The Global Family Office Report, jointly published by Campden Wealth Research and UBS, pointed out that the investment strategy for asset management in Asia is different than the rest of the world.
Research came from a survey comprising of 224 family offices 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 family offices 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 behavior is moving away from the traditional growth strategy, towards a more balanced and conservative approach in Asia.
Bonds More Popular for Asset Management in Asia
More analysis found that family offices allocated more towards fixed income. The global average of allocation to bonds was 14% in 2014. The conservative approach taken in Asia was clear with 16% in bonds whereas North American offices were at 11%.
Asia’s family offices are also heavier investors in private equity. Family offices in Asia have over 28% 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 toward a “balanced” strategy. The numbers were up from 17% and 50% respectively in 2014.
There’s speculation over why family offices are taking this approach. Some experts claim this difference is caused by weak economic growth, combined with expectations the U.S. Federal Reserve might soon raise interest rates.
But until now, returns in Asia have been decent and on par with the global average. At around 6.3%, annual returns in Asia were in second place just behind Europe’s 6.4%. Singapore proved to be the clear winner in the region with returns of about 6.9%.
On average, returns by asset management in Asia have dropped from 7.6%. But this is attributable to factors besides investment strategy. Europe also experienced a similar drop from 9.8%.
Kelvin Tay, chief investment officer at UBS, said investors in the Far East will lean towards fixed income this year. He believes this because many Asian countries are looking to ease monetary policy. This would keep yields low, while the decline in commodity prices can keep inflation in check.
According to Joseph Poon, head of ultra-high net worth for Southeast Asia at UBS, it’s a paradox because this approach will only drive lower returns for asset management in Asia.
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