The financial climate requires investors to have nerves of steel. If you are losing sleep over your investments or if you are prone to panic attacks, the advice is simple. Don't invest. And, if you belong to the minority who still have faith in the equity and mutual fund markets in the financial mayhem, financial expert Sandra Lee Yuen-man says, 'invest only if you are comfortable with the fund', and do your homework before parting with your money. Ms Lee, chief executive, China, clients solutions group at Societe Generale (SG) Corporate and Investment Banking, says another tip is to constantly review your investment and do not panic if the equity market is falling sharply. Ms Lee, who has worked in the Hong Kong market for more than 10 years, should know because she has been developing and marketing mutual funds in Hong Kong since the early 1990s. The past six months have been tough for all financial product marketers, mainly because of the meltdown of the equity and the highly complex derivatives markets globally. The financial crisis and recession deepened and retail investors lost their life savings in the stock market and mutual funds. Small retail investors in Hong Kong were badly hit by the collapse of Lehman Brothers last September through minibonds. According to Hong Kong media figures, more than 48,000 Hong Kong retail investors bought Lehman minibonds worth HK$5 billion. Thousands of investors took to the streets to highlight their plight and protest against distributors and banks who had sold them minibonds as safe investment instruments but, in reality, they were risky derivatives investment products. The minibonds became worthless pieces of paper after the bankruptcy of Lehman and some banks were reluctant to return the initial investment of investors. Ms Lee says in hindsight such situations can be avoided if retail investors are educated on the complexities of the financial product they are buying. She stresses that even though Hongkongers love investing in complex financial instruments, a lot needs to be done in achieving the goal of investor education, even in a mature financial centre such as Hong Kong. 'Education of investors and distributors of these complex investment tools is important and SG places emphasis on this aspect. [Product] providers like us make sure that our distributors are well trained. It's an ongoing process,' Ms Lee says. 'A good investment strategy needs constant monitoring of your investment. In good times or bad it's a continuous process.' She adds that the overall financial infrastructure in Hong Kong is good and regulation tightly managed. 'The SFC [Securities and Futures Commission] has done a good job in regulating the fund industry here.' So with top-notch mutual funds bleeding out cash in the past five months or so as investors rush to withdraw their money, how have SG launched funds performed? SG has an umbrella of funds and offers financial products from derivatives, structured products, exchange traded funds, alternative funds and mutual funds. The French investment bank markets its funds under the brand Lyxor Asset Management. Ms Lee says the funds have done well relative to other managed funds in Europe and Asia. 'Our experience in Europe has been good. We are offering liquidity on a weekly basis for our hedge funds clients and on a daily basis for structured products.' So hedge fund product clients redeeming their investment on a weekly basis and structured fund investors doing so on a daily basis is in sharp contrast to other hedge funds, which have lost billions as a result of the sharp falls in equity and derivatives markets, and the banning of redemptions. Asian-focused hedge funds are especially vulnerable because of steeper losses than their United States and European counterparts and the flight to safety by big global investors. According to Chicago-based hedge fund tracking consultancy HFR Group, hedge fund managers had US$1.93 trillion under management as of December. But heavy losses, redemptions and wrong bets by most hedge funds wiped out almost 50 per cent of the funds managed by them in the past six months alone. SG has suffered some outflows on funds marketed by Lyxor mainly because of the liquidity offered by the investment bank. In the first quarter of the year, however, there was net inflow of money into funds, according to Ms Lee. She says that SG is not exposed to or invested in any funds floated by disgraced financier Bernard Madoff, a lucky break considering the number of high-profile investment banks that were caught in the ponzi scheme run by the New York-based ex-Nasdaq chairman. Having been tasked with developing fund management in Hong Kong she is now turning to developing the China fund business. 