A confluence of factors has led fund selectors at private banks and wealth managers to raise their allocations to alternative investments during the past few years. Private equity and credit, and hedge fund strategies, which are typically the preserve of institutional investors, have increasingly become a staple in the portfolios of wealthy individuals serviced by private banks.
According to an April 2026 HSBC survey of affluent and high-net-worth investors (HNWIs) four in 10 said they intend to invest in alternative assets, with Gen Z investors leading this trend (53%).
A recent Endowus Private Wealth Insights report found that almost half (42%) of Hong Kong accredited investors on its platform had adopted alternatives as part of their portfolios, with a strong preference towards hedge funds (59%), followed by private credit (31%) and private equity (10%).
Christina Au-Yeung (pictured), head of investment management services at Morgan Stanley Private Wealth Management Asia, has seen a “noticeable increase in allocations to alternative investments” among the firm’s ultra-high-net-worth (UHNW) investors.
Their main motivations are “the pursuit of differentiated streams of alpha, a hedge against market volatility and alternative sources of income,” she said. The types of alternative investments gaining popularity span equity long/short, systematic, private markets secondaries, venture, infrastructure and commodities strategies.
“A genuinely diversified portfolio today extends far beyond traditional stocks and bonds,” said Connie Sin, head of funds and alternatives at International Wealth Management, Nomura, who advises clients to increase their alternatives weighting to 20-30% of their strategic asset allocation, depending on their risk appetite.
“We’re incorporating alternatives such as private markets, hard assets, commodities, and hedge funds to increase sources of idiosyncratic returns and enhance risk-adjusted performance,” she said.
Negative correlations
Investors have searched for higher, stable returns and enhanced diversification amid volatile markets, roiled by geopolitical crises that have created supply and inflationary shocks that portend interest rate increases. Most significantly, after two decades of a negative correlation between stock and bond prices, the Covid outbreak accelerated inflation in 2021- 2022, pushing the stock-bond correlation to positive, which hurt balanced portfolios
Again, this year, the correlation between stock and bond markets has trended positive, driven by inflation, energy price rises, and supply-side economic shocks.
Hence, allocating to alternatives is not primarily about higher returns or outperformance against public anymore, but also to be able to generate uncorrelated and more diversified return streams.
“A priority is hedging solutions. In times of market volatility, such as now, we like solutions that can hedge downside risk,” said Karen Tan, executive director, fund solutions lead, Asia at Pictet Wealth Management.
Much of this growth has come from clients who previously held relatively small exposures to alternatives, typically below 10%. Often, they start with core investments in diversified private equity, private credit, or multi-strategy hedge funds.
Shifting priorities
Although confidence in alternative investments remains buoyant among Asia Pacific (Apac) wealth managers, there has been a shift in priorities amid headlines about problems in the private credit and equity markets.
Anxieties about the private credit industry have grown since Blue Owl Capital shut the gates on one of its funds, and after write-downs at several vehicles managed by KKR, Apollo Global Management and BlackRock earlier this year.
Nevertheless, the Apac private credit market is projected to grow from $59bn in 2024 to $92bn by 2027, according to a recent report from the Alternative Investment Management Association. Wealthy individuals’ share of AUM is expected to rise to 28% by 2027, up from 23% in 2020, driven by new product innovation and enhanced digital access.
There are “pockets of misinformation”, both positive and negative, in the private market asset class, according to Morgan Stanley’s Au-Yeung.
Defaults “alone do not tell the whole story. It is our responsibility to ensure clients are well-informed and can evaluate their exposures relative to their risks,” she said. “We are paying attention to seniority, PIK (payment-in-kind), interest coverage ratios, non-accruals and sector concentrations.”
However, Pictet’s Tan is more cautious. “With the intense scrutiny surrounding private credit markets of late, investors are more cautious about illiquidity risks. Hence, in the current market climate, liquid alternative solutions offer hedging capabilities with daily liquidity,” she said.
Manager expertise
Nomura IWM prioritises investment expertise and risk management in its manager selection process. “We prefer to collaborate with specialised managers who possess extensive experience. While these managers may not be among the largest global firms, they excel at helping investors navigate various market cycles by focusing on downside protection while also maintaining a strong capacity for alpha generation,” Sin said.
Among hedge funds, Au-Yeung prefers sector equity long/short strategies that provide participation in structural themes with winner and loser outcomes. In private markets, she favours secondaries across credit and equity and venture, which “tap an evolved dynamic in private markets”, while secular tailwinds in power, digital, and transformation support infrastructure opportunities.
“In an environment of increasing dispersion and volatility, clients can consider raising their exposure to alternative investments depending on individual investment goals,” said Au-Yeung. Some portfolios now allocate more than a third of their exposure to alternatives.
“We also like tangible assets, especially HALO (heavy asset, low obsolescence) assets. Given the pledged fiscal spending, electrification, and need for power, there is a growing demand for better infrastructure,” Tan said.
As all three wealth managers agree, rigorous manager selection across the range of alternatives is essential.