Asia’s ultra-high net worth individuals (UHNW individuals) have weathered the impact of the Covid-19 pandemic without greatly changing their approach to investing, but are increasingly looking for investing guidance from their private banks, both in terms of investing strategies and to make sustainable investments, according to a study released on Thursday (December 3) by Lombard Odier.
The study found that 89% of UHNW individuals believe the sustainability trend will remain in the long run and that Covid-19, which is particularly virulent for elderly people, has pushed families to create succession plans.
Respondents to the study comprised 150 families and entrepreneurs in Hong Kong, Indonesia, Japan, Singapore, the Philippines, Taiwan and Thailand. Half of the respondents were clients of Lombard Odier, while the rest were clients and contacts of the Swiss private bank’s strategic alliances.
“It was interesting to see the level of sophistication in the region in a year like 2020, where we have big differences in performances. Most of the ultra-high net worth understand short-term performance and are able to relate it to a more long-term performance,” Vincent Magnenat, chief executive for Asia at the wealth management firm, said during a webinar launching the findings.
For example, 80% of respondents expressed satisfaction with their portfolio performance in the six months to June, indicating they would not change their expectations or ways of investing.
However, the study noted that some respondents did shift their portfolios towards more conservative bets such as gold, the Swiss franc, Japanese yen and sovereign bonds.
The respondents also indicated a desire to get more investment guidance from private banks. Magnenat noted that there has been a trend of more clients wanting a mix of discretionary portfolio management (DPM) and active advisory.
The study found that 44% said they wanted a mix of discretionary and active advisory in portfolio mandates with their banks compared with 42% who wanted only active advisory, and 14% who wanted only discretionary mandates.
“In an environment where we have low interest rates… the traditional 60/40 portfolio mix will be challenged,” he explained. “That means, [when it comes to the question of] 'should we take more risk to get more returns or should we accept lower returns?' – that is where participants are seeking advice.”
The rising interest in DPM marks a relatively recent shift in sentiment among the region’s wealthy. For many years they were traditionally far more keen to conduct discretionary management, in which they pay their private banks by the trade they make, rather than a set advisory fee.
As a result, most private banks operating in Asia are believed to have had less than 10% of their regional assets in discretionary mandates until two or three years ago, versus over 40% in Europe.
The consensus among those surveyed is that sustainability is here to stay as a factor driving investment decisions. However, 56% of participants have not actively included sustainability factors in their portfolio, saying they are still uncertain or do not plan to do so in the near future.
“It comes from a lack of understanding of what sustainability is,” said Jean-François Aboulker, head of UHNWI offering in Asia.
He noted that a level of education will be needed, along with demonstrating viable returns, to get more wealthy investors to commit more funds to sustainable investment plans.
“To convince investors, we start with models to evaluate the sustainability assessment of a company and highlighting the direction the world has taken … the asymmetrical distribution of wealth, the issue of natural resources being mismanaged, climate change and CO2 emissions,” Aboulker said.
“We can demonstrate that companies that take this into account are in a better position to generate returns. It’s not just about values but also about sustainability as a driver for returns.”
Aboulker pointed to the private bank's Climate Transition strategy as an example. It invests in companies that are committed to reducing carbon, and has posted a 38.4% return as of October since its launch in March. By comparison, the S&P 500's year-to-date return in October was 1.21%.
The pandemic also had an impact on family offices, most notably highlighting the need for a family governance strategy, which includes succession planning. The study found that a third of respondents have not defined their family values or governance, and that 50% were not considering implementing such a strategy.
“If families are not structured yet, Covid has pushed a need to do that… The younger generation – or ‘next gen’ – has always been pushing. There is always the discussion on ‘how can I engage with my parents or grandparents to work on this succession planning?’” Magnenat said. “Covid [and the existential questions on mortality that it poses] has touched the older generations to engage now on that subject.”
The findings are in line with observations by the Family Office Association Hong Kong (FOAHK), which was launched in November.
The role of family offices goes beyond conducting investments, vice chairman Kenneth Ho told AsianInvestor.
"FOAHK sees the need to educate the public on the importance of having a robust and effective family governance framework in place, which is crucial to ensure that family wealth is preserved in the long-term across generations.”