China and India are the most important wealth markets in Asia- Barclays Capital

Alternative investments such as hedge funds, private equity and real estate are set to become mainstream investment products in Asia over the next two years as assets under management in China and India boom, according to a Barclays Capital survey of wealth managers who between them have more than US $5 trillion of assets under management.

Barclays Capital conducts the survey prior to its annual Wealth Management Conference in Asia, which this year was held in Singapore. The survey involved 73 respondents from Europe, Asia, the United States and elsewhere representing a wide range of wealth management organisations, from niche players to private banking giants.

Wealth managers are becoming more comfortable recommending alternative investments to clients, with 52% of the respondents expecting more allocation to the asset class in two years. To date, 40% of respondents say alternative investments make up at least 11% of their asset allocation, while 9% of respondents say they will make up at least 11% of their asset allocation, while 9% of respondents say they make up more than 30% of their current asset allocation.

"The level of sophistication among investors in the region continues to rise, as does the level of younger money being made by entrepeneurs who are happy to take on non-traditional investments", said Peter Hu, Head of Investor Solutions at Barclays Capital in Singapore. "It's a positive for the region, helping to increase diversification and absorb liquidity."

The survey also showed that of the products listed, equity-linked products, or equity derivatives, are currently the most popular with 88% of respondents saying these products are either the 'primary focus' of their portfolio or are used 'substantially'. FX-linked products are second with 54% while Index-linked products are third with half the respondents using them at least 'substantially'.

"The mood reflected in this survey in general is extremely optimistic with all the growth products such as those linked to equity very much in favour", said Werner Schlossmacher, head of Private Bank Coverage for Barclays Capital in Asia. "Investors favour capital appreciation over coupon, which in turn is a reflection of the overall positive outlook for not just the Asian economies but also the world economy."

Real gross domestic product growth for 2007 is forecast at 8.2% for Asia excluding Japan, Barclays Capital research shows.

"As the market develops and people look for higher returns we are seeing a significant shift toward derivatives products", said Kevin Burke, Managing Director, Head of Distribution Non-Japan Asia, Barclays Capital. "Three years ago it was hard for non-institutional investors to gain access to these instruments. Demand has grown to such an extent that we have been tailoring and marketing these products to the retail market."

Growth Potential

China and India are expected to have the highest growth potential in Asia, with optimism about China up year-on-year. More than 80% of respondents forecast at least 16% annual growth in assets under management in China, compared to 65% of respondents in last year's survey. Wealth managers are slightly less optimistic about the growth potential of India compared to last year, but 60% of respondents still forecast growth of at least 16%.

"Growth in these markets is phenomenal and the region's top wealth managers are telling us it looks set to continue", said Hu. "The overall outlook for wealth generation in Asia is strong while confidence in China is higher than ever."

In Southeast Asia, where Singapore is the leading wealth management market, wealth managers were optimistic about the growth potential, with about half the respondents forecasting at least 16% annual growth in assets under management, up from 40% of respondents last year.

As the industry grows, so too do the challenges facing wealth managers. A resounding 88% of respondents note they expect the acquisition and retention of staff to be the biggest challenge facing them in the next two years.

And as the markets grow, what are expected to be the key attributes for investors by 2009? Growth and diversification. This is a move away from the attributes favoured today, where investors have an aggressive short-term investment strategy and so favour liquidity over diversification.

(This is press release of the Barclays Capital)

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