Hedge Funds and Private Equity Lure Billions From Rich Asians
(Bloomberg) -- Wealthy Asians are pouring money at a record pace into alternative assets through private banks and high-end investment firms to escape low interest rates and volatile listed markets.
The haul at JPMorgan Chase & Co.’s private banking arm from Asian clients more than doubled this year to an all-time high. HSBC Holdings Plc hit a record, with more than half of its inflows coming from Asia. Firms such as Credit Suisse Group AG and Apollo Global Management have made key personnel moves to step up in a region that’s seeing the fastest growth in wealthy people.
“Historically, most of the private banking client demand for alternative investments has come from ultra-high net worth individuals, who are familiar with private equity,” said Alois Mueller, the co-head of private equity at Credit Suisse who relocated to Hong Kong to also lead private & alternative markets Asia-Pacific. “This trend is now being extended to high net worth and affluent investors as well.”
While a crackdown by Beijing on private business and a campaign for common prosperity have jolted Asian markets, the region, already home to more billionaires than any other, is a fast growing hub for private banking. Asia is poised for the biggest jump in individuals with a net worth of at least $30 million, according to a Knight Frank report. By 2025, the region will be home to 24% of all ultra-high net worth individuals, up from 17% a decade earlier, it said.
At JPMorgan, the total amount raised from wealthy Asia clients is in the billions of dollars this year as demand for investing in hedge funds jumped several times and interest in private equity nearly doubled, according to Albert Yang, head of alternative investments for Asia. The private bank has also set up the structure for a bespoke distressed fund for its wealthy clients.
While definitions vary, ultra-high net worth individuals typically have fortunes of more than $30 million, while high net people can sit on at least $1 million.
Private investments typically offer higher returns but are less liquid. Annual returns on alternative investments are often “in the teens or even higher,” according to Mueller at Credit Suisse.
Even so, hedge funds come with their own risks. In November, they posted the largest single-month decline since March 2020 as equities fell sharply due to fears of new omicron restrictions, according to Hedge Fund Research.
As one example, the $4 billion hedge fund at Hong Kong-based BFAM Partners is heading for the first annual loss in its nine-year history, hurt by a selloff in China real estate credit. The BFAM Asian Opportunities Fund lost more than 10% in the first 11 months of the year, according to people with knowledge of its performance. The crackdown on the real estate sector has prompted a number of companies to fall into distress, wiping $46 billion off the wealth of China’s property tycoons.
And private bankers are being careful in where they place their clients’ money. The alternative asset team at JPMorgan’s private bank met with more than 1,000 private investment managers and up to 500 hedge funds globally this year, picking just 3% to invest in, said Yang.
Asian clients have shifted capital from “directional” hedge funds that typically offer higher returns but are more volatile to multi-strategy, more diversified hedge funds that can deliver returns of about 8-12%, according to Yang.
The rising need for private equity among the wealthy comes as firms are cooling on China, pulling back from real estate. Among international funds a third will reduce their exposure to Chinese property over the next three years with none planning an increase, according to a survey by alternative asset manager Coller Capital. When including buyouts, venture, infrastructure, and private credit, there was an even split between increasing or cutting investments in China, Coller found.
China private market fundraising has slumped about 60% year-to-date from 2020, according to data compiled by Preqin.
Credit Suisse has raised more than $1.5 billion from wealth management clients for its annual vintage private equity fund over the past years, with “strong and increasing demand” from Asia-Pacific, said Mueller. Credit Suisse also partnered with BlackRock Inc. this year to launch a bespoke private equity fund that focuses on health and well-being.
HSBC, Europe’s largest bank which is pushing to become the leader in wealth in Asia, earlier this year said it raised a record $2.3 billion from wealthy investors for alternative investments globally in 2020, with Asia accounting for $1.34 billion.
Global wealth is a “key growth channel” and Apollo expects individuals and their advisers to invest $50 billion in its strategies over the next five years and is building its business to support this demand, said Stephanie Drescher, the firm’s chief client and product solutions officer.
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