BNP Paribas Report reveals that Asia’s HNWIs are looking to Private Equity

A report released by BNP Paribas Wealth Management has shown that entrepreneurs in Asia have a growing appetite for private market funds, especially those focused on private equity and private real estate (PERE).

The Entrepreneur Report – Part II surveyed Asia’s elite entrepreneurs, who are defined as High Net Worth Individuals (HNWIs) or Ultra High Net Worth Individuals (UHNWIs) who own their own businesses. The survey respondents had an average net worth of around USD13.4 million, the firm said in a press release.

While the survey was conducted before the Covid-19 pandemic, the favourable sentiment toward private market funds expressed by the respondents is even more pronounced in today’s environment, said Prashant Bhayani, Chief Investment Officer, Asia Pacific, BNP Paribas Wealth Management.

“We continue to work with clients who showed active interest in private equity during the Covid-19 crisis. We have made an effort to position the asset class as part of their overall asset allocation. This strategy is beginning to bear fruit,” Bhayani commented.

Search for yield

In line with previous years, the research found that 75% of entrepreneurs held Private Equity investments and among these active investors, Private Equity comprised on average 14% of their total financial portfolio.

“Our research shows that in regular markets, Private Equity outperforms the stock market by approximately 6% per annum. In downturns, like the Great Recession or the Dot-com bubble crash, Private Equity strategies outperformed public markets even more, which gives clients comfort,” said Bhayani.

Given the complexity of investing directly into Private Equity, in some countries, such as Indonesia, 39% of investors preferred to engage a private banking relationship manager as a key source and gatekeeper for their Private Equity investments.

Those with more confidence, perhaps through prior experience of mergers and acquisitions or connections to deal-making, said they preferred to rely on their own contacts. For example, entrepreneurs in Singapore (48%) and China (42%) said they rely primarily on their wider business networks to originate Private Equity opportunities.

According to Bhayani, thematic funds appeal to Asian clients because they offer high returns. Clients are particularly interested in healthcare, technology and buyout funds. Where entrepreneurs may be unable to access opportunities directly, for example mid-market companies in the United States and Europe, private bank relationship managers have the ability to step in and add value.

Private Real Estate – an evergreen investment

More than three-quarters (73%) of those surveyed are active investors in private real estate (PRE). Of these active real estate investors, almost a third (31%) held PRE investments overseas – with China, the US and France the most popular markets.

“In Asia, there is a bias towards real estate because we’ve just come through a two-decade property boom. There‘s been a big appreciation, we have a subset of UHNWs who’ve made their wealth in property and so they’re comfortable with the asset class and gravitate towards it,” Bhayani said.

Direct investment was the most popular PRE strategy, used by two-thirds of entrepreneurs surveyed globally. Nearly three-quarters of entrepreneurs in Asia (72%) used this strategy. Direct investments proved especially popular in China (90%), Hong Kong (94%) and Singapore (94%).

Value-add real estate investments typically target properties that have in-place cash flow but seek to increase that cash flow over time by making improvements to or repositioning the property. This strategy was most popular in Indonesia (74%).

According to Bhayani, down markets provide attractive valuations and an appealing entry point for investors, so opportunistic real estate and distressed investing also have the potential to grow even more during the pandemic.

Please CLICK HERE to view the full report.