TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issu...
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Family offices can effectively manage wealth, but they are struggling in Asia due to cultural values and a reluctance to delegate to professionals
Peter Guy
07 July 2014
These are trying times for new Asian family investment offices and high-net-worth individuals (HNWI) who are relatively inexperienced and undisciplined at running a professional investment management operation. Individual experiences oscillating between fear and greed that are interpreted through unique cultural values are misinterpreting risk and value. This has created a hazardous situation for this group in the current market environment.
Stung by the financial crisis, most of them sought refuge in fixed income and cash and missed out on a five-year bull market in equities. This year, to avoid dismal returns, they decided to take more risks and re-enter the stock market. But certain Asian cultural values are proving to be counterproductive impediments to cultivating a successful, long-term investment business.
Even riding through the financial crisis, equities have outperformed bonds. From 2002 to 2012, a US$100,000 investment in global bonds grew to US$183,000, and the same amount in global equities grew to US$230,000. Since 2009, the S&P 500 Index has risen more than 110 per cent, which could have been realised by anyone buying a cheap exchange-traded fund, thus avoiding expensive fund manager fees.
According to M&G Investments, the average HNWI portfolio in Hong Kong holds 35 per cent cash. In Singapore, it is 52 per cent. Inflation expectations for this year in Hong Kong are 5 per cent and in Singapore 4 per cent, so real returns are negative for many Asian portfolios. Sitting on too much cash creates a misaligned portfolio and a form of investment paralysis. It prevents investors from seeing and acting on where value lies. It breeds more defensive behaviour and excuses to time the market.
The family office concept has been abused in Asia in recent years by private banks trying to generate fees by accommodating the ego and vanity of new money. The family office is rooted in the US and Europe whose current generation is far removed from the original founder of the family fortune. The present generation’s priority is long-term capital preservation in order to provide income for future offspring.
A professionally staffed, investment management team is needed to achieve numerous objectives that include tax and lifestyle.
Few Chinese family offices which are still running their main businesses are suited for rational and disciplined investment methodology and decision-making. Personal biases, emotional reactions and undependable attitudes towards momentary losses and gains result in irrational portfolio decisions.
Asian family offices are usually dominated by individuals using their instincts and short cuts, which can turn out to be seriously wrong when they are based on incorrect assumptions.
According to Andrew Hendry of M&G, behavioural finance explains the problems. “Family offices in Asia actually have limited business experience as investment managers,” he says. “The family’s or patriarch’s track record in creating wealth in a particular business area breeds overconfidence in the high-net-worth family office environment. Overconfidence results in an inability to critically analyse contradictory data.”
Hendry says “many Chinese investors are still holding cash and fixed-income assets. Now they are too late coming to the equity markets. Mainland investors need to be cautious as they tend to be momentum-driven and like to buy on rising markets.” But he thinks that Asian conglomerates are more likely to understand capital allocation and the discipline required.
Despite a desire for greater returns through more aggressive strategies, Asian HNWI and family offices are often unable to work with the best active investment managers. Their determined aversion to paying any reasonable fees and a lack of understanding of how asset management functions actually destroys value. It is the embodiment of a broker’s joke that, “Everybody wants to go to heaven, but no one wants to die.”
Peter Guy is a financial writer and former international banker