Here are the edited highlights of the discussion.

1. APB: How would you assess that your clients’ overall risk appetite has changed during 2025? Has there been any structural shift in how they define acceptable risk and liquidity levels?

Lina Lim, HSBC: It’s been something of a roller coaster. Volatility has been the order of the day, and it still is. At the very start of the year, clients were beginning to lean more towards risk-on. Then came Liberation Day and its surrounding related macro uncertainties. So, clients understandably pulled back in terms of their risk appetite. In line with the Gatekeeper Pulse survey indications, clients and selectors alike focused on risk management and high-quality government bonds.

That was then. Beginning in the early second half of the year, as the macro upheaval calmed, major economies showed their resilience, and as markets recovered, clients’ risk appetites began to grow again. The US rate cut clearly contributed to this. In terms of fixed income, we saw clients begin to move out of time deposits and go beyond shorter duration bond maturities. Diversification simultaneously became a big topic of conversation as clients began to think outside of the US. But it’s not been a linear progression. And towards the end of the year, trade and other geopolitical uncertainties have reappeared with a suppressing effect on risk appetites.

Julie Koo, Citi: Most of our clients began the year very risk-averse, sitting figuratively on piles of cash. As Lina says, we’ve seen appetites vary throughout the year. Clients have certainly been more optimistic and increasingly open to new investment opportunities.

We’re now moving into an environment where investors are looking to extend fixed income maturities from shorter to more intermediate durations. In regard to bonds, given how historically large allocations have been to the US markets, investors now seem to have much more propensity to look at opportunities in other markets like Europe, Asia and the broader emerging markets, and maybe even start looking at local currency solutions. It’s still pretty early days.

Opportunities to diversify risk across asset classes, geographies, markets, sectors and currencies are increasingly coming into the discussion, but risk appetites remain relatively constrained.

Stephen Sheung, Bank of Singapore: We entered 2025 with risk appetite influenced by the solid performance across markets in 2024 and continued awareness of macro uncertainties. Then we had the Liberation Day dip. By mid-May, our client conversations indicated to us that confidence had largely recovered.

Fast forward to today, and I would say that client sentiment is more positive now compared to the same time last year. This is unsurprising, as many asset classes have been performing well. Especially in Hong Kong, the outperformance of local equity markets has inspired clients to be more optimistic.

Julie Koo, Citi: Agreed, Stephen. Though I’d say that when markets do well, a frequent reaction from clients is “that’s another reason not to invest!” Particularly given how quickly some markets rose, that left many clients with the view that they’d missed out, and will sit things out, which is the wrong thing to do.

Stephen Sheung, Bank of Singapore: It can certainly have that effect. Maintaining the right, but not excessive, levels of cash has always been an important factor for achieving healthy portfolio returns.

As we approach the end of 2025, I’d say clients are now generally much more willing to engage with ideas for different investment objectives. It’s a good time to review and reposition portfolios, and we continue to guide clients in doing so with our house view.

Connie Sin, Nomura: I’d say that it’s the level of client activity that has most accurately told the story during 2025. In the first half, I’d say clients were cautiously optimistic but activity was relatively quiet. From June onwards, activity has picked up markedly as clients look to put money to work. The engagement has intensified and opportunities in both public and private markets are being discussed with a greater sense of urgency. It has to be said that the incentive to get more active might also have come from the pain many clients are feeling from lower fixed deposit rates.

2. APB: Which area of risk for the remainder of 2025 and into early 2026 do you think clients currently underappreciate the most?

Connie Sin, Nomura: Interestingly, we might have thought that the headline news around current defaults in the US might have alarmed clients in regard to credit markets.

Julie Koo, Citi: As is often said, the media never reports on all the planes that actually took off and landed on time! It’s only the disasters that get the headlines.

Connie Sin, Nomura: But what we’re actually seeing is clients being relatively calm despite the noise around these multi-hundred-million-dollar defaults.

