Rich clients in Asia are exhibiting a change of investment preferences, private bankers say. The emphasis is on caution, as investors accustom themselves to volatile equity markets, low interest rates, and a turbulent geopolitical environment. Daniel Truchi, chief executive at SG Private Banking, Asia-Pacific, says there has been a shift toward a more sophisticated blend of derivative products and away from equities or mutual funds. 'People in Asia today are looking for sophisticated structures that offer better performance than equity markets, and which provide a capital guarantee,' Mr Truchi says. 'There is a huge shift toward very new types of products whose underlying assets are no longer equity, no longer fixed income, but interest rates.' SG and some other banks offer capital guaranteed products based on interest rate movements, known as accrued notes. 'They are basically a play on interest rates,' Mr Truchi says. 'If Libor [the London interbank offered rate] remains low, say less than 4 per cent, with a particular range, then you get a coupon of 6 to 8 per cent. Then if you do leverage on that, you have a very nice double-digit return. You get it with very low volatility, because interest rates are not moving every day like the equity market, and are not dependent on geopolitical events.' He says accrued note products, based on the positions of derivatives, have been available for only a few months. Another innovative product popular with high net worth clients is an absolute return fund with capital guarantee. 'The absolute return fund is an alternative investment based on three legs,' Mr Truchi says.'Fifty per cent is equities, 25 per cent is relative value, and 25 per cent is global macro. The purpose of this investment is to have very low volatility, whatever the circumstance in any country, and quite good performance. We are aiming for double-digit performance, with a capital guarantee at maturity.' Low global interest rates have had a strong impact on investor behaviour. At one time a 10 per cent return was viewed as conservative, but today 10-year United States Treasury bonds are paying about 3.4 per cent, and 30-year bonds just 4.25 per cent. Maggie Tsui, head of advisory services in Hong Kong and North Asia for BNP Paribas Private Bank, says there is good demand for products offering a return above bank deposit rates in Asia. 'We offer clients discretionary account trust services, and we also have an advisory service. Within advisory, we offer a wide range of products including items such as deposits, long borrowing from us, foreign exchange trading and options, and margin trading. We also offer equity trading in major global markets, such as the US and Europe. We also have equity structured products linked to derivatives.' She says such products have become popular in the low interest rate environment. 'Even our more conservative clients are calling us now because the short-term deposit rate is so low. It is only 1 per cent or below for some currencies such as the Swiss franc. 'By putting all their money on deposit, they will get a very low return, which is not acceptable to some retired people. They ask us to put their money where they can get a slightly higher return, such as, for example, equity-linked products. 'Our strengths are in fixed-income products, buying and selling Group of Seven [leading industrialised nations] and emerging markets bonds. Recently, we issued some preference bonds. 'Clients might ask us for a recommendation of, say, an emerging market bond. And if we believe they have the appropriate risk tolerance, we will recommend a very high rated bond, such as a treasury bond or a government bond.' Patrick du Saint, head of Hong Kong and North Asia, BNP Paribas Private Bank, says: 'We develop a tailor-made, asset allocation approach to each individual customer. For clients looking for high yield and who can accept a little higher risk, we will put more into equity, and also equity-structured products. 'It is important to realise there are no miracles. If you want a better return, you have to take some risk. The more risk you accept in your asset-allocation, the more return you can get.'