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Wealthy investors shift strategy to preserve capital

By Nicholas Moody

The switch to a 'risk-off' investment philosophy by ultra-high net worth families and investors is continuing a preservation trend that began last year in Asia and the emerging markets.

Preservation of capital has emerged as a key issue, even for Asian clients, according to Christophe Donay, chief strategist at Pictet Wealth Management, and supports earlier findings by Campden Research.

“Asian investors are changing their mindset. They understand that it's not sustainable to generate 20-30% returns both in the operating business and their private wealth,” said Donay.

“Now their first priority is protecting the principal and then they're looking for growth after that,” he added.

This switch is supported by data from the 2015 Global Family Office Report, which found a notable shift towards preservation in Asia and emerging markets.

The study of 224 family offices in 37 countries, published in September in partnership with UBS, found those families using a preservation strategy had increased from 17% to 19% in Asia and 33% to 40% in emerging markets.

This differed from Europe and North America where family offices reported taking on more investment risk.

“Our hypothesis for what we will find [in the 2016 study] is a move away from risk given the recent volatility and weakness,” said Stuart Rutherford, director of research at Campden Wealth.

“With the wider volatility that we've seen, we expect this to be replicated more widely around the world,” he added.

Dina de Angelo, director at Pictet Wealth Management, agreed that 2015 was a turning point for her clients which include entrepreneurs, family wealth, and self-made wealth generated from financial services.

“The mindset is not about double-digit returns. Clients are asking 'what should I be doing now I just want to preserve my assets?', she said.

Transparency of fees, safety of their funds (ensuring they weren't co-mingled with other investors), and an interest in physical gold were three client trends, according to de Angelo.

Donay also noted an increasing client interest in physical gold – as investors sought out 'safe assets'.

“Clients like the physicality. They like to walk down to the vaults, view the gold, and see their names on it,” he said.

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