The world of investing is bifurcating. On the one hand, exchange-traded funds have become popular investment vehicles. In Taiwan, for example, the size of ETF assets jumped by nearly 74% at the end of January 2024 to US$71.7 billion from end-2022. Taiwan’s market is growing faster than the total for Asia, which crossed US$846 billion as of end-February 2024.
A decade of marginal interest rates triggered a relentless search for yield among investors. Enter the market for private assets, which has grown steadily from its early days to reach US$11.8 trillion in total assets globally at the end of 2023, triple the amount of where it was a decade ago.
The rise of ETFs and private markets is a study in contrast. On the one hand, ETFs are best known as liquid investment vehicles that are attractive for their steady dividend payments. In Taiwan for example, the vast majority who buys them are retail investors who value regular income. Industry estimates that the number is now at nine million individuals, an increase of more than 40% in less than 12 months.
Investing in private assets, on the other hand, is the opposite. These assets are generally illiquid. They also have low correlation with investment returns in public markets. Especially in a year such as two years ago that saw listed equities and bonds perform poorly at the same time, investing in the private market shielded returns and provided a diversification with the added possibility of higher returns.
In 2023, private credit and infrastructure attracted strong interest from private market investors who view these types of private assets as providing a steady stream of income not unlike what attracted investors in Taiwan to ETFs. During the current phase of high interest rates and inflation, which can dampen the performance of traditional investments, they provide a good investment alternative.
In the meantime, ETFs are no longer the preserve of passive strategy that follow an index. Managers have combined liquidity and tax efficiency of ETFs with an active strategy aimed at outperforming their benchmark, which is not unlike investing in private assets, which require active management by managers in these assets.
The Asset is pleased to be hosting the 8th Taiwan Investment Summit. The Summit gathers asset owners, institutional investors, high net worth individuals, family offices, service providers, and other stakeholders to discuss the latest updates in the ETF market and also explore opportunities investing in the private market.