Asia's Wealthy Segment Offers Long-Term Lucrative Opportunities

June 30, 2022 — Singapore

Managers can pursue growth, diversify revenue streams by catering to the evolving needs of wealthy clients

Despite rising geopolitical tensions, inflation, interest rates, and market volatility, there are emerging areas that offer long-term opportunities in Asia ex-Japan's major mutual fund markets. These include the growing wealth pools and family offices, product developments in emerging areas, and scope to expand distribution reach, according to Cerulli Associates' latest report, Asian Distribution Dynamics 2022: Gearing up for Emerging Opportunities.

The growing number of family offices is one area to explore. In terms of investment strategies, three-quarters of family offices indicate a preference for new energy-themed products, followed by healthcare and real estate, each being chosen by 70% of the family office research respondents. In the current inflationary regime, commodity exposure (for example, through gold) was chosen by nearly two-thirds of the respondents. Private equity and digital disruption thematic ideas were chosen by 60% of family offices. Among environmental, social, and governance (ESG) strategies, family offices are interested in low-carbon investment strategies, electric vehicles, solar power, and next-generation technology.

"Asset managers need to use a variety of modes to reach out to family office clients, with 57% indicating that they receive referrals from private banks. Having a diverse range of skillsets, especially in various investment areas, is also a must to meet the dynamic, varying, and rapidly evolving needs of family office clients," said Leena Dagade, an associate director at Cerulli Associates.

Apart from family offices, Cerulli's findings show retail and private banks' clients are looking for better returns through equity exposure, especially in long-term thematic sectors and ESG as well as alternatives. While climate and broader environment-related strategies are capturing the attention of retail clients, the wealthy segment is also showing interest in impact investing strategies. Private banks are constructing specific ESG solutions, including ESG-specific portfolios, to meet the specialized needs of their clients. Cerulli’s survey findings also show that long-term thematic investment ideas are being explored through exchange-traded funds (ETFs), as distributors and family offices make use of these low-cost strategies to construct investment portfolios for their clients.

As for alternatives, 63% of private banks indicate that their clients are looking to raise allocations to private equity and private debt. While there is growing interest in alternative strategies, a majority of distributors and family offices recommend allocations of 5% to 10% to various alternative strategies.

"Alternatives fit into investors' portfolios for yield enhancement and diversification. However, some clients might suffer liquidity issues with the longer tenure of alternatives. Managers are exploring options to make alternatives available to such clients in the form of liquid alternatives and funds of funds. Tokenized assets are also being explored to offer access to alternatives," Dagade said.

Interestingly, some family offices in Singapore and Hong Kong are also keen on exposure to cryptocurrency assets, either directly or through funds or ETFs. While digital assets are still in their infancy, Cerulli believes that managers should eye product developments and distribution opportunities after careful assessment of the regulatory environment, especially for cryptocurrency.

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