9% to US$22.2 trillion, respectively. This was led by Hong Kong, China, and Taiwan, which experienced double-digit HNWI population and wealth growth, according to Capgemini’s World Wealth Report 2020. Meanwhile, Singapore and Hong Kong, which are the two fastest-growing markets for family offices in Asia, are refining their measures to further establish themselves as wealth management hubs.
What do distributors want?
Asia ex-Japan Asset Distributors’ Views on Most Important Investment Considerations for HNW and Ultra-HNW Clients, 2021
Thematic equity funds have been gaining traction across all markets in Asia recently, with healthcare, technology, and ESG themes coming into the spotlight. Private banks, in particular, are on the lookout for megatrend ideas, focusing on themes that could drive positive change on a global scale in the next decade.
HNWIs are also looking at unconstrained fixed-income strategies, as well as middle-market lending solutions that could still give them attractive yields.
Aside from thematic equity strategies, Cerulli understands from its research interviews that private banks are also positive on Asian equity strategies, particularly those with a tilt towards value strategy, as well as China strategies, which continue to be a big focus for many private bank clients.
Amid the low-interest-rate environment, managers surveyed by Cerulli generally see equity strategies as more popular than fixed-income strategies for HNWIs this year. HNWIs with ample liquidity, however, took advantage of the global market sell-off last year to add select fixed-income exposure, particularly in emerging market and Asia credit, as well as European and U.S. credit, as spreads widened to recession levels, according to a study by Lombard Odier last year.
Asia ex-Japan Asset Managers’ Views on Investment Themes HNW Clients are Looking For, 2021–2022 by Market
The region, particularly Singapore and Hong Kong, generally saw a meaningful pick-up in private debt strategies, as well as real estate funds for regular income. HNWIs are also looking at unconstrained fixed-income strategies, as well as middle-market lending solutions that could still give them attractive yields. Cerulli understands that some managers are investing more resources to offer alternative solutions, including retail-friendly real estate solutions for HNWIs and distressed funds, for the private banking segment. Aside from private banks, online platforms are creating additional channels for HNWIs to increase their alternatives exposure.
And digital asset investments, including fund products that invest in digital assets, have recently captured the interest of HNWIs. The strong interest has pushed some banks and asset managers to build their cryptocurrency offerings.
In April 2021, Hong Kong-based Huobi Asset Management launched three cryptocurrency strategies for professional investors, including a multi-asset fund that invests in bitcoin investments. The Huobi Multi Asset Fund allocates 50% of the portfolio to gold exchange-traded funds (ETFs), 40% to blockchain ETFs, and the remaining 10% in Bitcoin.
Aside from pitching fund products to fill the private bank shelves, asset managers should also explore establishing partnerships with private banks.
The following month, Singapore’s DBS Private Bank launched digital trust services that enable its clients to invest, custodize, and manage their digital assets. Clients will also be able to integrate these assets into their wealth succession plans. The offering builds on DBS’ digital exchange platform, which was launched in December 2020 to facilitate trading between four of the most established cryptocurrencies, namely Bitcoin, Ether, Bitcoin cash, and XRP.
More private banks clients have reportedly expressed interest or are already invested in digital assets in recent years. Spurred by the growing interest, more of these banks and asset managers are expected to start looking at the feasibility of launching products that invest in these assets.
Aside from pitching fund products to fill the private bank shelves, asset managers should also explore establishing partnerships with private banks. In addition, asset managers can ride on the booming family offices business by working with private banks and external asset managers to offer asset management and portfolio construction to family offices in the region.
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