The growing ranks of large Asian institutional investors making their first allocations to hedge funds and private markets now will provide a boost for global fund-of-funds firms.
Still, analysts expect asset owners in the region to move quickly to the direct investment end of the alternatives learning curve.
“Asia is playing catch-up,” but asset owners here should enjoy a “late-mover advantage,” compressing the time required to fully integrate alternatives into their portfolios, predicted Kevin Lu, Singapore-based chairman, Asia, for private markets manager Partners Group AG. Asia-Pacific clients accounted for roughly $6 billion, or 10%, of Partners Group's $57 billion in global AUM in direct private equity investments, infrastructure, private equity fund of funds and secondaries as of Dec. 31, up sharply from $2 billion, or 6%, of the firm's assets five years before.
Investors in the region have “the advantage of watching the world's mistakes and getting the opportunity not to repeat them,” agreed Paul Price, London-based head of global distribution with Morgan Stanley Investment Management.
A case in point: Investors in Asia are at the forefront of a “revolution on the alternatives side” focused on “the development of bespoke solutions,” in lieu of the off-the-shelf, commingled strategies an earlier generation of U.S. asset owners turned to, said Mr. Price.
“We're in the engineering business of creating customized strategies” for clients with unique target mixes for risk, return, volatility and liquidity, among other criteria, said J. Tomilson Hill III, New York-based president and CEO of Blackstone Alternative Asset Management, which invests more than $73 billion of client money globally in hedge funds and provides advisory services for another $30 billion.
In a January 2011 interview with Pensions & Investments, Mr. Hill said Asia-Pacific clients accounted for roughly 10% of the firm's AUM. A Blackstone spokeswoman declined to provide an update.
Industry analysts say the proportion has likely grown to around 15%.
Growing demand in Asia for customized hedge and private equity “funds of one” strategies should boost business for legacy fund-of-funds firms that have struggled following the global financial crisis, noted Mr. Price.
MSIM's combined AUM in customized strategies and hedge funds of funds stood at $22.4 billion at the end of 2015, according to Willis Towers Watson PLC's Global Alternatives Survey 2016.