There is reason to believe that allocations to alternative investments among the private wealth segment in Asia will continue to increase in the coming year.

This, according to panellists, may be one way of smoothing out returns and providing investors with exposure to assets and industries less correlated with traditional equities and deemed more protected from downside risks resulting from macroeconomic factors.

With markets anticipating additional interest rate cuts and concerns surrounding the price-to-earnings ratios of overvalued tech equities in the United States – which, for some time now, have forced both retail and institutional investors to confront the possibility of an artificial intelligence (AI) bubble pop – the idea of a conventional 60-40 portfolio warrants a closer look amid expected volatility to rock markets well into 2026.

Such topics and more were discussed at the Singapore edition of this year’s Asian Private Banker Summit, in a panel focused on alternative investments and how opportunities can be unlocked for wealth clients.

Read more about what was discussed at our other panel discussions in Hong Kong and Singapore.

Bank of Singapore: More alts in the mix

While there is increased interest in alternative investments from both retail and institutional investors compared to before, allocation portions remain lower than those seen from larger clients, according to Chee Jiun Wen, head of private markets & alternatives, managing director, Bank of Singapore.

“Three to five years ago, allocations were minuscule from a client perspective – low single digits, and some had no allocations to alts. Now, we see maturity among our clients […] On the larger end, I still feel allocations are low compared to institutional investing, where the average is about 25% to 26%, going even higher for larger sovereign wealth funds. So, I think there’s a lot more room to grow,” Chee said.

Depending on risk tolerance, the bank now sees an allocation range of between 8 to 24% for alternatives in a portfolio combining public and private. “So it’s no longer just a 60-40 portfolio – we’re including alts in the mix as well,” Chee noted.

In response to a question on manager selection, such individuals have to be carefully vetted by the firm for their ability to navigate the evolving nature and inherent risks that alternative investments could pose, he said.

“The key is figuring out how these managers will perform when the tide turns, [so] we spend a lot of time evaluating managers from a team and track record perspective,” Chee noted.

“Have they managed money across cycles? How do they handle credit risk and workouts if something happens to the companies? We focus on how managers add value during stress periods and whether they have invested across high and low interest rate environments. This applies across private equity, private credit, and hedge funds. We also assess how repeatable their performance is, which is important,” Chee added.

Morgan Stanley: Exposure to various industries

Wee-Kiat Tan, executive director, chief investment officer, head of discretionary portfolio management, Private Wealth Management Asia, Morgan Stanley, shared the same views, but noted that the firm has seen even greater allocations.

“A couple of years ago, we were really only talking about private equity, but now there’s a lot more coming through. On average, I think we are probably around a 20% allocation. But I can also share that the range is extremely wide,” Tan said.

The increased interest in alternative investments from clients may be due to their uncorrelation and exposure to various industries, he added.

“The lesson from 2022 was that it didn’t matter – equity, fixed income, everything took a hit when things turned tough. However, some industries [remained] very insulated. So the uncorrelated performance isn’t so much from an asset class perspective but comes from industries,” Tan said.

“That’s why I see differentiation between things like triple net leases, private credit, and infrastructure – they are similar but not quite correlated from that perspective. I would encourage people to think around that idea – not just what has the strongest growth – but these new developments are worth considering,” Tan added.

Blue Owl: Alts still a way to go

While investor sentiment towards alternative investments like hedge funds has mostly turned positive in the last two decades, general allocation remains low among retail investors in the region, as such investments are only offered by a select number of banks, according to Johann Santer, senior managing director, head of private wealth APAC, Blue Owl.

The perceived risks associated with alternative investments such as liquidity or regulatory risks – despite them positioned as a potential downside hedge – may also be an obstacle for clients.

“We can’t forget [that] there is a massive regulatory risk hurdle, and burden for many of our clients. If you’re not fortunate enough to bank with Morgan Stanley, Bank of Singapore, or any of their peers, you probably have no access to private markets and alternatives,” he said.

Alternative investments have nevertheless come a long way in the last two decades and may have been shaped by private equity structured investment vehicles that have boded well with institutional clients, Santer pointed out.

“Now, thanks to the introduction of evergreen structures and strategies focusing on strong income elements that resonate extremely well in this region, growth has really expanded and accelerated. I personally consider this a massive tailwind and a game changer,” Santer added.