Hong Kong investors continue to favour private markets as city leads the way in allocation of the asset class
Hong Kong investors are significantly more likely to invest in private markets than global peers, with 72% personally involved in allocation to the asset class versus a global average of 65%, according to Schroders’ flagship Global Investor Insights Survey (GIIS).
GIIS, which encompasses 1,755 global wealth managers and financial advisers representing US$12.1 trillion in assets, reveals that private equity (53%), multi-private asset solutions (47%) and renewable infrastructure equity (46%) are the three private market asset classes that wealth managers and advisers anticipate their clients to increase their allocations to over the next 1-2 years.
Clients in Hong Kong are slightly more likely to have larger allocations to private markets, with 9% investing more than 20% of their assets, compared to 5% globally. In addition, 18% of clients in Hong Kong have between 10-20% allocated to private markets, compared to 15% globally.
Gopi Mirchandani, Hong Kong CEO; and Head of Strategy, Asia Pacific, Schroders, said:
“Our survey results indicate that 75.7% of institutional investors in Hong Kong are already invested in private markets, far higher than 68.7% globally. Against this backdrop, we have noted favourable results of institutional portfolios achieving stronger risk-adjusted returns over the longer term. Wealth managers and advisers can consider allocating to private markets via a fund-of-funds (FoF) approach to enable investors who do not have the capacity to invest directly in single private-asset strategies.”
“As private assets become more mainstream, we see our role as a global asset manager at Schroders as facilitating an understanding of the risk-rewards of allocating across the capital structure and to create investment solutions that can capture the long-term benefits of allocating to private markets, which have been largely inaccessible until recently.”
Professionals in Hong Kong’s wealth management segment view the potential of higher returns than public markets as the most important benefit for investing in private markets (64.0% versus 59.4%), an attribute for the asset classes that is recognised. They are less concerned about the potential lack of liquidity in private markets compared to their peers globally (35% versus 50%) and also about the lack of transparency (24% versus 33%).
However, understanding of private assets among wealth management professionals in Hong Kong was marginally lower, according to the survey, with 25% reporting that a personal lack of knowledge was an issue, versus the global average of 17%.
The onboarding process was identified by 45% of wealth managers and financial advisers in Hong Kong as one of the top three ways to encourage further engagement with private markets, against 27% globally.
They are most likely to invest in private markets through semi-liquid or open-ended evergreen funds, more so than their global peers (62% versus 51%). They are also more likely than their global counterparts to invest through co-investments (44% versus 34%).
Tim Boole, Head of Product Management, Private Equity, Schroders Capital, said:
"There is absolutely no question that private wealth is going to play a very significant role in private markets going forward. The options for wealth managers and advisers to access private markets have so far been limited relative to their institutional counterparts, which is why despite intentions, we are still seeing low allocations.”
“However, the emergence of new vehicles, such as semi-liquid funds, are broadening available access points and have been a significant step forward in offering flexibility for investors to meet their investment objectives using private markets. It is therefore unsurprising to see these structures being favoured by this client segment.”
Steady income generation is top of mind for a greater proportion of wealth management professionals in Hong Kong compared to global respondents (31% vs 27%). Wealth clients in the city show a strong attraction to multi-asset private solutions, with a much higher percentage than the global average (67% versus 47%) planning to increase their allocation to this type of asset. This makes it the foremost private market asset class expected to register an increased allocation over the next 1-2 years.
As investor sentiment improves, demand across a number of asset classes in Hong Kong outpaces that seen globally. Renewable infrastructure equity, real estate debt, infrastructure debt, private debt and to a lesser degree, securitised or asset-based finance (ABS) all scored highly in the survey. The appeal of insurance-linked securities (ILS) among those surveyed in Hong Kong also surpasses global levels as 33% in the city plan to increase allocations over the next 1-2 years compared to 25% globally.
Important Information
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.