Why and how Asian HNWIs are more active risk takers

What people think of themselves and how they behave relative to others often doesn't match up to reality. A new study commissioned by RBC Wealth Management underlines that.

Conducted by Economist Intelligence Unit between May and June with a sample size of more than 2,000 investors, the survey shows 40% of respondents in Asia self-identifying as 'risk-averse' – that is, as people disinclined or reluctant to take risks.

This was nearly double the proportion of respondents who described themselves as aggressive.

But other data sets suggest something different – that investors in Asia are more prepared to accept a certain level of risk than investors elsewhere in the world.

Certainly, being risk averse here doesn't mean that they stick to cash and shy away from investments or are relatively more likely to turn to cash when market uncertainty is high.

In the same study, 40% of the respondents in Asia also said they invested actively, almost double the figure seen in the US, Vivian Kiang, head of wealth planning for Asia at RBC Wealth Management, told AsianInvestor.

“These individuals may be taking steps to shift portfolio assets to high-quality bonds or defensive equity strategies, with the aim of mitigating risk during a volatile time,” she said. “[But] as clients consider how to navigate risk, we’re seeing more of them take a long-term, diversified view of their portfolios.”

The study surveyed 2,094 individuals, including 440 respondents from China, Hong Kong, Singapore and Taiwan in Asia. This includes high-net-worth individuals (HNWIs) – those with at least $1 million in investable assets – adult children of HNWIs, and those who are not yet HNWIs but in the high-earner-not-rich-yet (HENRY) category with a minimum annual income of $100,000. 

The study shows 56% of Asian investors cited global economic uncertainty as their top investment concern in their investments, versus 41% in the West.

And yet, despite that, they are more likely than their counterparts in the UK, US and Canada to plan to invest more in foreign holdings and alternatives. What's more, they are more willing to borrow in order to invest, the study shows.

“HNWIs in Asia are more aware of the impact of global macro-economic events and how it may affect their investments, businesses and property portfolios … HNWIs in the region have built businesses and invest with a global mindset, which, in my view, differs from the traditional Western markets, which may be more insular,” Kiang said.

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There are a number of possible reasons why Asian HNWIs are more aggressive in their investments than Western ones.

Many are entrepreneurs in the first or second generations of their family's wealth accumulation. These people are more ready to make riskier investments, like direct investments or private equity, Eva Law, chairwoman of Association of Family Offices in Asia, told AsianInvestor.

That observation is backed up by Ramakrishna Velamuri, chair professor of entrepreneurship at the China Europe International Business School.

Quoted in the RBS/EIU report, he said: “We see a large number of HNWIs, especially the more affluent ones or ultra high-net-worth individuals, investing as limited partners in venture capital and private equity funds.”

In comparison, a lot of rich people in Western countries have built up their wealth over several generations and the longer they accumulate their wealth, the less willing they are to take risks; they are keener to preserve and live off the income generated by their wealth instead of growing it, Law said.

Moreover, Western markets have larger and more mature fixed-income markets than Asian ones. So people in Asia have less choice and invest in the stock market, which is more volatile, she said.

It's partly why commercial property, with its bond-like income-giving characteristics, is attracting more and more investor interest in the region. 

“Asian investors, particularly in China, have lost confidence in stock markets and real estate has been absorbing huge amounts of savings, including from HNWIs,” Velamuri said.