Roundtable Discussion – Mapping Alternatives’ US$40 Trillion Wealth Opportunity

Asian Private Banker (APB) co-hosted a lunchtime roundtable discussion alongside its networking partner Blue Owl at the “Alternatives in Focus 2025” conference at the Mandarin Oriental in Hong Kong on February 25.

Optimism for the future of private markets was abundant among the 11 leading fund selectors, chief investment officers and heads of alternatives who took part in the exchange, representing leading asset management companies as well as global and regional private banks.

As Julie Koo, managing director and head of partnerships and relationship management at Citi Global Wealth Investments succinctly noted: “It’s pretty much consensus that wealth clients are under-allocated to private markets.”

The growth implications for alternatives are both far-reaching and game-changing. Johann Santer, senior managing director and head of APAC private wealth at Blue Owl in Hong Kong, spelt them out: “It’s clear from our conversations around the world that private wealth represents the fastest and most concerted growth segment among investors in alternative assets.”

Eugene Lim, managing director of Blue Owl in Singapore, elaborated: “Every one percentage point increase in allocation to alternatives by private wealth represents an additional US$2-3 trillion in total dollar terms. Total private wealth allocations to alternatives could reach US$30-40 trillion if they rise from the current 3% level [of total private wealth portfolios] to the 10-15% level forecast [by Bain Private Equity].”

Within this framework, roundtable participants discussed the merits and performance prospects of every private market asset class and picked their preferred alternatives strategies for the next one-to-five years. They similarly debated the likely volumes of the global M&A markets in the years to come; the interest rate outlook; and its impact on individual asset classes.

The bankers were unanimous in their view that their own clients are becoming increasingly aware of the burgeoning opportunities in private markets. They were equally united in optimism about the outperformance alternative asset classes will achieve relative to their public market equivalents in both the short and longer terms.

Bankers also pinpointed the need for both more and continuous education of end-clients in the nature and benefits of alternatives. They stressed that this would, in turn, continue to foster growth in private markets among UHNW investors, particularly given the additional liquidity provided by the rapidly rising adoption of evergreen structures across all alternative asset classes.

The participants also explored the many nuances of manager selection and whether the accelerating market consolidation in the providers of alternatives will continue. Lim’s conclusion? “For private banks and wealth managers looking to move the needle, to scale up their alternatives allocations from their current levels and to provide their clients with meaningful access to private markets, they will need partners of considerable scale as well as expertise.”

It was widely acknowledged that the evolution of such scaled managers will increasingly work to the advantage of private wealth investors. Reasons cited included not only their greater abilities to originate and manage investments, but also to provide more comprehensive client education and all-round client services.

Clouds did loom over some elements of the debate, mostly in the form of continuing global geopolitical instability and the potentially inflationary impact of aspects of US government social, economic and foreign policy. Participants discussed these and other risks – including potentially rising default rates in private credit – currently obstructing or delaying private market expansion.

But excitement for private market opportunities across the full spectrum of their asset classes shone through any gloom.

Here are the edited highlights of the discussion.

Participants

• Christina Au-Yeung, head of investment management service (IMS) at Morgan Stanley Private Wealth Management Asia
• Mathieu Forcioli, global and Asia Pacific regional head of alternatives, HSBC
• Gunther Jost, managing director, head of hedge funds & investment specialists, advisory & sales North Asia, UBS Global Wealth Management
• Julie Koo, managing director, head of partnerships and relationship management, Citi Global Wealth Investments
• Martin Leung, executive director, head of private investments Hong Kong, investment services, BNP Paribas Wealth Management
• Shirley Li, executive director, Morgan Stanley Private Wealth Management Asia
• Eugene Lim, managing director, Singapore, Blue Owl Capital
• Patrick Linnemann, senior managing director, direct lending, Blue Owl Capital
• Johann Santer, senior managing director and head of APAC private wealth, Blue Owl Capital
• Connie Sin, head of funds and alternatives, international wealth management, Nomura
• Hyde Sun, head of investment consultants & head of private equity, private wealth management, Hong Kong branch, Cathay United Bank
• Stephen Sheung, head of alternative investments and managed solutions, investment solutions group, Hong Kong, Bank of Singapore

A photo gallery of all participants can be found here.