Jessica Jones, PGIM: Agreed. It’s more of an isolated incident, not systemic. Fraud tends to surface cyclically in markets, but this case appears to be a one-off and doesn’t pose a broader risk to the industry. Importantly, we haven’t observed any material outflows as a result.

3. APB: So are you saying that these defaults are currently being viewed by private wealth investors as one-offs centring on fraudulent activity rather than indications of a systemic default crisis in the making?

Connie Sin, Nomura: Yes. Credit default risk is clearly apparent. And there will undoubtedly be more defaults to come as part of the cycle, but the current news is being somewhat discounted.

Julie Koo, Citi: Maybe these default incidents will also inspire the industry to think more deeply about the due diligence they need to do and the constant vigilance that is required.

Stephen Sheung, Bank of Singapore: Broadly speaking, if these are being viewed as signs of economic weakness, or if they translate into weaker sentiment, then there might be investment implications for risk assets of all kinds, not just private credit. That said, our base case does not anticipate a recession in the coming year.

Julie Koo, Citi: I’m not necessarily losing sleep over this, but the industry needs to pay heed to how the public return curve has flattened and come down. It’s the same for institutional and private wealth investors alike, as they are being forced to look at alternative areas to find returns. There’s been such a proliferation of new products and strategies in the private credit space, for example, and I think it might be time for a pause or a consolidation. It means selectors are going to have to do even more work to find the best partners, in particular managers with scale and longevity who have proven their value through multiple cycles.

Lina Lim, HSBC: Our role as selectors is to ensure our clients are properly diversified, which has come to the fore. The risk management component of what we do has never been more relevant in markets that are still very volatile, and asset prices in all markets are close to all-time highs. We have to ensure that clients are not overly concentrated in any asset class, region, currency or market.

4. APB: With complexity in credit markets increasingly becoming systemic, are there any strategies that spring immediately to mind for clients to mitigate?

Jessica Jones, PGIM: We’ve been seeing a widespread resurgence of interest in hedge funds across private bank platforms for some time. As dislocations in the leveraged finance markets deepen, alternative credit strategies are gaining stronger traction. One standout example is special situations, or opportunistic credit, a US$350–400 billion subset of the private credit market. This segment is particularly attractive for its low dependency on credit cycle conditions and the ability to deliver uncorrelated return streams, especially in today’s environment of structural shifts and large-scale capital restructuring.

5. APB: For calendar 2025, which asset class do you think has seen the largest change in allocation, either up or down? Is the increasing convergence between public and private markets visible in these changes?

Lina Lim, HSBC: The biggest rise in allocations has definitely been in the alternatives space overall in the past 12 months. With volatility being the order of the day, more and more clients have been receptive to increasing their allocations to private market strategies. Though we’re still seeing a barbell-type approach with alternatives at one end being balanced by large allocations to cash and near-cash equivalents at the other end.

Julie Koo, Citi: Hedge funds, hands down, have been where we’ve seen the largest rise in overall allocations. Systematic, market-neutral and multi-strategies in particular. Clients have been willing to give up a certain amount of equity market upside in return for downside protection.

Connie Sin, Nomura: Hedge funds have definitely outpaced other asset classes within alternative allocations. We’ve seen them rise from single-digit to double-digit penetration in overall allocations. We’ve seen a particular rise in thematic hedge funds, with healthcare prominent among these.

6. APB: Has that single-to-double-digit increase in hedge fund allocation been within alts or overall portfolios?

Connie Sin, Nomura: It’s been within overall portfolio allocations. I’d say that over two-thirds of our alts allocations have been to hedge funds during 2025.

Stephen Sheung, Bank of Singapore: I think we have to take market moves into account when considering the increase in allocations. The strong performance we’ve seen in, for instance, the Hong Kong and China equity markets, as well as gold, has led to allocations increasing significantly from a passive perspective. When it comes to capital deployment, I would say that compared to the past two years, we’ve seen a more balanced allocation between both hedge funds and private markets within alternatives.

