Asian clients are emotionally close to their money and they don’t like the idea of paying a manager for the privilege of managing their money,» UBS's Anurag Mahesh says in an interview with finews.asia.

This is the second installment of an exclusive interview with Anurag Mahesh, UBS’ Head of Family Office in Asia. Read here the first part.

«More family offices are asking about alternatives,» Anurag Mahesh said in a recent interview with finews.asia, «but apart from private equity and real estate, family offices in Asia are not keen on hedge funds.»

The reason he proposes for this is unexpected, but on reflection, makes complete sense. «Culturally Asian clients are emotionally close to their money and they don’t like the idea of paying a money manager for the privilege of managing their money,» he says. «Possibly, two generations on, paying a fee will not be an issue.»

Growing Maturity

But the aversion to hedge funds is in fact an indicator of the growing maturity of Asian family offices rather than their lack of investment expertise. «One way for Asian family offices to manage risk is to understand the intricacies of allocation, which hedge funds do not allow you to do,» he explains.

Long-only asset classes have outperformed hedge funds since 2008, according to Mahesh. «Yes, hedge funds have more assets under management today than they did pre-crisis, but that is institutional rather than family office money,» says Mahesh.

Phenomenal Rate

«Asian family offices tend to be seen as the same as Asian wealth management clients but in fact they are dramatically different,» Mahish insists. «Family offices are really focussed on risk unlike a typical wealth management client. They have a much higher understanding of risk and risk mitigation measures.»

The banker says he is seeing macro-hedges being put on Asian family office portfolios at a ‹phenomenal rate›.

Connectivity is King

«Family offices care about connectivity to other families more than anything,» Mahesh adds. «They want to be able to speak to an ecosystem of other family offices and asset managers because that is where the ideas come from.»

He believes any bank that can provide that will have a tremendous advantage in the space. «Access to the institutional platform,» is another concern for family offices and here Mahesh believes the likes of UBS have an edge.

«If you are a wealth management-centric institution you can get institutional banks rallying around wealth management clients, the centre of gravity at UBS is undoubtedly around wealth management clients,» the UBS manager explains.

Gorilla in the Room

Within the region, there appears to be a harmonious cross-pollination of ideas and capital. «North Asian families are providers of capital to ideas coming out of South East Asia and I think this trend will continue going forward,» Mahesh says. The global picture is less heartening.

«The gorilla in the room is the global geo-political dynamic and the signal it sends to prospective family offices,» he says. «Should they make the investment and set up in Hong Kong or Singapore?». Although he acknowledges the worry, Mahesh is loathe to conjure end-of-the-world scenarios.

«This is not a secular risk,» he says, «it is important for the next eighteen months to a year but it will not matter in five or ten years.»