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Strategic Role of Credit in Private Wealth
665 Plays2 days ago
This episode is also available as a podcast, search "Global Viewpoint" on your preferred podcast player to watch, listen, and subscribe.
Marcio Bogoricin, PIMCO’s Head of Asia Wealth Management (ex-Japan), joins Guan Sim Ng, HSBC’s Institutional Client Group Head in Singapore for a dynamic discussion about the strategic role of credit in private wealth.
Watch or listen to their expert insights on what’s prompting Asia’s wealthy individuals to invest more in fixed income from its positive return profile to new opportunities in private credit.
This episode was recorded on the sidelines of the HSBC Asia Credit Conference 2025 in Singapore. Find out more here: https://www.business.hsbc.com/en-gb/insights/financing/strategic-role-of-credit-in-private-wealth
Disclaimer: Views of external guest speakers do not represent those of HSBC.
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Transcript
Introduction and Guest Introduction
00:00:00
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:12
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
00:00:20
Speaker
Hello, my name is Guan Sim Ng, Head of Institution Client Group for Singapore and International Market at HSBC. Welcome to the latest episode of Global Viewpoint. Our guest today is Mr. Masio Bogorisin, Head of Asia Wealth Management at Japan at Pinko.
Role of Fixed Income in Wealth Management
00:00:38
Speaker
We're recording today at HSBC Asia Credit Conference 2025 and today we're going to discuss about fixed income in private credit and how wealth managements are going to use credit for their money structure, the credit access for their wealth clients.
00:00:55
Speaker
Let's get started. Hi, Marcio. you know with the You know, we have that rate rising, a lot of market noise, and yet there's still a lot of opportunities. We're very keen to understand that when customers come to you or to retail, what do they really look for? Are they looking for income are they looking for stability?
00:01:15
Speaker
No, that's right. Thank you for for the question. And thank you so much for for having me here today. i think in general, ah clients look to buy fixed income three main reasons. The first one is income.
00:01:25
Speaker
um They like that income generation. ah Number two is capital preservation. And number three would be to diversify a broader portfolio, maybe with equities and and something else there.
00:01:36
Speaker
ah Here in Asia specifically, clients really like their income. And we see a lot of clients buying fixed income for that income generation, as well as in and many jurisdictions in Asia, that income is tax free. They don't have to pay tax on that income.
Client Motivations for Fixed Income Investment
00:01:50
Speaker
So that's very valuable ah for them.
00:01:53
Speaker
ah More broadly, I think one of the key benefits of fixed income is there's a 93% correlation ah between the starting yield correlation of a fund or ah of a portfolio with the three to five year returns.
00:02:07
Speaker
Right. So for fixed income is a little bit easier to predict what your returns be. And today, ah right now, given rates are higher across the world, ah we've seen a a reset in rates and rates are are higher if you think about the last decade or so.
00:02:23
Speaker
Fixed income is looking very attractive. ah So if you can get a fixed income income portfolio with a yield of 6.5% to 7%, daily liquid, um and that's your starting point, there's a 93% correlation that that could be your return in the next three to five years. So we continue to see a lot of demand for fixed income.
00:02:41
Speaker
And I think in Asia, a lot of c clients are looking at for income, capital preservation, as well as to diversify a broader portfolio. Sure. Thanks for telling me. It's actually quite a decent ah you know return that you're talking about here.
00:02:54
Speaker
So what sort of ah fixed income exposure are the clients actually ah looking for or do you see that have that changed as compared to the previous year? Yeah, i mean, that's a great question. If you think about, you know, five or six years back ah when rates were at zero, ah you know, a high quality fixed income portfolio would give you max, you know, three, maybe 4%, right? But even to get 4%, you would have to add a lot of high yield,
00:03:19
Speaker
loans, emerging markets. So it it it was a bit of a riskier portfolio. The good news today is that because rates are higher, you can still produce six and a half to 7%, but do you do not have to add that much riskier assets, I would say.
00:03:35
Speaker
ah So that's of things that have changed. ah For example, You know, in our and our flagship portfolio, agency mortgage is ah is an asset class that we like. So what are agency mortgages, right? Agency mortgages are those mortgages that are guaranteed implicitly or explicitly by the U.S. agency, the U.S. government.
00:03:54
Speaker
And they are actually paying higher yields than or or better spread than corporate bonds. Right. So today you can construct a portfolio that instead of adding a corporate bond, you add an agency mortgage, you're getting a decent yield pickup, but you're still very high quality.
00:04:10
Speaker
ah So that's one area of the market that we like. And again, you can be very high quality and safe because the starting rates are are higher than before.
Rise of Private Credit in High Net Worth Portfolios
00:04:19
Speaker
Another area that we also like today is looking outside of the U.S. I think right now what's going on in the world is there is a divergent in terms of economic growth, inflation, and with that, ah central bank policy.
00:04:34
Speaker
ah So some central banks are cutting rates faster than others. And with active management, you can take exposure in those countries, Canada, ah the ECB also just cut rates.
