As Asians get richer, more are turning to fund managers to help them manage their money.
WILSON Pang (not his real name) is a Hong Kong entrepreneur in his early 40s. Despite the Asian crisis and the market meltdown of the last three years, Pang’s seminar and conference organising business is holding up.
As a result, he has about US$500,000 deposited in several banks and US$70,000 invested in equities and mutual funds.
Of course, Pang is not an altogether happy man. His investments have fallen by close to 40% since the global equities market peaked in March 2000.
But in September last year, he decided that he couldn't just sit around anymore and wait for something to happen.
He said: “I was just getting more and more frustrated. My money was hardly earning anything in the bank with such low interest rates and the markets were just not getting any better. So after talking to a few friends, I decided to take the plunge.”
The plunge Pang is referring to is a bond fund investment of US$50,000, which he hopes will return him 4% or 5% over the next year, without too much volatility.
This return is far below the 15% – 20% he had anticipated for his equity investments back in the technology bubble of the late 90s, but Pang does not want to live in the past.
“I lost a lot of money because I was greedy, but I wasn’t the only one. Now I think I will settle for anything that beats the fixed deposit rates, even if this means a bit of risk. I was told that I could get this with bonds. But since I don't know much about bonds, I decided to trust a fund manager,” he said.
Pang is just one of the many wealthy Asians who are prepared to give up their “I want total control over my money” attitude to one of paying fund managers to get something done. This is especially as investment options in Asia have expanded greatly in the last 10 years, with more complex structures and asset classes now in place across the region.
Bond investing, for example, was practically unheard of for a retail investor just 10 years ago.
Yet, according to a 2002 study by consultant CBM Inc, bond investing increased by nearly 24% compounded annual growth rate (CAGR) between 1999 and 2001, the fastest-growing of all household investable assets within the big four Asian countries, namely Hong Kong, Taiwan, South Korea and Singapore.
Overall, the CBM study found that managed money grew by about 11% a year for the five years between 1996 and 2001.
This was primarily in the form of mutual funds and life insurance, which grew strongly at a rate of 12% to 13% in that period. On the other hand, self-managed money grew by 7% in the same period.
This trend towards managed money has doubtlessly been helped by the steady rise in Asian household wealth over the past decade. In 1991, households in the big four Asian countries commanded about US$0.7 trillion of financial assets, compared to US$16 trillion in the US. By 2001, and despite the economic crisis of the intervening years, this number had grown to US$1.9 trillion, a growth of 170%.
Even in the difficult period from 2000 to 2001, Asian households managed to increase their wealth by over 4%. In fact, Asian wealth is growing at nearly twice the rate of US wealth, albeit from a much smaller base.
Given this, fund management appears to have a long-term future in Asia. Pro- fessionally managed money already comprised over a quarter of the financial assets of households in Asia’s big four countries as at the end of 2001.
And there is considerable room for this trend to pick up speed, given that in the US, the penetration is closer to 60%. The challenge comes not from the tendency for Asians to want to manage their own money, but more from their deep-rooted inclination to save.
Cash and deposits still account for over half of a typical Asian family’s investable wealth (not including their fixed assets such as property or cars), whereas a typical American family only saves about 15% of their wealth, with the rest in pension plans and investments, an outcome of the tax-efficient 401K private pension schemes introduced in the US in the 1970s.
Malik Sarwar, head of Citibank’s investments business in Asia-Pacific, believes that Asians are only just coming to terms with their new-found riches.
He said: “The rate of economic growth in Asia has been phenomenal and many Asians have gotten rich relatively quickly compared to our counterparts in the developed countries.
“Consequently, Asians are still preoccupied with creating new sources of wealth and protecting this wealth, rather than looking at growing it for the long term, say for their retirement.
“However, this is slowly changing. As Asians become more confident that their wealth is here to stay, they are adopting a more sustained approach to investing, including professional management. Up until recently, investing amounted to taking small and highly speculative bets in the local stock market.”
Asian economies and financial markets are today much more resilient than they were a decade ago. Last year, many of Asia’s stock markets were able to detach themselves from the US and European slide, buffered by the strength of their domestic economies.
Going forward, Asian economies are likely to stabilise further, and Asia’s wealthy will be even more ready to dust off their deposits and find new ways to invest.
However, these existing and potential investors will be seeking not only products but perhaps even more importantly, a more integrated approach to the growth protection and long-term accumulation of their wealth.
Each of these objectives comes into focus at different stages of a person’s adult life, although all three should feature, to a greater or lesser degree, in a wealth management portfolio.
It is the ability to create and maintain such a portfolio, using an effective combination of investments, deposits, insurance, loans and other financial instruments, which will define professional and comprehensive wealth management in Asia.
Disclaimer: The above views reflect those of Citibank Bhd as at the date of publication. They are intended for general information and/or discussion of the topic. They are not intended to be relied upon in any way by any investors in foreign currencies or other investment products.
While every effort has been made to ensure accuracy of the information, no liability whatsoever will be accepted by the bank or the author whether in contract, tort or otherwise, for any error of fact or omission herein which may lead to any direct or consequential loss arising from any reliance upon or use of this report.
Investors should seek independent professional advice before making any investment or taking any course of action towards investing.