How are current economic conditions influencing UHNWIs to consider private market investments and affecting the criteria for evaluating private market managers? And what are the key attributes of effectively managed semi-liquid funds?

These were among the key topics addressed at Asian Private Banker’s 2024 Funds Selection Nexus in Singapore in a panel focused on private markets.

For investors open to less liquid assets, Standard Chartered Bank recommends allocating 22%-27% to alternative investments, while BNP Paribas Wealth Management is seeing allocations rise to 25%. At Deutsche Bank Private Bank, for large families, the question is often no longer “if” to invest in private markets, but rather “how much” to invest in them.

Standard Chartered

Mischa Bitton, Standard Chartered

Mischa Bitton, head of alternative investments for wealth management, said that his first conversations with clients centre on liquidity, as clients need the right profile for specialty private market investments.

For family offices, which can pursue customised solutions, there is stronger demand for single private assets. Bitton evaluates private equity managers based on value creation and private credit managers on origination and loss rates.

“When we select a GP, we look at what they are bringing to the table. For example, are they helping the senior management of a company to go to the next step, to maybe globalise?” Bitton asked.

“In private credit, we also examine the team and their connections in the market. And on the real estate side, we look at whether a manager is able to sell assets, for example, in a more challenging market situation,” he explained.

Semi-liquid investments constitute about 80% of Standard Chartered’s portfolio. Bitton prefers larger funds with diverse shareholders and significant liquid assets.

Commenting on ESG, Bitton said he doesn’t need funds labelled as ESG but requires certain KPIs. “For example, private equity sets KPIs like social or governance impact. Companies with higher governance tend to outperform those with lower governance. I don’t need ESG to do that,” he said.

BNP Paribas Wealth Management 

Shafali Sachdev, BNP Paribas WM

Shafali Sachdev, head of investment services, shared that family offices are becoming not just a more significant part of the market, but increasingly more sophisticated and more demanding in terms of their expectations.

“We’re seeing an increasing trend of family offices modelling their asset allocations after the biggest endowments. For example, 50% allocated to private markets, especially for those for whom liquidity isn’t an immediate concern and who are more driven by their longer-term investment objectives,” she said.

For BNP Paribas WM, consistency of performance is the number one priority for a fund to make it to its product shelf. The bank also likes specialised fund managers that match its house views.

“Apart from that, the experience of the fund managers themselves, and how many economic cycles they’ve been through. And in the semi-liquid space, where there’s a lot of interest, it’s crucial whether managers have feet on the ground and access to opportunities. All of these things go into our fund selection process,” Sachdev added.

Traditionally, DPM was for large clients, but BNP Paribas WM now offers these strategies in fund formats for smaller investments, allowing clients to try them in smaller amounts before increasing their allocations to traditional DPM.

“We’re very proud to be launching this to make our best thinking on both asset allocation and the best investments available to clients,” Sachdev continued. “We are making this thinking available in smaller sizes and in a fund format, providing liquidity, smaller sizes, and the packaging that smaller clients need.”

Deutsche Bank Private Bank

Gian-Maria Piccolo, Deutsche Bank Private Bank

Deutsche Bank Private Bank is putting a lot of emphasis on educating clients on semi-liquid alternatives as they are a relatively new investment offering. “A good portion of clients are still in the educational phase and they are very responsive to the topic,” shared Gian-Maria Piccolo, head of investment management for emerging markets.

Piccolo pointed out the geographical differences in private market adoption, noting that the US is the most advanced, followed by Europe, while Asia is still catching up. European clients are facing delayed distributions, while Asian clients are still overcoming the illiquidity burden.

“For the large clients and family offices, however, the difference is that the question is no longer ‘if private markets?’ but ‘how much private markets?” he said. “Our value, I think, can be much more in the middle market space” for the Asian clientele where the bank can offer a European perspective, he added.

”Europe’s private markets offer great value,” Piccolo continued. Deutsche Bank is focused not just on finding the next LP but on creating long-term value on both sides by leveraging business opportunities.

Piccolo said clients are divided on the hedge funds topic, with some being strong believers and others strictly non-believers. The non-believers allocate zero, while the believers often come to their position based on experience.

“In the last decade, hedge fund performance has been generated by a handful of well-known names. These usual suspects have delivered the most consistent performance, although 2022 was an exceptional year for many reasons. As a result, clients are increasingly demanding capacity to these usual suspects,” he explained.