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Here’s where Asia’s rich are putting their money

An Indonesian worker walking next to a screen featuring market trading information at the Indonesia Stock Exchange (IDX) in Jakarta.
Adek Berry | AFP | Getty Images
An Indonesian worker walking next to a screen featuring market trading information at the Indonesia Stock Exchange (IDX) in Jakarta.

As the asset managers for wealthy families in the rest of the world focus on growing their clients' cash piles, Asia's dynasties have had their managers follow a more conservative path - a strategy that could hurt returns ahead.

This was among the insights contained in the Global Family Office Report, prepared by Campden Wealth Research and UBS, released Wednesday.

The survey tracked 224 family offices - as the private wealth management firms that care for the assets of super-rich individuals or families are known - in 37 countries, with more than $200 billion in assets under management.

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"We've been seeing a multiyear risk-on globally," for most family offices, Dominic Samuelson, chief executive at Campden Wealth, which provides services for family offices, said. "What we have been seeing here in Asia has been the reverse, a movement away from a growth strategy towards a balanced and sometimes a preservation and conservation strategy."

That didn't hurt returns comparatively last year, with Asia's family offices posting an average 6.3 percent investment return in dollar terms, second only to Europe's 6.4 percent return. Singapore's offices outperformed the regional averages, with returns of 6.9 percent, the survey found. In 2013, Asia's family offices saw returns of 7.6 percent, compared with Europe's 9.8 percent.

However, Asia's family offices tend to manage smaller pools of cash, with an average of $431 million in assets, compared with an average of $806 million globally, the survey found.

Going forward, Asia's shift toward safety, particularly a higher allocation toward fixed income, might bite. Globally, family offices put an average of 14 percent of their portfolios into bonds in 2014, compared with 16 percent for Asian offices and just 11 percent for North American offices. For 2015, around 19 percent of Asia's family offices said they plan to pursue a "preservation" strategy and 54 percent plan a "balanced" strategy, up from 2014's 17 percent and 50 percent respectively.

It's something of a paradox, noted Joseph Poon, head of ultra-high net worth for Southeast Asia at UBS. "These are smart money, very savvy investors beginning to adjust their mode from a growth mode to a balance mode [and] to a conservative mode," he said. "It will drive low returns going forward."

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The risk-off shift among Asian family offices may be driven by slowing economic growth across the region, as well as expectations that the U.S. Federal Reserve may soon increase interest rates for the first time in nine years.

As many Asia family offices still receive capital injections from the family businesses, they can be exposed to any U.S. dollar debt issued by those enterprises because it could reduce the money coming in to the fund, noted Kelvin Tay, the regional chief investment officer for Asia at UBS.

"If your U.S. dollar rates are going up, that means that your debt servicing levels are likely to increase as well," Tay said. "That also means they might want to be a little bit more conservative."

Tay expects Asian family offices will take a further shift toward fixed income this year, in part because many Asian countries, other than Japan, are easing monetary policy, which is keeping yields low, while declines in commodity prices are keeping a lid on inflation.

There may be another reason Asia's family offices are positioned more heavily toward fixed income: they're also heavily positioned in private equity. Singapore's and Asia's family offices have more than 30 percent and 28 percent respectively of their portfolios invested in private equity, compared with an average of about 22 percent globally.

"Most Asian families and family offices are still very much operators of businesses. They're still entrepreneurs," Poon said, noting the "barbell" approach of investing in both a business and fixed income as a cash equivalent replicates the entrepreneur mentality of focusing on running a business, rather than financial instruments.