Asian elites shun equities for real estate and their own endeavours

Earlier this year, Aon’s research found that Asia’s ultra-high net worth (UHNW) entrepreneurs — those with investable assets valued at more than $25m — are investing almost 25 per cent of their financial portfolios into their own businesses at the expense of publicly-listed stocks and other asset classes.

In this article, we draw on data collected by Aon with UHNW business owners in six Asian markets for the 2020 BNP Paribas Global Entrepreneur Report. We consider how and why Asia’s elites are investing in response to the market environment; where they identify risks and opportunities for their financial portfolios; and which investments they think are overhyped.

Exit equities

Business owners across Asia have reduced their portfolio exposure to stocks, from 19 per cent in 2018 to 15 per cent in 2019. 

Entrepreneurs in this region are often running capital-hungry, high-growth businesses, so, for many, it is a natural decision to allocate more investment to their own ventures where they fully understand the risks. As a result, approximately a quarter of the Asian financial portfolio is tied up in investments into their own companies, rising to about a third in Singapore and China.

To counter-balance these risks, the next biggest tranche aside from equities is held in cash (15 per cent), rising even further in Hong Kong and Taiwan.

Strong foundations 

Bricks and mortar are particularly attractive to Asia’s entrepreneurs, some of whom will have seen their personal wealth increase exponentially, in line with land ownership value over the decades since purchase. This has contributed to a perception that real estate is a low-risk asset class — a particularly visible sentiment among older age groups.

Just 5 per cent of business-owning clients across the region believe that real estate represents a high risk to their portfolio, compared to nearly a fifth who would say the same in Europe (20 per cent) or the US (19 per cent).

Going private

Across Asia, private equity is also considered an increasingly interesting and attractive asset class, primarily due to the returns potential compared to traditional funds and listed markets. The BNP Paribas report indicates that UHNW clients are willing to boost their portfolio allocations to private equity considerably over the next 12 months.

But our study also indicated that clients in Asia are less confident about their private equity understanding and more likely to agree that they find these investments complex and difficult to comprehend. Eventually, these views will act as a barrier to growth. This suggests high-quality, specialist advice will be needed to convert interest into allocations, especially since opportunities in the region are often sourced from clients’ wider business networks.

Asia’s wealthy clients are allocating significant portions of their financial portfolios to their own businesses because they understand the risks and returns of their own firms better than any other investment. They also have clear perceptions of the advantages and drawbacks of other asset classes, including private equity, real estate and sustainable investments. 

But with such strong (and frequently instinctive) preferences, this audience could be underestimating certain risks, forming a blind spot in their wealth management. 

Clearer education for Asian investors on the risks and benefits of various asset classes and investment overlays will be critical for helping them optimise their decision-making. For investment advice to be more relevant to Asia’s elite business owners in today’s turbulent environment — and indeed the post-Covid-19 ‘new normal’ — advisers will need to do a better job of explaining the role of asset classes in achieving the outcomes clients want. 

Rahul Chawla is head of wealth management, Asia and Nikhil Dama, senior manager, client insight at Aon