Industry Insights

What type of deals are Asia’s private clients buying into?

Private Credit
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We are thrilled to share with you a special interview recap with the host of Money FM, Hongbin Jeong and Helicap’s Group CEO, David Z Wang. Money FM, Singapore’s first and only business and personal finance station, features local and international business and financial news. In this interview, we shared key insights and explored the various outlooks for private markets. 

This blog post serves as a comprehensive recap of the interview, delving into the discussion on private markets and its recent trends for this asset class. We hope that this post will be informative and valuable to all who are seeking to learn more about private markets. 

Q: Are Asian institutional investors leaning more towards private equity and debt markets from public markets? 

Helicap was founded five years ago with the goal of providing access to untapped markets. David mentions that he started his career during the global financial crisis of 2007-2008, and gained experience working for investment banks focusing on public markets. Eventually, he decided to leave the banking sector and establish his own company. 

Firstly, he recognised the huge growth potential in Asia, particularly in Southeast Asia and observed a growing demand among investors for more sophisticated products that could diversify and stabilise their portfolios, beyond the traditional sources of information such as Bloomberg and the press. As a result, Helicap has garnered strong interest from not only institutional investors in Asia, but also from global institutional investors and private individuals.

Q: What is driving this shift?

The acceleration of recent events has played a significant role in driving this shift. The years 2019 to 2022, which have just concluded, have witnessed one of the most volatile periods in market history. It is unnecessary to reiterate what happened, as they have affected investors universally. Profit and loss became commonplace, followed by a substantial bull market. 

However, several factors have emerged during this time. Firstly, there is inflation, which has crept up after more than a decade. Secondly, there is a general deceleration in equity markets, which in turn affects the technology sector. Moreover, political risks add further complexity to the investment environment. Consequently, investing in the public market has become challenging and very volatile. Only a few emerge as winners amidst this scenario. Even within the hedge fund space, the majority of funds fail to perform well, but a few do achieve exceptional results.

Q: What are some of the key trends in institutional investors when it comes to allocating their assets in private markets? 

In response to the research findings, KKR suggested that clients should consider moving away from the traditional 60/40 strategy, which allocates investments between public equity and fixed-income bonds, and private investments. Notably, KKR's recommendations include a 10% allocation to private debt as a means to achieve portfolio stabilisation. This emerging trend is recognised as one of the trends. 

Reflecting on the past five years since the establishment of our firm, significant efforts were dedicated to educating investors. However, there has been a notable shift as both individuals and investors now actively inquire about the practicalities of implementing such strategies. More questions arise, such as whether to pursue direct investments, what opportunities are available, and what risks should be considered. This increasing awareness in the private investment space is highly positive.

Q: Which types of private clients in Asia are driving this kind of trend? What types of deals are Asian clients buying into? 

The situation in Asia presents an intriguing landscape, particularly in light of the changes observed over the past two to three decades, largely influenced by China. During this period, there has been a significant increase in the middle class and high-net-worth individuals. Additionally, numerous business families have grown their businesses nominally or have opted to exit their businesses to accumulate cash. This influx of capital has been evident from a banking perspective as well. 

Consequently, this abundance translates into an increase in various deals and investments. Asian investors, however, display a preference for diversifying their investments beyond the widely popular US stock market. They seek opportunities that align with their understanding and contribute to the development of the Asian economy. This trend has led to the rise of family offices, notable in Singapore, with hundreds of new family offices established each year. These family offices are managed by professional investors, often from the second generation, and their focus lies in identifying strategies that generate favourable returns for their capital.

Q: What are some of the key opportunities in private markets right now?

Helicap is  a private debt firm so it is a key opportunity”. Investors have become increasingly astute and well-informed, thanks to the wealth of information available online and the wide network of contacts they can leverage for insights. Within this context, three key areas present notable opportunities. 

Firstly, managing investment accounts for private investments proves challenging and necessitates either personal expertise or engagement with firms such as Helicap, BlackRock, or KKR. Secondly, there is a need for enhanced education regarding long-term investing. Historically, many investors hesitated to invest in funds with extended durations. However, there is now a growing market for funds with shorter durations and greater liquidity, providing alternatives that allow investments to be made over a two-year timeframe, for instance. Thirdly, numerous unique opportunities arise on a deal-by-deal basis. Innovative companies structure deals that enable investors to participate with modest amounts, as little as US$100,000. 

Thus, a plethora of opportunities exist within the sector and across various countries in Asia.

Q: What about other private assets, for example, real estate or alternatives? Are there strong opportunities there too?

Real estate is regarded as a classic and popular asset class. It is considered a fairly traditional approach, as historically, successful businessmen would amass fortunes and invest in land or property. Over the past 34 years, one could have potentially earned substantial returns without active involvement. However, as interest rates begin to rise after several decades, the profit margins associated with real estate investments diminish. For instance, previously, a $1 million loan with a 1% interest rate would require a payment of $10,000. Now, that same loan might necessitate a payment of $50,000, potentially surpassing the rental income received from tenants. This presents a significant challenge. 

Another factor to consider is the notable surge in the venture capital world over the past decade. David mentions that he has prior experience in this business as well. Several companies have experienced tremendous growth, with valuations increasing by factors of a hundred or fifty, leading to VC funds raising billions of dollars. However, it is evident that this sector has experienced a slowdown, with growth rates not matching previous levels. This phenomenon is interconnected with the performance of equity markets, where growth opportunities are limited. 

And lastly, would be the potential in infrastructure and commodities, which are real assets encompassing raw materials and real businesses. These niche opportunities offer distinct investment prospects within the market.

Q: Can investors benefit from leaning towards private markets for better future returns? Is this a good time to be expanding in the market?

Yes. Over the past three years, there have been significant fluctuations in the general portfolio when plotted on a month-to-month basis. They emphasise that such volatility is not conducive to achieving stable, long-term capital growth. As a result, they observed a growing trend among investors who are actively seeking investment opportunities. This is reflected in the daily influx of calls received from potential investors inquiring about investment options. David concluded by highlighting the findings from the reports, which recommend a shift from the traditional 60/40 strategy to a 40/30/30 strategy. This approach suggests allocating 40% to public equity, 30% to public bonds, and 30% to private investments. This diversified structure provides a 70% liquid position while incorporating a stable, marked-to-maturity 30% component within the private investment allocation. Such an arrangement can establish a robust foundation for a well-rounded portfolio.

The chart is sourced from “Regime Change: The Benefits of Private Credit in the Traditional Portfolio”  by KKR

Q: Any advice for those institutional investors looking to tap into this untapped market for higher expected growth?

Private investment in the western regions, including Europe and the United States, is significantly more advanced compared to Asia. In Asia, Hong Kong is perceived as having a robust private investment sector, while Singapore's market is considered decent. David emphasised the importance of external investors collaborating with local partners who possess in-depth knowledge of the region. This collaboration allows for co-investment opportunities and fosters good teamwork. 

While capital availability is abundant, there is a misconception that establishing a presence in Singapore alone guarantees success in conducting business. There is a need for a solid team based in countries like Indonesia, highlighting Helicap's commitment to building a strong network in the region.

You may also listen to the full interview here:

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