The volatility with which the financial markets started the year is likely to persist, driven by inflationary pressures, fears of interest rate hikes and lingering worries about COVID-19. But this hasn’t kept investors on the sidelines. What are some of the key focus areas and trends for wealth and investments in Asia this year?


Today's subject matter expert

Janet Li
Asia Wealth Business Leader
Mercer

Despite the turbulent times, it is important to remain disciplined and not flee the market in a panic. Volatility isn’t always a bad thing. Investors can successfully navigate this by keeping a long-term perspective and diversifying their portfolios across sectors, industries and geographies. Here are three key trends we are seeing amongst the biggest investors in the region:

 

1.       Asia’s Sustainable Investment Boom

 

  • 79% of investors in Asia-Pacific increased environmental, social and governance (ESG) investments “significantly” or “moderately” in response to COVID-19.
  • 57% of investors in the region said they expected to have “completely” or “to a large extent” incorporated ESG issues into their investment analysis and decision-making processes by the end of 2021.1

The move towards incorporating ESG considerations into investment decisions accelerated due to the pandemic, transitioning from a side-fund to a main-fund issue, a trend that was also observed in Mercer’s Asset Allocation Insights 2021. More investors are also putting greater emphasis on the “S”--social--in ESG.   

 

Countries across the region are increasing their Green, Social and Sustainability Debt (GSS) or Green Bond issuance, creating a much broader market in which both institutional and retail investors can participate.      

 

2.       Strong Private Markets Growth

 

  • US$1.71 trillion Asia-Pacific-focused private capital assets under management as of September 2020.
  • US$446 billion private capital “dry powder”, or committed but unallocated capital, ready to be deployed across Asia-Pacific as of April 2021.2

While we have seen investors hold off on the shift to alternatives in our research, the allocation to alternatives already reached close to 5% of total investment portfolios, which amounts to around US$265 billion of assets. Though near-term returns in private markets are only indicative of performance, they are generally strong returns – global venture capital funds generated a one-year horizon internal rate of return of 31.8% in 2020, while buyout funds were up 24.7% that year.

 

Returns have been compelling, but investors have been limited by some structural challenges unique to the region. For instance, the relatively less attractive finance options currently available in Asia. These have increased governance requirements for investors considering participation in this asset class.2

 

3.       Largest average estate to be transferred in Asia

 

  • Asia is home to 2,050 individuals worth more than US$100 million, with an average estate size of US$582 million transferring to younger family members by 2030. 3
  • Over one-half of family offices say that the incoming owners are just as interested in traditional investments as their parents – and in Asia that proportion climbed to almost three quarters.4

The surging demand of private markets can be attributed partly to the rise of wealth transfer in Asia as more and more wealthy families are also asking about sustainability. 

 

Family offices have boomed as a result of the increasing wealth management needs, such as the ongoing hunt for yield, as well as efficient handling of estate duty, multi-jurisdictional living and asset ownership. Recent pushes from governments across Asia have also led to more vibrant development in this space.

 

As markets change, your portfolio may need to evolve and time is critical. Mercer can assist with the review of your investment portfolios and help you prepare and move forward with investing for the long term. Please reach out to us if you require any advice.


MSCI 2021 Global Institutional Investor Survey

Preqin

IQ-EQ The Great Global Wealth Transfer

UBS Global Family Office Report 2020

 

 

 

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