More of Asia’s wealthy to invest in alternatives by 2024

Rising interest rates and access to alternatives such as digital assets are driving the trend, as China’s wealthy show the most interest in ESG.
More of Asia’s wealthy to invest in alternatives by 2024

The proportion of Asia Pacific’s wealthy who invest in alternatives is set to nearly double in three years, as they gain easier access to the asset class amid a changing macro environment, a recent EY wealth management report shows.

By 2024, 61% of wealth clients in Asia Pacific are expected to invest in alternatives, up from 37% currently, indicating the strongest demand for diversification compared to other markets, according to the 2021 EY Global Wealth Research Report.

The study interviewed 2,500 wealth management clients in 21 geographies across the world, ranging from the affluent to the ultra-high net worth.

Globally, 32% of respondents invest in alternatives, and the number is expected to increase to 48% by 2024. Millennials, the ultra-high net worth individuals and those with a high level of investment knowledge have a stronger interest in the asset class.

Source: 2021 EY Global Wealth Research Report

Better accessibility to these asset classes, which can provide more liquidity, is one of the drivers of alternative investments, Mark Wightman, EY Asia-Pacific wealth and asset management consulting leader, told AsianInvestor.

“Here in Asia, we’ve seen the likes of [Singapore state investor] Temasek actually providing government-backed private equity funds, providing access to retail, private market assets. We’ve seen an increase in organisations and new players offering such capabilities.”

Accessibility to digital assets such as cryptocurrencies have also driven interest, as several Asian banks have begun offering crypto and digital assets trading and custody ecosystems through their digital exchanges. 

For example, Singapore-based DBS Bank announced that it would launch its own digital exchange in December, which would offer crypto trading services between fiat currencies and cryptocurrencies.

Meanwhile, the macro environment has also had an impact. Wightman noted that the rising interest rate has brought concerns to the fixed income as well as the equities market, while currency has consistently been volatile. So investors are becoming increasingly interested in private assets, including high-growth companies, he said.

China leads Apac ESG goals

The report also found China had the highest interest in environmental, social, and corporate governance (ESG) parameters, ahead of five other major Asia Pacific markets – Australia, India, Japan, Singapore, and Hong Kong.

It showed that 97% of Chinese mainland investors said it was important to consider ESG in their portfolio, compared with 92% in Singapore, 91% in India, 89% in Hong Kong, 80% in Japan and 72% in Australia. 

China and India are leaders in ESG because the markets have the world’s largest populations, and a substantial younger generation, Wightman said.

Currently, 29% of Indian and 36% of mainland Chinese respondents invest in alternatives, but this is set to increase to 64% and 75% respectively by 2024.

Generally, investors have shown a high amount of interest and understanding of their investment’s impact on the environment, he added.

Source: EY

“The growing focus and interest on ESG and impact investing present a huge opportunity for wealth managers in the coming years and the winners will invariably focus on understanding their clients’ values and offering a broad choice of ESG investing options, tailored guidance and advice,” said Wightman.

Respondents also indicated that their current wealth providers' understanding of sustainability goals were not keeping up with their beliefs. For instance, 41% felt their wealth manager could understand their goals better, and 35% with sustainability goals were looking to switch wealth managers in the next three years, compared with only 15% of clients without.
Specific ESG areas that clients were interested in were also highly localised, aside from climate change. While 48% of respondents across the board agreed that climate change was a top concern, other issues ranked as most important were different in every region, for instance, 61% of investors in Latin America said deforestation was most important to them, compared with only 19% in Asia Pacific. 
This article has been updated with statistics of Apac markets' expected rise in alternative investments.
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