00:04:47
Speaker
So if you're exposed to these ah countries that are cutting rates a little bit faster than the United States, there's an opportunity there as well. So i think what we are seeing differently than you know maybe five or six years ago this given higher yields, you can go a little bit safer. You don't have to add that much risk in the portfolio.
00:05:04
Speaker
The opportunity with agency mortgages, their yield and their spread, very attractive versus corporate bonds, and also investing outside of the U.S. and these countries that are cutting rates a little bit faster.
00:05:16
Speaker
Well, that's a very interesting trend you just mentioned, like, you know, the interest into going to some of these products. So as we see that private wealth is really gaining momentum in in Asia.
00:05:27
Speaker
so how do you see or how the, from the retail perspective, how do you see the role between, um you know, the public as well as the private yeah credit that works in the portfolio?
00:05:38
Speaker
Retail clients or the high net worth client in Asia, they're getting more and more sophisticated. And I think private assets or private credit that used to be an asset class that more institutional clients or very large family offices would invest, I think now that is also coming to the high net worth ah clients, right? So I think we are seeing that trend.
00:05:56
Speaker
ah There is a statistic that today around 70% of the private banks in the region are already have some sort of private credit offering to retail clients. And in the retail bank side, around 50% of the retail bank. So we are seeing that demand picking up.
00:06:11
Speaker
And I think that is, you know, sophistication levels um that are coming up ah from that high net worth client. Again, the banks having more offering. But I also think, you know, a lot of the fund managers have been doing ah funds that are a little bit more what we call retail friendly.
00:06:26
Speaker
ah Before, if you wanted to invest in private credit or asset-based lending, you had to be in a seven to 10-year lockup fund. And then more recently, there are ah new structures that they have they might have quarter liquidity some with some sort of fund level gates.
00:06:41
Speaker
And that just makes retail clients a little bit more comfortable investing in private credit. ah So this is a trend that we're seeing. And I think we're going to continue to see that as investors get more sophisticated and ah and as well as the product evolve to be more retail friendly.
00:06:56
Speaker
Sure. So so when when you see retail moving from the public to the private, I'm sure there'll be sort of ah you know misconceptions, right? So what sort of ah you know misconceptions are you still seeing out there, you know ah typically, especially in a stress market for credit? Yeah.
00:07:14
Speaker
So there there are a couple things there in that question. The first one is private credit is a very broad word, right? So when you think about private credit, a lot of people might just think about corporate lending. And corporate lending is just one little piece of private credit, right? When you think about private credit, it's broader than that.
00:07:30
Speaker
ah You have asset-based lending, ah which is even a larger opportunity set than private credit. What does that mean? it can be you know any loan backed by an asset. It can be a mortgage backed by a home. Right.
00:07:42
Speaker
It could be an auto loan backed by a car, ah machine leasing backed by a machine. So hard asset backing. And that's a very large opportunity set as well. So I think that the first kind of misconception that we see is educating clients that private credit is just more than corporate lending.
00:08:01
Speaker
I think the second point is if you do have you know loans with a hard asset as a backing, you could you know argue that it potentially could be ah safer. ah Where if there is a default, there's a higher recovery value. right When you buy a corporate bond, a high-yield bond, there might not be that hard assets backing that loan.
00:08:20
Speaker
It's typically cash flow from the com company. But when you look at asset-based lending, there's a hard asset there. So I think another misconception is that is, hey, ah it's private. um Maybe the liquidity is not daily, it's quarterly, but actually it's not riskier, actually is a ah safer type of investment.
00:08:37
Speaker
And I think that the third thing I would say would be diversification. ah If you're doing high-yield bonds and investment-grade bonds, When you in the private side, yeah, you can do corporate credit and corporate lending, but that is similar than buying a higher bond and on a bank loan.
00:08:53
Speaker
So think that the third reason people would think about private credit is to diversify. So um you know I mentioned you know aircraft leasing, auto loans, ah mortgage. Those have you know diversification benefits when thinking about a portfolio. So I think one of the things we are doing is those those three things, really educating clients on private credit is broader than you might think.
00:09:14
Speaker
The second thing is, you know, asset-based lending with a hard asset might be safer than the public market. ah And the third thing is the diversification benefit that you might not get in the public market.
Risk Management and Investment Quality
00:09:27
Speaker
No, it's it's is interesting that you talk about, you know, it's actually, you know, it does protect your downside risk, your diversifications, things like that. Would it be whether you've if that's even a question to talk about, is there a way to design for predictability for better risk management? Is that even the right question to ask?
00:09:45
Speaker
Yeah, it's a good question. I think let's start with the public market first. I think in the public market, not all credit are are the same, right? If you see a ah stress scenario, you would see maybe spreads on high yield or bank loans ah widen ah faster than investment grade credit, for example, right?
00:10:03
Speaker
So ah being high quality in a moment of of market stress will help you. ah Agency mortgage is also a good ah example, right? During Liberation Day, we saw spread widening across high yield investment grade and mortgages, but not for the not at the same extent, right?
00:10:20
Speaker
So you see some of the safer accidents will protect you during that that volatility. And then when you think of the private side, it is similar as well. um You know, aircraft leasing, for example, um or auto loan or a Morgan-backed security, they will all react a little bit different.