APB: Which private market asset class do you think will outperform its public equivalent in 2025? And what’s your outlook from a three-to-five-year time horizon?

Mathieu Forcioli, HSBC: “I generally prefer not to take a short-term view on private markets asset classes versus public markets. But performance-wise, there’s a strong case to be made for private equity. In today’s environment, something like 70% of the global private equity market is in the United States. Given the new US administration’s concerted focus on deregulation, it’s reasonable to expect an increase in both capital market activity and a rise in the volume of private equity transactions. And that, in turn, will be highly supportive of private equity performance.”

Christina Au-Yeung, Morgan Stanley Private Wealth Management: “A key achievement of open-ended alternatives is they have opened up more vehicles to enable more clients to have a smoother ride as they access the private markets. That is great from a real assets perspective. We’re also very excited about infrastructure. Assets with a recurring underlying yield, but where the underlying hold is longer, fit better in semi-liquid vehicles and will, in turn, underscore the stability of these vehicles.”

Gunther Jost, UBS Global Wealth Management: “We very much believe in an endowment-style approach which takes a longer-term view and offers attractive risk-adjusted returns by allocating more across a diversified portfolio of alternatives.

Currently, for clients who are looking for income-focused solutions, private credit is still very interesting. Clients like the floating rate, short-duration nature of the asset class. If interest rates stay higher for longer, this will still be a good place to be. But we’ve also seen more interest on the infrastructure side both as an inflation hedge and as a way to benefit from structural trends which clients are increasingly looking to include in their portfolios.”

Martin Leung, BNP Paribas Wealth Management: “Private credit is the asset class that will most outperform in the short term. If you believe that the economy is going to continue to hum along, you’re just clipping coupons right now. The only caution would be around default rates and there are no signs right now of those picking up.

If you broaden the lens to the next five years, private equity will still be the place to be given the long-term alignment of interests. Also, to Christina’s point, if you think that President Donald Trump’s policies might herald a rise in inflation, real assets will come more into focus. Real estate has been through its mini-cycle in the past three years and there a lot of opportunities to be had – providing that you are investing in the right neighbourhoods. Infrastructure is also clearly a great hedge to inflation. We see a lot of opportunities, especially in the energy space.”

Patrick Linnemann, Blue Owl: “In terms of outperformance, I’m looking to alternative credit – hard assets and asset-based finance. When we started our private credit business 10 years ago, there was a thesis around the private credit market growing but the capital base not being commensurate with that of private equity. We see a similar phenomenon right now in asset-based finance. Meaning it’s a market that will be bigger than direct lending overall, but firms have not yet built the capital origination capabilities to go with its potential in terms of size and scale.

With that in mind, we acquired the alternative credit investment strategy and team from Atalaya Capital Management in September 2024 and we believe the asset class could grow by as much as five times in the next three-to-five years. It’s going to be challenging to build the origination capacity but it’s a huge growth vector for us. It creates a non-correlated cashflow for investors – hard assets, short-duration, effectively self-amortising over three-five years – that they are not currently getting from traditional credit products.”

Hyde Sun, Cathay United Bank: “I think private credit will continue to remain very attractive in terms of returns. I would say, though, that investors need to focus more on default rates. Private credit has grown so fast as an asset class that a note of caution is necessary.”

Shirley Li, Morgan Stanley Private Wealth Management Asia: “On the private equity side, secondaries look increasingly interesting with a lot of GPs and LPs looking for liquidity. Infrastructure is also becoming a compelling asset class with particular focus on AI, data centres and the broader digitalisation theme. Demand is certainly there.”

Stephen Sheung, Bank of Singapore: “Over a three-five year period, my insight is better tuned to anticipating business growth than asset class returns. From that perspective, I think private credit is going to attract the most flows across the private markets spectrum as there continues to be solid client preference for income and yield. We worked on a private credit solution in the second half of last year that includes asset-based finance – US prime consumer and auto loans, among others – within it. It was a first for us to take this to clients and it resonated incredibly well. I think Asian clients still have a stronger preference for hard assets which can provide additional protection to corporate governance and paper contracts.”

