Institutional investors in Asia are increasingly looking to make direct investments – or at least co-investments – into illiquid assets such as private equity or real estate. It is harder for wealthy individuals to do the same because they cannot generally allocate in as big ticket sizes. 

However, private banks sometimes obtain allocations to direct deals on behalf of important clients, and smaller players such as external asset managers (EAMs) are also looking for a piece of the action.

Singapore's HP Wealth Management (HPWM), which is looking to reach $2 billion in assets under management, has for the past six months been seeking direct private opportunities and assessing how best to deliver them to clients.

“Traditionally, our clients used PE funds, but we are now looking to get more direct exposure via co-investments,” Urs Brutsch, managing partner, said. “It is very likely these will always be coupled with funds for certain specific niches.”

Other EAMs are also looking at directly accessing private deals, he noted, but none had settled on a solution yet due to their lack of experience in finding opportunities. He acknowledged this challenge applies to HPWM, hence why it was exploring how to build or buy the necessary expertise.

“Clients are interested in direct investments because of the expectation that the public markets will not do well in the next two to three years,” said Brutsch. “Fixed income provides limited return, and equities are not cheap."

Fund-of-hedge-fund allocation

For another part of its alternatives exposure, HPWM uses Mercer’s Discretionary Investment Solutions (DIS) offering. In December, the wealth manager allocated 5% of its 20% allocation to alternatives to the investment consultancy's fund-of-hedge-funds platform, which has 24 managers running various strategies. 

Brutsch said the amount allocated was small – well below $100 million – but was likely to grow, as HPWM would be recommending the solution to its family office clients. It is currently being offered to HNW clients for their discretionary mandates.

HPWM had originally bought a Dublin-domiciled FoHF managed by Mercer Global Investment (Europe), but Mercer now provides DIS offering through its Singapore entity, after receiving its discretionary management licence in May.

HPWM had considered FoHF products offered by private banks, but decided to go with Mercer because of its research capability, cost-effectiveness and lack of conflict of interest, said Brutsch, who has worked in wealth management in Asia for 30 years. Private banks accept retrocession fees from fund providers, he noted, but Mercer does not.

“We’ve had a lot of interaction with private banks and we realised they’re not the best way for us to go,” he noted. “Mercer fits our philosophy of being independent.” 

HPWM is also planning to reduce the number of actively managed funds on its platform in favour of adding factor-based products, as reported last week.