Bee Lin Ang :
The rich in Asia are holding at least a quarter of their wealth in cash and are showing an increasing appetite for European equities, as Asian markets underperform. In many ways, Asia’s ultra-high-net-worth investors are making similar portfolio decisions as their global counterparts.
“One commonality between our high-net-worth clients, ultra-high-net-worth clients and indeed even our family office clients is the high level of cash they are holding,” says Simon Smiles, the chief investment officer at UBS in charge of investing for rich individuals with a net worth of more than CHF 50 million ($55 million). “It is definitely higher than it was pre-crisis, and if we take an average across our entire client book, globally, the cash proportion is over 25%,” he adds.
Of the CHF 1.8 trillion it manages globally, UBS says about CHF 900 billion of those assets are outside of the U.S., and 45% of that is from ultra-high-net-worth clients. “Half of our growth comes from Asia” says Smiles, who estimates that his company serves half of the billionaires in Asia. UBS also estimates 25% of assets under management outside the U.S. are from emerging markets.
Pictet Wealth Management has similar views regarding Asia’s high-net-worth investors’ cash allocation. “Liquidity is still a key element on which most family offices tend to focus, following the fall out of the 2008 financial crisis,” says Asia Chief Investment Officer Bhaskar Laxminarayan. “This also results in a greater allocation to cash, as we have witnessed.”
According to Smiles, another shared trait across UBS’s high-net-worth client base is an increasing interest in European assets. “Going back two to three years, outside of the domestic European market, no one had any appetite for European assets,” says Smiles. “This has fundamentally changed. This year, there has been a lot more interest in European assets, European high yield and European leveraged loans,” he says.
Equity is generally the preferred asset class amid rising inflation, and asset managers generally recommend European equities.
“We broadly favour European and Japanese equities, both supported by accommodating central bank measures, while anticipated rate hikes and the year-end cessation of quantitative easing leads us to be more cautious towards the U.S. and, to some extent, U.K. risk assets,” says BlackRock Investment Institute’s Chief Investment Strategist Ewen Cameron Watt.
“The last three years hasn’t been a great time for Asian equities – we are finding now that clients are realizing the pitfalls of home bias,” says UBS’s Smiles. “We are getting increased amounts of money actually given to us to manage on a discretionary basis.”
As the S&P 500 scales new heights on rising optimism fuelled by record monetary stimulus by the U.S. Federal Reserve, rich investors aren’t putting bets on short-term investments.
“Most of our clients don’t know where interest rates are going to be,” says Smiles. There is a growing interest in investing in markets that will benefit from long-term themes such as urbanisation, ageing and population growth, and these investments are an easier call compared with central banks’ policies, he adds. Smiles also says that real estate is an evergreen investment theme for the rich.
Asian investors tend to have lower allocations to hedge funds and alternatives investments compared with their western counterparts. “Generally, there are higher equity allocations given the greater familiarity with equity and lower familiarity with fixed income in this part of the world,” says Smiles.
However, according to Pictet, family offices in Asia have a “significant preference to the fixed income markets over the past several years.” Pictet’s Laxminarayan says: “While private equity exposure is possibly still limited, the one long-term asset that still finds favor is real estate. Hedge funds have found greater acceptance recently given valuations in various asset markets.”
(Bee Lin Ang write about wealth, finance and investments in Forbes Asia.)
