Madame Wang Dian, Chief Executive Officer of Hywin Wealth, and Pamela Hsu Phua, Chief Executive Officer Asia at VP Bank, explain the major trends in private market investing that they are seeing in APAC. They make the case for why wealth managers are an invaluable part of the ecosystem serving investors.

This interview features in our new research report, “Why Wealth Managers are the Ultimate Private Market Matchmakers.” Download your complimentary copy by completing your details here.

How strong is demand for private market investment opportunities within your own client bases currently, and how strongly do you see the drivers of this trend developing?

Madame Wang Dian: “Private markets are already very popular with Hywin’s clients, who are sophisticated investors allocating their assets with attentive eyes to fundamentals and trends. More than half of our total client transaction value – RMB78 billion (around $12 billion) – in the fiscal year 2021 went to private market investment products, from private credit, private equity and venture capital to fund-of-alternatives funds.

“Looking forward, I think Hywin’s clients in Greater China and beyond will continue to allocate a consistently high proportion of their wealth to this domain. Diversification and improved risk/returns are a big driver but, importantly, Hywin and our clients also believe great companies will be private for longer before they seek public financing. Innovation, growth, patience, and substance are generously rewarded in the private markets.”

Pamela Hsu Phua: “Historically, private banking clients may have largely eschewed private markets, but they started to want some exposure via collective funds from the beginning of the millennium and then in recent years; they increasingly began to demand attractive individual deals. Today, the average private client allocation is estimated to be above 10 per cent of portfolios and this may reach above 20 per cent in the next years as the long-term transformation of the business world and consumer behavior continues, especially in the digital, medical and ESG spaces. We see similar trends at VP Bank and among our intermediaries too.

“The strong performance of public markets has certainly boosted exits from private market investments and past successes with great multiples on invested capital naturally drive up confidence for future ones. This trend isn’t going anywhere. By some reports, in Asia alone there is around $385 billion of ‘dry powder’ waiting for deployment in private markets.”

Which characteristics unite the clients you see who are most keen on private markets opportunities?

Pamela Hsu Phua: “We see private market investors differing as to levels of wealth, life stage, business background and so on, but they are united in a desire not to miss out on the opportunities presented by economic growth and transformation. They are invariably well educated, well traveled and well informed. 

‘For example, VP Bank clients hear, sense and experience the wealth created via private market investments and many in fact own high-growth businesses which have themselves been investment targets.”

Madame Wang Dian: “I would say that clients who are active in the private markets are typically highly curious intellectually, love to learn and analyze a trend, a sector, a company, and their contexts. They demand to see and will only be won over by logic and value. 

"Secondly, they are patient – patient with the investment targets and patient with the necessary diligence process. They won't be rushed. The illiquid and chunky nature of every investment reminds our clients to take their time and deliberate. Decisions are not made in haste, but brewed over time. 

"Thirdly, they are very good at using advisors – leveraging both the network and intellectual capital of Hywin to see as many opportunities as possible, but also talking to the full range of specialist advisors, lawyers and boutique investment banks we introduce to better inform their decisions.”

Which routes into private markets clients are clients pursuing and is this predominantly driven by the institution or clients themselves?

Madame Wang Dian: “For most clients, the structural clarity, procedural assurance and diversified holdings of a private equity fund or venture capital fund are desirable, so the most common entry point we see is through the various funds we recommend or manage. Hywin’s Cayman funds and Hong Kong Limited Partnership Fund (LPF) vehicles are particularly popular.  

“Some sophisticated clients do want direct investment, secondary blocks, and pre-IPO opportunities, however, and here we help deliver great care and rigor in the valuation and transactional processes. 

“We also see ‘format agnostic,’ institutional-grade clients who proactively position for trends they believe in without particular regard for public versus private, seeing these as one continuum hunting ground for opportunities.”

Pamela Hsu Phua: “The traditional route has been to invest into a trustworthy collective investment vehicle such as a fund, but we’ve also seen a rise in direct investments since the financial crisis of 2008/09. It’s easy to see how digital tokenization might further fuel this as it extends to real estate and other assets. 

“At VP Bank, we think the right format is a function of prior experience, knowledge, financial circumstances and risk tolerance. So, a risk-averse client should probably opt for a fund with a good track record and well-established managers, whereas a slightly more aggressive one could back funds with younger managers in frontier sectors and the savviest investor could go for single high-conviction investments. From a risk-reward perspective, a combination of all three may be sound advice, however.”

The private market is a heavily intermediated space. What in general do wealth managers bring to the table that others perhaps can’t?

Pamela Hsu Phua: “Many parties may have the ear of investors, ranging from fund managers, financial advisors and the brokers of securities companies, through to business partners or even friends and family members. However, a wealth manager such as VP Bank will likely know the client's overall financial situation and life circumstances best and is therefore better placed to make a recommendation.”

Madame Wang Dian: “I would argue that wealth managers are the ideal advisors for clients seeking private market opportunities. Not only do we have very close, durable relationships with our clients, we are structurally above deals and projects and ‘unmissable’ opportunities. We offer unbiased assessments, multi-functional case teams and continuous monitoring years after transactions are done, which are all strong guards against common mishaps.”

Pamela Hsu Phua: “I would also highlight wealth managers’ bench strength when it comes to trend research and the more systematic approach we can take in building up a network of managers in private market investments, and in sourcing direct investment deals across geographies and sectors. Building such a team and capabilities yourself is neither easy nor cheap.

“We can also make the most of technology. VP Bank in Liechtenstein has launched a unique open platform called ORBIT to source and curate the best managers and available direct investment opportunities from all major markets and sectors so that investors have both wider choice and better information to make their choices – all via a single point of contact. We can even combine selected managers or deals together to construct a portfolio for specific client objectives.”

Madame Wang Dian: “It should also be remembered that wealth managers have strong institutional clout. So, while individual clients might struggle to bargain with investment banks and fund managers, we can demand and get more comprehensive information, better pricing and structural flexibility from these behemoths.”

Taking a step back, would it be wrong to think of great enthusiasm for private markets as a particularly APAC-specific trend and – moreover – do you see it as one which will help further drive the region’s growth?

Madame Wang Dian: “Innovation and disruption are fueling a boom in private markets globally, but I would agree that APAC has tremendous momentum in terms of private market assets, investors, funding and intermediaries. 

“We think China will continue to be the engine of growth and innovation, whilst Southeast Asia and India are rising as investible private markets. We can safely expect to see them in the spotlight for years to come.”

Pamela Hsu Phua: “APAC certainly has been the fastest growing region in the world for the last 30 years and probably will keep this status in the foreseeable future too. This process has certainly created many opportunities and wealth. A successful person in Asia is looked up to as a role model inspiring others to be as successful, if not more so. VP Bank has been committed to Asia and shall further increase our coverage to Asian clients and intermediaries on their journey.

“Nonetheless, average GDP per capita is still below the Western countries. Asian investors are probably more eager and hungrier to grow their wealth further and hence the appetite for higher-risk and higher-return investments has been and shall remain strong. This certainly is part of a virtuous circle and should accelerate Asia's economic growth even more.”

Learn what UHNW clients are saying about private market investment provision by wealth managers by downloading your complimentary copy of Why Wealth Managers Are The Ultimate Private Market Matchmakers here.