The Global Family Office Report, which was released on Wednesday and jointly published by Campden Wealth Research and UBS, pointed out that the investment strategy for most of the wealthy families in Asia is quite different from the rest of the world.
Research came from a survey comprising of 224 family offices – the name by which the private wealth management firms go by – in 37 countries, with over US$$200 billion in assets under management (AUM)
It was found that in most of the world besides Asia, asset managers for these wealthy clients are doing all they can to grow their clients’ assets. They rely mostly on a growth strategy, which brings about inevitable risks.
However, it was a different story in the Far East. Even though, the family offices tend to manage smaller pools of cash averaging around US$431 million compared to the global average of US$806 million, Asia’s mega rich have had their managers follow a much more conservative path – a strategy that could actually hurt returns in the future.
According to Dominic Samuelson, the chief executive at Campden Wealth which provides services for family offices, a trend globally for the past few years was to risk more to get more returns. However, he added that it has been completely the opposite in Asia.
Investment behaviors are moving away from the traditional growth strategy and towards a more balanced and sometimes a preservation and conservation approach in Asian markets.
Bonds More Popular Among Asia Wealth Managers
Deeper analysis into the differences found that family offices allocated more towards fixed income. The global average of portfolio investment in bonds was 14% in 2014. The conservative approach taken in Asia was clear with 16% in bonds whereas users such as the North American offices were at 11%.
Asia’s family offices are also heavier investors in private equity. Singapore family offices, along with the rest of Asia, have more than 30% and 28% respectively of their portfolios invested in private equity, while the global average stood at 22%.
For 2015, a survey revealed that around 19% of Asia’s family offices have plans to use a “preservation” strategy and 54% lean more toward a “balanced” strategy. The numbers were up from 2014’s 17% and 50% respectively.
There was speculation about why more and more family offices are taking this approach. Some experts suggest that this risk-off shift could be caused by slower economic growth across the region, combined with expectations that the U.S. Federal Reserve may soon raise their interest rates, which if it should happen, would be the first time in almost a decade.
Yet until now, returns have still been quite decent and on par with the global average. Averaging around 6.3% in terms of investment return in dollar terms, Asia’s return was in second place just a little behind Europe’s 6.4%. Regionally, Singapore proved to be the clear winner with returns of about 6.9%.
On average, however, returns have dropped from 2013’s 7.6% but this was attributable to factors other than investment strategy. Europe also experienced a similar drop from its 2013’s 9.8%.
Kelvin Tay, regional chief investment officer for Asia at UBS noted that investors in the Far East will lean further towards fixed income this year.
He believes this because many Asian countries, apart from Japan, are looking to ease monetary policy. This would in turn keep yields low, while the decline in commodity prices would keep inflation in check.
According to Joseph Poon, the head of ultra-high net worth for Southeast Asia at UBS, it was a paradox because this approach will only drive lower returns.