Wealthy Asian families’ preference for emerging markets may backfire on their companies

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Photo: YouTube screengrab

The 2018 Global Family Office Report, recently published by UBS Group AG and Campden Wealth, revealed that family offices in Asia have the largest allocation around the world to developing market equities. In Central America, however, as well as South Africa and Lebanon, developing-market fixed-income exposure is lagging.

According to the report, “Family offices are favoring higher risk, more illiquid investments in the pursuit of alpha. And with developing-market equities grabbing an average return of 38 per cent and developed-market equities 23 per cent, this asset class deserves the spotlight.”

But this may change. In 2018, a slew of problems ranging from Turkey’s political turmoil, Argentina’s financial troubles and stricter monetary policy in America have affected developing-market equities and bonds, which both performed well last year.

Case in point, since January the MSCI Emerging Markets Index has fallen by 9 percent. Last year it scored its biggest yearly gain since the global financial crisis, after it rose 34 percent.

Additionally, after rising 8.2 percent in 2017, Bloomberg’s Barclays Emerging Markets USD Aggregate Total Return Index fell by 2.8 percent this year.

All this could possibly upset the returns of Asian families, whose average was 16.4 percent last year. The report states that the wealthiest families in the region have allocated 14 per cent of their portfolio to developing-market equities as opposed to 4.5 percent in North America and 3.9 percent in Europe. Even their allocation to emerging market bonds is also greater than that of other regions.

Asian families pale in comparison to their European counterparts in the area of giving to philanthropic causes. In 2017, Asian family offices gave a total of US$1.3 million, in contrast to the US$6.4 million that European families donated. The report said, however, that it’s possible that Asian families give through other channels rather than family offices.

The issue of succession planning is cause for concern for Asian families. Only 39 percent of wealthy Asian families have firm plans for succession, whereas in North America it’s 42 percent, and in Europe it’s 47 percent.

One fifth of Asian family offices has yet to even make these plans.

Singapore has seen more than its fair share of in the number of family offices, since the Lion City attracts wealthy Asian families due to the quality of life and efficient legal system, according to the report.