22 November 2018 |

HNW entrepreneurs turn to PE, tech, SRI: BNP Paribas WM

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Almost two-thirds (63%) of high net worth entrepreneurs have direct exposure to private equity investments, compared to 58% of their ultra high net worth counterparts, according to the first instalment of BNP Paribas Wealth Management’s 5th annual Global Entrepreneur Report.

Deep-diving into the private investments of “elite entrepreneurs”, the report identified private equity as a favourite asset class amongst survey-takers, with technology as the most preferred sector and sustainable and responsible investments (SRI) as the area with the highest opportunity.

Popular asset class: Private equity
Amongst private equity investors, 46% gain exposure through a private equity fund, while the rest are split between direct investments into unlisted operating companies (28%) and co-investment deals (26%).

Garth Bregman, BNP Paribas WM

“The Yale/endowment model that sees significant allocations to illiquid assets and is widely followed by family offices in the US is still at a relatively early stage of being accepted by most family offices and U/HNWIs in Asia,” Garth Bregman, head of investment services, Asia at BNP Paribas WM, told Asian Private Banker, commenting on Asian U/HNWIs’ increased appetite for private equity investments.

In tandem with growing interest and investment volumes, Bregman expects uptake to be driven by both historical performance as well as education on the potential illiquidity premia that could be earned.

Top sector: Technology
In terms of sector preferences, technology came out on top, with 55% of survey respondents having invested in technology firms, either directly or via mutual funds.

India and Singapore rank amongst the jurisdictions with the strongest investor appetite for technology, with 74% and 70% holding investments in the sector, respectively. Meanwhile, 54% of entrepreneurs in China are already working with AI-related businesses.

Expecting to see ongoing interest in various technology sub-sectors in the coming year — such as in blockchain, cybersecurity, robotics, and AI — Bregman pointed out that the challenge is often finding “investable ways to satisfy such themes”.

“We are currently offering a technology growth PE fund that invests in small, profitable technology companies in order to allow clients to access some of these narrower themes in a way that is not possible through public equity markets,” Bregman said.

“We will most likely also see continued interest in FAANG and other mega-cap tech stocks once the current shakeout is over, as the long-term trends that these companies are riding have not changed.”

To gain access to the technology sector, passive strategies such as ETFs are seeing rising uptake for their liquid exposure — a quality particularly pertinent to technology and financial services stocks. Over one-third (36%) of entrepreneurs surveyed have invested through ETFs, with Hong Kong being a hotbed for the vehicle, where 48% are using ETFs to gain exposure to specific sectors and themes.

Opportunity area: SRI
Amongst UHNW entrepreneurs, the interest in thematic investments is not confined to technology, with 30% of UHNW entrepreneurs having made allocations to sustainable and responsible investments, which also features amongst the top five opportunity sectors for entrepreneurs in Brazil, Asia, the GCC, and Europe.

According to Bregman, this “positive trend” is largely driven by environmental concerns and a “rapidly growing awareness” pertaining to responsible investing.

“However, for SRI investment to take off amongst Chinese U/HNWI, they would need to be convinced that the expected returns are higher or at least as good as traditional investment strategies — sacrificing financial returns for extra-financial considerations is not likely to motivate most investors,” he commented.

“Since most clients also tend to have a local bias, and ESG analysis of Chinese companies is not yet as broad and deep as that of European or US companies. This will be another hurdle to overcome before we see significant investment.”

BNP Paribas Wealth Management’s 2019 Global Entrepreneur Report was based on a survey of 2,763 U/HNW entrepreneurs with a total wealth of US$16 billion.

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