High net-worth individuals (HNWIs) in Asia are increasingly channeling their investments into private markets and art due to the attraction of higher returns and a desire for diversified portfolios. What does this shift signify for the future of financial markets and the broader economy in Asia? Let’s explore.
A Surge in Private Investment Demand
Endowus, a Singapore-based investment platform, has recently conducted research showing that 62% of high-net-worth individuals in Hong Kong and 42% in Singapore are planning to increase their investments in private markets and hedge funds. This shift towards alternative investments demonstrates a broader strategy to pursue higher returns in the face of fluctuating traditional markets.
Notably, 41% of Hong Kong investors and 45% of Singapore investors are willing to take on higher risks in order to achieve capital appreciation. What’s even more remarkable is that over 20% of investors in both regions are ready to embrace substantial risks to maximize their returns.
The report from Endowus also reveals that Hong Kong investors are particularly concerned about the lack of diversification in their portfolios, with 36% citing this as their primary concern, compared to only 26% of Singapore investors. Meanwhile, 48% of Singaporean investors are most disappointed with low returns, a sentiment shared by 33% of Hong Kong investors.
Under the new investment trends of high-net-worth individuals in Asia, Hong Kong is positioned to rival traditional centers like Switzerland, thanks to the city’s unique role as a gateway to Mainland China. According to Sergio Ermotti, CEO of UBS, Hong Kong’s wealth management sector is expanding at a compound annual growth rate of 7.6%, with projections suggesting it could overtake Switzerland by 2027.
Partners Group, one of the world’s largest private equity firms, recently established an office in Hong Kong’s Central district. This move underscores the city’s strategic importance in the private investment landscape. With assets under management (AUM) totaling approximately USD 147 billion, Partners Group is keen to tap into the burgeoning demand for private investments in Greater China.
The firm’s presence in Hong Kong leverages the city’s unique position as a gateway to Mainland China and the Greater Bay Area, offering unparalleled access to distribution channels and investment opportunities. Currently, Hong Kong has approximately 650 private equity and venture capital firms operating in the city, collectively managing USD 228 billion in assets.
HSBC’s Asian private banking division also reported a stellar performance last year, with a 10% increase in revenue, setting a new high. Despite facing headwinds in the mid-market, both Hong Kong and mainland China outperformed other regions in Asia. HSBC’s global private banking head emphasized the focus on ultra-high-net-worth clients, structural loans, alternative investments, and family office services.
Art Investment: Another Growing Trend Among HNWIs
Art investment is another avenue where Asian HNWIs are allocating their wealth. Family offices worldwide are increasingly incorporating art into their investment portfolios. Many family offices view blue-chip art investments as a means of diversifying their portfolios and hedging against economic downturns. The enduring value of these high-priced artworks, often validated over long periods, offers a relatively stable investment option. For instance, a chicken cup from the Ming dynasty recently fetched an astounding HKD 280 million at auction.
According to Deloitte Private and ArtTactic, the total value of art and collectibles owned by the world’s wealthiest individuals reached nearly USD 2.2 trillion by 2022, with projections suggesting this figure could rise to USD 2.9 trillion by 2026. Art and collectibles constitute 13.4% of family office assets, reflecting their growing significance.
Hong Kong has established itself as a vibrant hub for Asian art transactions, with the total auction volume of art, collectibles, and antiques surpassing HKD 66 billion in 2021. The success of events like Art Basel HK and record-breaking auction sales underscores Hong Kong’s position as a leading art trading and auction center in the region, attracting global family offices and solidifying its status in the international art market.
China Ascends in the Global Art Market
According to a joint report by Art Basel and UBS, global art sales have reached approximately USD 65 billion, a 4% decrease from the previous year. However, one noticeable new development is China’s increasing prominence in the global art market.
With a 19% market share, China has overtaken the United Kingdom, which now holds a 17% share, relegating it to the third position. France follows in fourth place with a 7% market share. This shift underscores China’s growing influence and the increasing interest of Chinese HNWIs in art as a valuable investment.
Adrian Zuercher, Co-Head of Global Asset Allocation in the UBS Wealth Management Chief Investment Office, noted that the relaxation of pandemic restrictions has spurred a 9% growth in the Chinese art market. This growth is not only a testament to the robust demand for art within China but also indicative of the broader economic recovery driven by supportive policies and moderate regional export expansion.
Conclusion
The rising interest in private investments and art among Asian high-net-worth individuals indicates a move towards more advanced and diversified wealth management strategies. Investors are not just pursuing high returns but also aiming to protect themselves from economic uncertainties by employing diverse and innovative investment strategies. This new approach is set to reshape the future of wealth management, presenting promising opportunities for investors and financial centers.
