Over the last five years, the investment preferences of HNWI have undergone notable shifts, and this is driven by various global economic, technological and social changes, along with generational preferences.
According to Transamerica Life Bermuda’s (TLB) chief commercial officer Jeremy Young, HNWI have been branching out from the traditional stocks and bonds, and even more into alternative assets such as private equity, hedge funds, real estate, collectibles and insurance plans as they search for higher returns and ways to manage risks better, especially in markets that don’t move in sync with the traditional ones.
“The trend of investing sustainably has also been advancing. More and more HNWI, especially the younger generation, want their money to do good, reflecting a wider move towards being environmentally and socially conscious. Particularly in Asia, HNW investors are not just looking for financial returns but also want their investments to have a positive impact on society and the planet,” he said.
“Additionally, technology is reshaping preferences. There is growing excitement around sectors such as FinTech, BioTech and climate tech.”
Future-proofing through diversification
As the global economic landscape shifts, HNWI are also turning their attention to emerging markets that offer strong growth potential and investor-friendly regulations. This diversification is part of a strategy to capitalize on faster growth rates and potentially higher returns.
“With uncertainties such as geopolitical tensions, economic volatility, and global health crises, it’s no surprise that HNWI are putting more emphasis on keeping their wealth safe for the future, while also seeking growth and stability, and structures that help shield their wealth from market volatility and other financial shocks,” said Mr Young.
“At the same time, HNWI are really seeking investment solutions that are developed just for them. They want personalized advice and portfolios catering to their unique needs and ambitions. It's all part of a bigger move toward tailor-made financial solutions and services.”
Research has shown that across the Asia Pacific region, HNWI consider protecting their families and ensuring they are taken care of is a constant goal, but more needs to be done in terms of aligning and structuring their family wealth. They are also trying to strike the right balance between achieving their goals and investing wisely to keep their family's wealth going strong for generations to come.
“Our customers’ changing outlooks and investment strategies have led us to adopt a new corporate strategy that focuses distribution and diversification and deepening our engagement with our distribution partners. This shift allows us to meet individual customer needs more personally and effectively,” he said.
“We're putting a strong emphasis on tailoring our products and solutions to fit specific needs, supporting our partners and facilitating their clients servicing, and continuously streamlining our underwriting and claims services for our customers to get their protection and valid claims paid faster.”
In February, TLB launched two revamped products in Singapore and Bermuda to answer these needs, which included a wider range of index account options, including a shariah index account, extended coverage to infants and juveniles, and enhanced life benefits, while keeping the flexibility options.
“The investment sentiments and strategies of HNWIs are changing to reflect shifting priorities and we need to make sure we are there to support the changes,” he said. “The introduction of these plans is timely in providing greater flexibility for our customers to seize investment opportunities amid market volatility.”
He added that one aspect of the revamped plans that has remained consistent is the protection aspect while the underlying engine of the protection is changing.
Changing attitudes
TLB has also seen a marked difference between the values and guiding principles of second- and third-generation family businesses to their forefathers’, due largely to the environment and times in which they live.
“Next-generation business heirs and entrepreneurs in Asia are really stepping up their game when it comes to environmentalism and sustainability,” said Mr Young. “They're going beyond being aware of it and getting actively involved. This is a shift from the previous generation, which mainly equated success with the scale of businesses and wealth they created.”
This shift has caused impact or sustainable investing to really take off among HNWI in Asia in recent years. While the more matured HNWI have more habitually focused on giving back through charity after making their fortune, the new generations tend to weave ESG principles into their investment strategies and business operations from the get-go.
Asia is a region that faces significant social and environmental challenges, including pollution, deforestation, inequality, and urban congestion with infrastructure lagging. As awareness of these issues increases, HNWI are more motivated to contribute positively through their investment decisions, and impact investing allows them to invest in companies, organizations, and funds aiming to generate social and environmental impact alongside a financial return.
There is increasing evidence that indicates impact investments can produce returns comparable to traditional investments. This challenges the previous notion that there is always a trade-off between social impact and financial return, making impact investing more attractive to HNWI who do not wish to compromise on returns.
“Additionally, many HNWIs in Asia are motivated by the desire to leave a lasting legacy that goes beyond wealth. Impact investing provides a pathway to contribute meaningfully to society and the environment, offering more personal and spiritual fulfilment compared to traditional investments, and diversifying from traditional philanthropic avenues,” he said.
Inflation impact
According to Mr Young, inflation has had a nuanced impact on HNWI in Asia, much like it has on wealthy individuals globally. The effects can vary based on the nature of their assets, investment strategies, and the specific economic environments of their respective countries.
“HNWI holding significant amounts of cash or cash equivalent investments may find the real value of these assets eroded by growing inflation. As the purchasing power of money decreases, the static value held in cash may not yield the same economic benefits or purchasing power that it once did, prompting a re-evaluation of cash management strategies,” he said.
He said that in order to combat the effects of inflation, HNWI might adjust their investment portfolios by increasing exposure to assets that are traditionally seen as hedges against inflation, such as commodities (including precious metals like gold), real estate, and equities. Equities, for instance, can offer protection as many companies have the ability to balance the impact of higher costs by adjusting business and product strategies to maintain profitability.
“Many HNWI in Asia are also entrepreneurs or have significant stakes in businesses. Inflation can increase operational costs such as raw materials, labour, and overheads. While businesses can sometimes pass these costs onto consumers, doing so in a competitive market can be challenging and might impact profit margins. Diversifying into lower cost industries and product lines can help mitigate this,” he said.
Persistent inflation necessitates a strategic approach to wealth preservation and estate planning, which may trigger HNWIs to rethink their investment strategies, look more at investing in inflation-resistant assets, diversification, as well as baseline protection and stability in estate planning solutions.
He emphasised TLB’s new strategy of making its business more accessible and accommodating to a broader range of partner and customer preferences, as a vital way of helping HNWI find the right solutions to their wealth management needs.