Performance, rather than control, is the main focus of a new breed of savers who are looking for better returns SAVVY HONG KONG savers increasingly are turning to offshore investments to boost returns and diversify their asset portfolios. 'They are turning to [overseas] wealth managers to access global markets for diversification and the opportunities for return,' said Ariste Chiabotti, head of investment solutions Asia, UBS Wealth Management, Hong Kong. That trend helped UBS retain its top spot as the world's largest wealth manager last year, ahead of Citigroup and Merrill Lynch, according to the latest private banking benchmark survey by consultancy Scorpio Partnership. The survey included comparative data from 73 institutions that held US$8.5 trillion in assets for private clients around the world. But the new breed of investor was firmly focused on performance and investment managers would come under increasing pressure to deliver, warned consultant PricewaterhouseCoopers. 'Managers will increasingly turn to structured products and to specialists outside their organisations for investment strategies that cannot be sourced internally,' PwC said in its Global Investment Management Survey. This, in turn, would lead to the increasing use of derivatives and structured products and, as governance increased in importance, pressures on risk management and compliance functions would increase. The drive offshore by local high net worth individuals was partly prompted by a new culture of relinquishing control over investment decisions, in contrast with the patriarchs who established the original family wealth. Citigroup Private Bank managing director and head of research and investment strategy Tony Stanton said: 'The most striking trend in private banking in Hong Kong has been the evolution of discretionary product buyers in relation to other parts of Asia. 'What we saw 10 years ago was emphasis on control. That meant remaining close to home. Most asset portfolios were in Asia, and that was based on issues such as families and trading hours and the desire for close control.' PricewaterhouseCoopers said footloose funds were increasingly finding their way offshore and the complexity of regulatory compliance across multiple markets and managing risks for their clients were additional challenges facing the investment management industry. 'Although risk control systems are improving, there is a shortage of expertise in the market and in derivative risk management, and many houses now consider their systems inadequate in the light of tomorrow's higher standards.' Operating across multiple regulatory borders, managers of offshore assets are finding the sheer volume of compliance a challenge. 'Yet, with governments realising the industry's important role in helping people save for retirement, regulation is not likely to decrease,' PwC said. Alternative asset classes, which promised the highest returns, were expected to account for a larger proportion of revenues to investment managers, according to survey responses. 'Even so, actively managed traditional products will continue to dominate. On average, chief executives expected equity to command 41 per cent of assets under management, fixed income 29 per cent and hedge funds 10 per cent,' the survey said. Christopher Lee, chairman of the Hong Kong chapter of the Alternative Investment Management Association, said the most generally accepted alternative investments sought by investors in Hong Kong were funds of hedge funds. A fund of funds would invest in global funds, so investors using such a vehicle would be gaining exposure to offshore markets. 'In the fund arena the distinction between onshore and offshore investments makes little sense, so it would be better perhaps to talk about authorised and non-authorised funds. But there are roughly 2,000 funds authorised for retail distribution, and anyway you slice or dice that, it is a significant number. There is no lack of product available to investors,' Mr Lee said. Sally Wong, executive director of the Hong Kong Investment Funds Association, said most of the SFC-authorised funds in Hong Kong were domiciled in overseas jurisdictions, primarily Dublin, Luxembourg and Britain. The funds offered a wide array of choice for Hong Kong investors. 'Investors can have access to different asset classes and different markets [locally or overseas], and they can choose products that fit their risk appetite and financial conditions,' she said. HSBC Bank International's senior premier wealth manager Tina Molloy said high-yield offshore investments were popular among Hong Kong investors. These included discretionary portfolios actively managed to produce absolute returns, and commercial property developments. HSBC Commercial Property Fund in Britain had returned about 14 per cent over the past 12 months, its absolute return fund about 10 per cent, and mutual funds with a typical basket of funds up to 19 per cent. But while offshore investment interest had been traditionally focused on British assets, now it was becoming more global in its reach. 'Hong Kong-based investors generally are asset or cash rich and looking for quite a sophisticated investment. Since we are independent financial advisers, we can provide this service,' Ms Molloy said. The group's absolute return service, introduced for clients looking for a tailor-made discretionary portfolio actively managed in various classes such as bonds and hedge funds, was available to clients who did not have the US$3 million in liquid assets to qualify them for private banking services. 'So a customer with as little as US$150,000 would qualify,' she said.