City investors are more apt to choose and allocate more of their money to private vehicles than anyone else.
Although they are not new, the world of private markets can be murky for the uninitiated. They are typically reserved to the wealthiest of investors given they tend to have high entry thresholds, little liquidity, and convoluted exit restrictions.
That, however, has by no means put Hong Kong investors off given that, as of right now, they lead the world in enthusiasm for the sector, according to a Schroders Global Insights Investor Survey released Wednesday.
More Likely
The financial institution polled 1,755 global wealth managers and financial advisors with $12.1 trillion in assets and found that 72 percent of Hong Kong-based investors are «significantly more likely» to invest in private markets than their global peers.
About 72 percent of the city’s residents are personally involved in setting allocations for the asset class, against a global average of 65 percent.
Higher Allocations
They are also more apt to have higher allocations, with 9 percent of them investing more than 20 percent of their assets, compared to 5 percent internationally.
«In addition, 18% of clients in Hong Kong have between 10-20 percent allocated to private markets, compared to 15 percent globally» Schroders indicates.
Hang Seng Decline
The reason for the bonanza? Higher returns, Schroders indicates. And that is indeed a powerful motivator, not least that the Hang Seng index remains about a quarter off its all-time higher despite the recovery expected this year.
That means that most must venture further afield in the public markets to get the kind of returns they expect.
No Transparency, No Problem
«Professionals in Hong Kong’s wealth management segment view the potential of higher returns than public markets as the most important benefit…They are less concerned about the potential lack of liquidity in private markets compared to their peers globally (35 percent versus 50 percent) and also about the lack of transparency (24 percent versus 33 percent),» Schroders indicates.
Reading between the lines, it appears that a lack of understanding on the professional side could be a potential roadblock, given that a quarter of them claimed an individual lack of knowledge about the sector, as opposed to the global average of 17 percent.
Limited Access
«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,» maintains Tim Boole, private equity head of product management at Schroders Capital.
In Hong Kong, almost half of wealth managers and financial advisors indicated that the onboarding process was one of the three main ways to encourage private market engagements, far higher than the 27 percent rate globally.
Open-Ended
The habits of resident investors also differ when compared with their international brethren as almost two-thirds of them are most likely to buy into semi-liquid or open-ended evergreen funds against marginally more than half of their peers overseas.
On top of that, 44 percent are apt to make co-investments against 34 percent elsewhere.
Strong Attraction
«Steady income generation is top of mind for a greater proportion of wealth management professionals in Hong Kong compared to global respondents (31 percent vs 27 percent). Wealth clients in the city show a strong attraction to multi-asset private solutions, with a much higher percentage than the global average (67 percent versus 47 percent) 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,» Schroders indicates.
Recovery in Sight
Even though public listings, particularly in equity, are on their way back in Hong Kong and China after the severe correction experienced in recent years, the demand for private asset classes is not expected to subside in the city.
According to Schroders, renewable infrastructure equity, real estate debt, infrastructure debt, private debt, securitized, and asset-based finance scored highly in their survey.
More Allocations
The appeal of insurance-linked securities (ILS) among those surveyed in Hong Kong also surpasses global levels as 33 percent in the city plan to increase allocations over the next 1-2 years compared to 25 percent globally.
There is one thing that the survey does build a very clear picture of. The average wealthy Hongkonger appears to be a far more pragmatic and commercially savvy investor than many of their international cohorts when it comes to private markets.