Connie Sin, Nomura: “In terms of public markets versus private markets, significant allocations will move from the public to private in the next few years. In terms of the quality of performance, investors will move towards higher Sharpe ratios, lower volatility and look for the more consistent returns on the income side that private credit can offer. With interest rates staying high – and we do not expect any more US interest rate cuts this year – we believe that yields will support increased private credit allocations.”

APB: Which buckets of the traditional 60/40 investment construct for private wealth investors are going to lose out to private markets as the latter grow? And which fund structures do you believe will predominate?

Stephen Sheung, Bank of Singapore: “Coming from 60/40, for a medium-risk profile, the increase in allocation to private markets will mean reductions in both debt and equity buckets.”

Johann Santer, Blue Owl: “Can we all agree that there is still enough cash on the sidelines that, for the time being, we don’t need to reduce anything from the traditional 60/40 portfolio construct?”

Julie Koo, Citi Global Wealth: “Agreed. Looking across our client portfolios, cash balances remain high largely driven from nervousness on market volatility and direction. Given cash balances, allocations to alternatives can come from cash or money market funds. The development of evergreen offerings will make it more compelling for clients to access alternatives versus the traditional drawdown structures that dominated in the past.”

Stephen Sheung, Bank of Singapore: “We all have to educate our clients on the right amount of liquidity that they require to fulfil their cash needs. There’s almost always too much liquidity. Ultimately, it’s up to all of us – whether we are product providers, general partners or banks – to educate our client advisory teams and, in turn, our clients if we want to liberate cash.”

Johann Santer, Blue Owl: “I agree. I think some of the evergreen strategies that we are now seeing in alternatives very much have the feel of a mutual fund for a lot of investors. That’s clearly helping from a convenience point of view in accelerating client access to these strategies.”

APB: On the investment side of Blue Owl’s direct lending business, are your portfolio companies able to sustain an environment where interest rates remain higher for longer?

Patrick Linnemann, Blue Owl: “Net-net, higher rates on the private credit side of our business are better for us. Simply because they generate better returns for the portfolio. Definitionally, they create more stress on the portfolios, which means credit losses should go up. But we’re starting from such a historically low level of where we need to be – from an impairment perspective – that concerns are minimal. And any concerns are trumped by the much better earnings power of the entire portfolio – with only a very modest offset for slightly higher credit losses.”

Mathieu Forcioli, HSBC: “Do higher-for-longer rates, along with higher inflation that might arise from the new administration’s tariffs and immigration policies, worry you in combination?”

Patrick Linnemann, Blue Owl: “We are closely monitoring this and, of course, these macroeconomic factors have implications on our market, like most markets. But I believe these macro issues will be more impactful on private equity. The reason why M&A volumes are so low is because equity prices are simply too high. And they can’t grow into the valuations because the growth is just not there. That’s why M&A is not coming back as quickly as many might hope. M&A volumes will certainly be higher this year than last year, but there will not be the deluge of activity that some have been expecting.”

Mathieu Forcioli, HSBC: “But presumably you think other areas of capital market activity will pick up? There will surely be exits like IPOs for example?”

Patrick Linnemann, Blue Owl: “For sure. Big strategic buyers are out there. The logjam for M&A is in private equity buying private equity. And the logjam is there because 2020 and 2021 purchase prices were just so high.”

Johann Santer, Blue Owl: “Matthieu asked a great question of a credit investor just now – is he worried? In my experience credit investors are always worried!”

Patrick Linnemann, Blue Owl: “We are borrowers. We get paid to worry and focus on the downside, that’s our job!”

Mathieu Forcioli, HSBC: “There is a need for exits. I hear you when you say valuations are too high. But we cannot just keep kicking the can down the road forever.”