00:10:36
Speaker
ah So again, the diversification benefit also helps there. But you mentioned risk management. I think that's key. Roll your sleeves and do the homework. And that's why, you know, at PIMCO, we proud ourselves to have 80 credit analysts and and the And the public side and private experts and the private side, because you really need to look at every company and every deal to understand what is a stress scenario.
00:10:59
Speaker
If something goes wrong, what's my recovery value and what's the path to that? And in a lot of our portfolios, we are running stress scenarios where we're saying what happens if this and that happens. So we know what to do and we we're thinking about those situations as well.
00:11:14
Speaker
Okay, great to hear that. And, um you know, given that, so you you know, as sort of a sort of private credit is actually moving from institutional to retail portfolio, um just keep to know, like, what what exactly is oh that is so interesting that is gaining this interest from the retail space?
00:11:37
Speaker
Yeah. Yeah, there are a couple of things. and There are couple of things there. I think the first one is a yield pickup or an income pickup.
Retail Client Attraction to Private Credit
00:11:44
Speaker
So as I mentioned before, ah for a a you know traditional public fixed income portfolio, income generation public fixed income portfolio, maybe as ah as an investor, you can be getting a 6% income annually and that's being paid monthly. right So 6%, that's kind of what you're getting right now.
00:12:02
Speaker
If you move from daily liquidity to quarterly liquidity, maybe you're getting 8%. And not necessarily taking more risk, you're just really taking um the the illiquidity or illiquidity premium there.
00:12:15
Speaker
So for clients that say, hey, I like having my fixed income, I'm getting my 6%, but the reality is I'm not touching that money. I don't need to touch that money. um Maybe I need to touch 20% of that money in an emergency, but not 100% of that.
00:12:27
Speaker
So why don't I move 10, 20, 30, 40% of that into a quarter liquidity, ah option where I'm getting a yield pickup. I think that is one of the reasons that clients are looking for that.
00:12:40
Speaker
ah The second one, as I mentioned, is it might be safer. If you're going to something with a hard asset as a collateral, ah you you do have that that safety there that you might not have in the public markets.
00:12:53
Speaker
And then the third, as I mentioned, the diversification benefits. So i think there are the three main reasons clients are moving from public to private. and But I think the yield pickup, if they don't need the data liquidity, I think that's also the
Integrating Public and Private Credit for Portfolio Optimization
00:13:05
Speaker
main one.
00:13:05
Speaker
that That makes me very sensible. yeah And so so does that mean we were seeing more of these like moving into, let's say, you know that from the retail perspective or private well perspective, into a retirement planning or inter-generation planning?
00:13:21
Speaker
Yeah, I think that that that's a that's a good point there. um i think, you know, private credit or private asset will be part of the broader portfolio. And I think, you know, as as that wealth goes from generation generation, that that will continue ah there as well.
00:13:37
Speaker
i think for us, the way we think about it is also the liquidity need. right So if you have a large portfolio, and again, you don't need to have it entirely daily liquidity, ah you could have a portion in private credit, get that yield pickup, get that potential ah better return, and then that will be part of your broader portfolio. So I think that that is ah there's a space for that.
00:13:59
Speaker
ah We're also seeing another trend, which is ah the public-private. um So if you think about today, um the client has the option to buy a Traditional mutual fund or a private credit fund, right?
00:14:12
Speaker
And then the client with the the the banker, they will have to make a decision. When I buy one? When do I sell? What is the right time to switch? And how do I do that, right? So if you think about, again, five years ago when rates were at zero, ah mutual fund would give you 4% yield and a corporate lending fund was giving you, call it 10% to 11%. Right.
00:14:36
Speaker
Very, very easy to say, hey, let me move some money to private credit. And now, you know, rate or higher, um a mutual fund fixing a portfolio will give you six and a half to seven.
00:14:48
Speaker
Private lending is giving you nine to 10. maybe I'll move some back to my traditional fixed income mutual fund. So that that's shifting around is done by selling one fund and buying the other or selling one option, buying the other, where we also see value on having a fund that does both public private.
00:15:06
Speaker
So instead of the client trying to think about when to buy or when to sell, the the portfolio manager is doing that on their behalf. So there might be opportunities where private credit is more attractive than public credit, but there might be sometimes that public credit is more attractive private credit.
00:15:20
Speaker
So we're also seeing this public-private conversation going on where we shouldn't put them in different buckets, but we should put them in together as ah as part of the same opportunity set. It's great to hear your thoughts and even to learn about like, you know, credit has actually become a bit more strategic part of private wealth, you know, in a lot of portfolio now.
00:15:40
Speaker
And I have to say that after this conversation, I definitely see VIX come in a very, very different light. So really, thank you for joining us today for this episode of a Global Viewpoint.
00:15:51
Speaker
ah It's really having a a pleasure having you here. And up for the audience so online, thanks for taking time and listening to our conversation. Thank Thank you for joining us at HSBC Global Viewpoint.
00:16:02
Speaker
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