Urs Brutsch of HP Wealth Management explains the approach that European-based external asset managers (EAMs) should take when investing in Asia.

Date: Apr 2012

Tags: Asset allocation, Portfolio construction

• When European-based EAMs look to access investment opportunities in Asia, the first question they need to ask themselves is how much money they want to invest
• Being successful in Asia requires a major commitment in terms of capital and time, as well finding the right people locally to work with
• At the moment, Brutsch said that his firm’s asset allocation is slightly overweight equities

When European-based EAMs look to access investment opportunities in Asia, the first question they need to ask themselves is how much money they want to invest, said Urs Brutsch in an interview.

For example, are they looking to set up their own operations and hire local portfolio managers with an Asian capability? Or are they looking just to access Asian investments for their European clients?

If they choose the former, Brutsch said this requires a major commitment in terms of capital and time, as well as patience and holding power before they will make money in a sustainable way.

Being successful in Asia also requires EAMs to find the right people locally to work with, he added.

Investment options

When considering whether to buy funds in Asia or access investment opportunities in the region directly, Brutsch said EAMs simply looking for exposure to Asian opportunities for their clients’ portfolios can easily just buy a fund.

However, if they want to build a second leg to their European business, this will take time to find the right investments to be successful.

At the moment, Brutsch said that his firm’s asset allocation is slightly overweight equities, given that cash doesn’t offer anything to investors, and that while fixed income offers reasonable returns at the moment, interest rates can only go one way over time.

In addition to equities, he said he advocates at least a 5% exposure to gold.

He added that he is very reluctant to use structured products because of the fees involved, so prefers to go directly into the underlying investments if necessary.

Allocations to Asia

According to Brutsch, for a balanced investor, which in most organisations would mean an equities exposure of around 40%, Asia would comprise around 10% to 12% of this allocation.

However, he said he thinks that at least one-third of such an equities allocation should be in Asian equities.