Do cultural differences affect the way ultra-rich individuals from different Asian countries view risk?
There is a difference, and it is particularly evident when comparing Hong Kong with emerging markets such as China and India. Hong Kong’s ultra-high-net-worth are relatively sophisticated and have reached a stage where their money is more professionally managed by family offices. China and India are picking up in terms of professionalising their wealth management. One of the main challenges for the ultra-high-net-worth in these two countries is that most of the family wealth is still linked to their own companies. Therefore, diversifying this concentration risk and adopting an asset allocation approach to managing their wealth is critical for the long term. We are starting to see family offices being set up in both countries, especially China, given the rapid wealth creation over the last two years.
Can you explain a bit more about China’s ultra-rich and their investment behaviour?
Wealth in China is primarily first generation and the patriarch, who founded the business, is still running it and making key decisions. He may have started delegating some investment-related matters but final decision-making clearly lies with him. This difference also influences asset allocation decisions. Wealth is generally concentrated in the core business rather than a truly diversified portfolio. Investment behaviour of this first generation often mirrors their behaviour in relation to their business — aggressive and opportunistic, relying on their own judgment and opinions. If an ultra-high-net-worth individual has a positive view on a particular investment then they are happy to take a concentrated position, even on a leveraged basis.
How has the investment behaviour of Asia’s ultra-rich changed since 2008?
The biggest change is that simple and easy-to-understand flow products are now preferred, while very complex structured products, in general, are less popular. Lessons from the crisis have been well and truly learnt. Asset allocation decisions have become very important as has having a risk management framework to set investment parameters and to track the portfolio. We also see clients are investing more in tangible and familiar assets, with commodities and real estate the preferred choices.
Are ultra-rich clients with unlisted companies in their fold thinking more about listings?
Public listing is often a strategic option, although not all of our clients want to list their companies — some neither need the cash nor wish to subject themselves to the additional regulations or cost of maintaining a listed company. But the strong wealth creation in Asia, driven by stock market valuations, is obviously making our clients think more about this choice. Listings also help to increase financing options, reduce cost of both debt and equity financing for the company, and create liquidity for their shares.
Listing can also have other benefits. It provides a motivational tool for the younger generation and for employees. In our interactions with the senior management of some unlisted companies, it is not uncommon to find that a large part of the compensation flowing to senior employees is often through stock and a listing can help these employees monetise their holdings.