Patrick Linnemann, Blue Owl: “Many bankers, for the past two years, have been saying that M&A volumes would keep growing at the same historical 10% annual growth rate. But, in reality, these M&A volumes have been only around 20% of previous totals. I believe to get back to more normalised levels could take three-five years. In the meantime, I agree that there will of course be IPOs, along with refinancings and recaps and continuation funds. There are any number of financial instruments that will be used to monetise and get dollars back.”

APB: Would you agree that there’s a bifurcation taking place in private markets with the big getting rapidly bigger? What, if any, effect does this have on your choice of private markets partner?

Julie Koo, Citi Global Wealth: “The core of our growth strategy for alternatives will be with GP partners that not only have strong investment propositions but also the ability to partner with us on service and investment education. To enrich our value proposition beyond core solutions, we will also continue to identify more specialised, niche managers around thematic areas.”

Connie Sin, Nomura International: “Overall, yes, the bigger GPs are clearly growing much bigger and will capture the lion’s share of both the market and attention for alternatives in private wealth in Asia. Like Julie, I also believe there will continue to be room for highly specialised, high-touch firms who can provide niche solutions – particularly for us in what we are doing in Japan.”

Johann Santer, Blue Owl: “The barriers to entry to be a legitimate private market provider for private wealth clients are now arguably very high. You need to have three ingredients. First and foremost, you need to have the right offering – stable downside-protected returns with high income generation distributed on a monthly basis always helps; second, you need to have the right vehicle – it’s not good enough to have the best capabilities if you are delivering them via a traditional drawdown vehicle – clients are now choosing differently these days. Third, you need to have people on the ground to support your clients.

From day one we have been consciously building our private wealth business and we have been in evergreen strategies pretty much from the start. Our total wealth AUM is now over US$100 billion.

There has been a significant consolidation in our industry. The six largest managers in wealth have a 60% market share with, give or take, an average about 10% of the market each. At Blue Owl we have 11%. Last year, these managers each raised about US$12 billion; we raised about US$14 billion. Why is that important? From the seventh largest manager to the 25th-ranked manager, they have on average only a 1% market share. And last year they only raised, on average, around US$1.7 billion each.”

APB: What is the main conclusion you draw from this?

Johann Santer, Blue Owl: “The six biggest firms have positioned themselves very well. They are now trusted partners. It’s intuitive. Private wealth is growing and alts penetration within private wealth portfolios is also growing, albeit from relatively low levels compared to, say, institutional allocations. Private wealth bankers and managers need help to solve a key problem – meaningfully increasing the alts allocation in their clients’ books. I believe you need to have managers with scale, with breadth and with the right product platform to win in wealth, and that’s exactly what we have built at Blue Owl.”

Mathieu Forcioli, HSBC: “It depends. For private credit the bigger you are, the more diversified you are, the larger your origination platform, the better your risk-return profile – success will continue to breed success.

It’s a little different for private equity. If you specialise in a particular sector or country and can specifically you have a meaningful role to play alongside global players. That being said, you can have the best fund in the world but if the clients don’t know it, don’t like the country or the strategy, it won’t sell!

You also want a manager that has dealt with defaults. It clearly makes a big difference in a default situation if you recover 30% or 80% of your investment. Most of the very big managers have been around for long enough through many cycles that they know how to handle defaults.”

Christina Au-Yeung, Morgan Stanley Private Wealth Management: “If you’re very defined about what you are trying to achieve, there are opportunities for smaller players. There are some interesting niche players with specialist offerings that are well worth exploring.”

If participants in this roundtable expressed broad agreement about the growth and return potential for all alternative asset classes – which they saw as tangible and exciting – they were also united in championing their defensive attributes.

The instability and fluctuations that beset public markets in the weeks following the discussion have only added validity to participants’ collective conviction that private markets remain the most compelling alternative for UHNW investors owing to their resilience, lower volatility and lack of correlation.

Extreme price movements and steep declines in public markets have similarly reinforced the value of portfolio diversification that alternatives offer, with private credit and infrastructure particularly favoured by the attending private bankers. Making these asset classes havens of hope and relative tranquility in increasingly troubling times.