'The mandate [from SG] is to build a successful business, work closely with [local] distributors and facilitate wealth management solutions.' Mainly clients are showing interest in three Lyxor funds - the ETF fund, the open-ended structured fund and the Lyxor Alternative fund. Expectations of Chinese investors on returns from fund investment have changed sharply in the past three years. In 2007 - the year of initial public offerings - investors received returns as high as 30-40 per cent. Last year was one of asset-backed securities and the returns were a modest 10 per cent. Then the equity markets in Shanghai and Shenzhen crashed in tandem with the global markets and the property market bubble burst. The Shanghai equity market last year was one of the worst performers in the region, along with Hong Kong's Hang Seng Index, and thousands of investors lost their life savings. Ms Lee says this year mainland investors have more realistic expectations from their investments, and this should benefit the fund industry. The mainland fund market has the qualities to become one of the best and the largest, she says. To succeed in the mainland fund market she will have to use all the experience she gained while developing the fund market in Hong Kong. The challenge is how to develop the mainland market with quality products that really add value to investors where they buy the right products for the right reasons with the right results. To make it happen, China will need a combination of investment tools to allow fund managers to manage risks, hedge and access overseas markets - real product differentiation; distribution - professional conduit to match products with clients' requirements - relevance in product to market process; investor education - empowering investors with knowledge to make an informed choice; and regulatory framework - to help innovative product development, product sustainability and investor protection. 'China remains a market with high growth potential. From a demand [growing affluence, high savings rate, retirement needs] and supply [opening up of capital markets and increasing expertise in managed solutions for private and public wealth] perspective it is a growing market.' She says the challenge for the fund industry is how to convince investors to park their hard earned money in structured products, ETFs and mutual funds. She knows it will be months and, in the case of some investors, years before they think of returning to the financial markets. 'The key challenge now is confidence in terms of assuring investors that their money entrusted to us is safely invested and that they will get their investment back. The intention to invest is there but retail investors are fretting about the timing and type of financial products to invest in. 'We help investors in timing the market.' So does she regret that she chose a career in the mutual fund industry over the more lucrative investment banking? Ms Lee says no. Working for an MBA degree from Stanford University proved to be an eye-opening experience. 'It gave me a chance to be alongside some of the best minds and [know] what they were thinking.' On receiving her MBA, she chose the fund management industry as it gave her a sense of adventure. Asians were getting wealthier and affluence was spreading in the fast-developing Tiger economies of Southeast Asia from the late 1980s onwards. She joined JF Funds in 1993 and was assigned to work with Blair Pickerell, a veteran of the fund industry, who later moved to HSBC and now works for Morgan Stanley. 'JF and Blair had a vision. We created the [fund] market in Hong Kong.' When she started marketing funds the firm was mostly focused on institutional investors. There were just a few thousand retail investors, who were mostly wealthy and overseas educated. That changed over the years as Ms Lee launched a marketing programme to educate Hong Kong investors on the benefits of buying into a managed platform, one that will give local investors a chance to invest in overseas markets. She started by educating the fund distributors, such as commercial banks, first about what to teach small investors, who were not aware what mutual funds were and how such investment would benefit them in the future. Another challenge she faced early on was the attitude of Hong Kong investors towards mutual funds. They treated funds like equity investment and indulged in day trading of the funds like equities. In the early 1990s, with the property and equity markets booming, Hong Kong investors cared less about mutual funds, which were meant for long-term investment rather than the short-term buy and sell that investors indulged in with equity investment. The reason for investor apathy, in part, was that in the early 1990s the investment market was dominated by two fund providers - JF Funds and Fidelity Investment. But, over the years with constant marketing and education, Hong Kong investor appetite and investment climate has changed and now they have many providers to chose from to buy funds. According to the Hong Kong Investment Funds Association, there are now 2,123 mutual funds authorised by the SFC for sale in Hong Kong. Total fund management business in the city amounted to HK$9.63 trillion in 2007. The launch of the Mandatory Provident Fund (MPF) in 2000 also forced Hong Kong investors to go for mutual funds and learn more about them. The launch of the MPF and investor education is bearing fruit now and the fund industry has vastly expanded, with the penetration rate reaching a healthy 10 per cent, sharply up from less than 1 per cent in the early 1990s. Investors also realise that funds are to be bought with long-term investment objectives rather than trading them like equities.