7. APB: In terms of asset allocation and diversification strategies, are you seeing fresh approaches, especially in terms of balancing traditional and alternative assets? How, if at all, is that manifesting in clients’ changing preferences for public and private credit? What role do alternative fixed income instruments (private credit) play in your portfolio? How is the 60/40 allocation of yore now looking?

Connie Sin, Nomura: It clearly depends on client preferences. In Asia, we have perhaps two ends of the spectrum. One is income-focused and the other is equity-driven. Overall, I’d say that we want to reduce the 60% equity component to 35% with the remainder being split 40% bonds and 25% alternatives.

Julie Koo, Citi: For what you might call a medium-risk portfolio, we advise a 27% allocation to alternatives, of which 12-13% is to hedge funds and the remainder to diversified private markets. Though I think we should maybe step back and question some of the terminology in these conversations. Just how “alternative” many alternatives are is increasingly up for discussion. And I’d say hedge funds should be seen more as a wrapper around a portfolio to manage risk or exposure and to accentuate certain risk-reward objectives.

So, I think the discussion should be less around reducing equity allocations to increase private markets and more around looking for the best positioning we can have within a 60/40 construct, with private markets being used to augment or enhance positioning according to diversification and other client needs.

It might also be helpful to stop calling alternatives “alternatives”. Their role within portfolios is changing and with the advent of evergreen vehicles through which they are increasingly being delivered means they are easier to position within the 60/40 portfolio construct than in the past.

Lina Lim, HSBC: For a medium risk portfolio in Asia, we recommend a 15% allocation to alternatives for our discretionary portfolio management clients. That said, every client is different and there’s no one-size-fits-all approach.

Stephen Sheung, Bank of Singapore: We’re going to see alternatives becoming more granular in the next five years, after clients have made portfolio allocations to broader strategies in the recent years.

8. APB: Globally, respondents to the GP survey were most bullish about bonds. Do you share this enthusiasm?

Lina Lim, HSBC: Yes, we’re still positive on bonds! High-quality and investment grade will continue to prevail, but we are also seeing the conversation expand significantly to include, for example, Asian corporates. Now that the rate-cutting cycle has resumed, there will be a number of markets that will benefit from it – and some will not – on the back of continued US dollar weakening.

Jessica Jones, PGIM: Echoing Lina and Julie’s points, we are certainly seeing a marked pick-up in selector focus on multi-sector credit. There’s also a growing consensus to seek solutions from more diverse market sources, both public and private, across longer maturities and across a broader credit spectrum.

9. APB: Do you think this truly heralds what is being called the end of the era of US exceptionalism?

Julie Koo, Citi: Not necessarily. You have to remember that private clients everywhere are, and will continue to be, up to their eyeballs in exposure to the US, whether that’s in currency, equities or credit. The likelihood now is that many want to stop doubling down on that exposure and will naturally look elsewhere in terms of their future reallocation and deployment of capital.

10. APB: Where specifically do you think those reallocations will be directed?

Jessica Jones, PGIM: The securitised markets are now gaining an ever larger share of selectors’ attention. We saw this expressed in the Gatekeeper Pulse survey and we’ve certainly seen their words translate into action throughout the year, with increasing allocations to securitised products in both the public and private asset-backed finance and lending markets. In these still-volatile times, clients broadly indicate that they want collateral for their lending. The growing popularity of AAA Collateralised Loan Obligations (CLO) clearly speaks to this.

Connie Sin, Nomura: It’s a question of asset allocation. Income will always remain a key factor in client portfolio construction as an anchor to portfolios and to protect on the downside. With rates now being cut, clients are becoming more open-minded about different fixed income strategies. More varied hybrid strategies, contingent convertible bonds and catastrophe bonds have all become part of the conversation as a result.

And, in line with Jessica’s point, we’ve certainly seen keen interest in CLO strategies throughout the year. It’s been a very stable strategy and our preference is certainly at the higher end in terms of quality.