Clients in Asia are reluctant to abandon the artificial intelligence rally despite growing fears of over-concentration, forcing private banks to deploy sophisticated diversification tactics.
Speaking at Asian Private Banker’s Alternatives Selection Nexus 2026 in Hong Kong on Tuesday, managed solutions heads from LGT, Bank of Singapore and Standard Chartered revealed the strategies they are using to insulate portfolios against geopolitical and inflationary shocks.
“[Investors] still want to be exposed to these areas of the picks and shovels of artificial intelligence,” said John Cheng, head of managed solutions at LGT Bank Hong Kong.
Cheng added that overall, clients have not been retreating from home bias and have yet to show a defensive stance. However, client sentiment has become “more cautious,“ and clients are approaching risk in a more sophisticated way.
To build a risk-aware approach to mitigate single-concentration risk, he suggested that “dividend plays, dividend growers, heavy assets, [and] low obsolescence” are among the building blocks that can be used for effective diversification.
If there is overlapping market risk with existing stock positions in client portfolios, one approach could be to “substitute outright market risk exposure” to manage specific risk to “tune down beta” and “extract alpha” regarding hedge funds, commented Stephen Sheung, head of alternative investments & managed solutions HK at Bank of Singapore, Hong Kong Branch.
Sheung sees strategic asset allocation as a key starting point, followed by asset allocation-guided active management at the appropriate level.
On the private market side, sophisticated investors tend to react to headlines on valuations and redemption liquidity in a “more calm manner,” said Sheung. “More and more clients do understand the liquidity premium that they can extract,” he said.
According to Sabina Chiang, head of managed investments, wealth solutions Hong Kong at Standard Chartered, diversification has evolved over the years from allocating across many different asset classes to achieving the right combination of assets.
“Particularly under the Trump administration, diversification has become something of a live defence against policy-driven volatility,” Chiang said.
And yet, the bar for diversification has risen in the elevated interest-rate environment where deposit rates could be appealing to investors, she noted. “Investors are even more selective in the tools they use for diversification.”
Hedge fund talent war, returns
Elsewhere, Wellington Management’s Alex Chambers highlighted the talent push across hedge funds as a growing trend.
“10-15 years ago, the hedge fund industry was very secretive,” Chambers, director of alternatives, hedge funds, Asia Pacific, said. “Now you see any portfolio manager is moving from A to B […] Look at the pay package they’ve been offered just to move the payouts, etc. It’s a big talent war game.”
The quality of hedge fund returns remains important for differentiation in the growing hedge fund industry, added LGT’s Cheng.
“There are managers who have created incredible absolute returns, but yet maybe the quality of that is not as strong, and so investors are getting more savvy, recognising volatility taken and the risk taken,” Cheng said. Under the current rate environment, rates long/short strategies can be used by hedge funds, he added.
Standard Chartered’s Chiang observed fixed income remaining relevant to hedge funds for income generation despite the sticky inflation environment. Hedge funds are both “good alpha generators” and “risk management tools,” she said.
Chambers added that inflationary environments are a “positive” for long/short investing. “When we see heightened volatility [and] heightened dispersion, we see more opportunities to go long/short and generate alpha. And the reality is that hedge funds in inflationary environments have typically posted better returns versus more stable environments.”
Beyond the AI buzz, Chambers also tipped the Japanese financial sector as a promising growth area, in part due to the divergent monetary environment.
“We’re very invested in Japanese regional banks. This is an area where we think there’s a significant opportunity,” Chambers said. “The Bank of Japan is raising rates. It’s in a tightening phase and has a very diverging approach in monetary policy from others. We think that’s really going to benefit the local players.”