Asia’s Wealthy Warm to Private Equity Fund

A growing number of Credit Suisse clients allow the bank to take a greater role in managing family assets.

Tan Wei Mei - head of portfolio solutions at Credit Suisse in Asia

It is arguably better for investors to get professional advice, but it’s also better for banks. Investors who trust their bankers to manage their money are more likely to stick with the bank over the long haul, or move assets over from another firm. That would benefit private banks in Asia-Pacific ex-Japan, where 37% of individuals with at least US$1 million to invest use five or more banks compared with only 22% who do in the rest of the world, according to Capgemini and RBC Wealth Management.

Clients who decide, yes, they’d rather spend free time on their yacht with friends and family more than sitting at home picking stocks have a couple options at Credit Suisse as well as some other banks in the region. Before picking one of these at Credit Suisse, you will sit down with someone from Tan’s group to create an investment strategy that takes into account your investment objectives and risk tolerance and accounts for all of your assets, even those at other banks.

After devising a strategy, you may choose to hand full responsibility for managing your portfolio to the bank – this is what the industry calls a “discretionary” mandate. A second and more recent option allows you to retain control of your investment decisions, but to receive ongoing research and advice, even on specific trades. Credit Suisse calls this an advisory mandate. In both cases you pay an all-in-fee covering management, trade execution and custody with both strategies ranging from 1% to 2% depending on the amount of assets in the account and the type of investments (an all-stock portfolio, for instance, costs more than an all-bond portfolio.)

Tan’s portfolio solutions group is a big reason more clients are taking one of these paths at Credit Suisse. The Asia-only group was formed in 2014 with a goal to educate investors on the importance of asset allocation: finding the right mix of stocks, bonds, cash and alternatives that allows you to reach your investment goals. Recently they’ve held events throughout the region on the “psychology of investing,” using research the bank did with the University of Zurich on common investor pitfalls that Tan says was often eye-opening for clients. Investors who attended took a survey to assess their “investor personality,” revealing they were often unaware of misperceptions that could be affecting their investment returns.

“It’s always about allowing the client to go through self-discovery,” Tan says. The awareness that results, she adds, is driving more investors to see the benefits of getting guidance on their investment strategy.

INVESTORS ALSO ARE DRAWN to guided investment solutions because they are worried about market volatility and they realize investing isn’t so straight forward anymore. So when they hear that having that right strategic asset allocation can drive 80% of expected returns, they believe it. Another factor: as younger family members begin to take bigger roles in Asia’s wealthy families, they are more willing to hand off investment decisions to a professional, many banks in the region say.

Tan has found the needs for high-net-worth investors, with US$2 million to US$50 million to invest, differ from those with US$50 million or more, considered ultra-high-net-worth. High-net-worth investors often want to generate a payout from their investments, so they get a cash flow stream that in many cases is needed to pay liabilities, such as mortgage payments on property investments. Credit Suisse developed a solution to allow you to get payments from dividends and coupon payments, even when your assets are held within co-mingled funds.

Ultra wealthy clients meanwhile may rely on strategies specific to certain asset classes as building blocks for their asset allocation, whether it’s Asian fixed-income (always popular) or something like U.S. small caps. “They are taking this more institutional approach, where they do believe it’s possible to generate the performance that they are looking for by focusing on specific strategies,” Tan says.

Guiding clients to discretionary or advisory mandates hasn’t been a hard sell, Tan says, although some clients are trying on the approach with only a portion of their total assets. One reason investors have been willing is that the bank is transparent about any trades it executes on your behalf, and makes an effort to keep you informed about events that affect sectors or particular securities. “It’s about partnering with the client through both good and volatile market conditions, and it’s about consistently providing them with transparency,” Tan says. - barrons.com