On a regional basis, the Asia-Pacific region has 778 billionaires—up from 768 last year—accounting for $2.5 trillion of wealth. Nearly half of the billionaires in this region draw their wealth from technology, manufacturing, or real estate.
”Do not put all your eggs in one basket”
This particular quote applies to Asia right now. Most of the Asian families’ wealth is stored in real estate.
Also, comparing to other investment real estate is one of the most difficult ones. One needs to collect the rent from the tenants, high maintenance cost, and less liquidity.
As the prices of land were increasing so was the wealth of these wealthy individuals but will this go-on forever? If we look at history, the answer is no. Every big rise has to see a fall. The real estate prices in the Asia-pacific region are at an all-time high. Low upside and massive downside. Same as 2008 US or 1990’s Japan.
“It’s said that a wise person learns from his mistakes. A wiser one learns from others’ mistakes. But the wisest person of all learns from other’s successes.”
― John C. Maxwell
As John C. Maxwell said, it’s time to learn from the mistakes of Japan and the USA. Keeping all the money in a single asset class like real estate can be dangerous at the time of this bubble.
But the big question is where all this wealth will be stored taken from real estate? The answer to this question can be taken from Maxwell’s quote.
Endowment Approach.
This particular type of investment technic (a.k.a. technique) has proven to be a success, especially the Yale endowment technic.
Today, Yale endowment is famous all over the world and every other university tries to replicate it. This is only because of the returns they have provided over the last 30 years.
The same needs to be followed by the Asian families today. They need to manage it properly before losing every penny in the next recession. Even without a recession, the inflation rate in Asia is ~8%, which means they need to increase their wealth by at least ~9% if they don’t want to lose the value of their money.
Yale endowment is based on five driving concepts: the power of equities, diversification, less efficient markets, external managers, and incentives.
Today every university uses a version of this only.
The reason the endowment approach is best for Asian families is like university these families also need money for their day to day operations and they don’t have any expertise in this field. They can invest this money all over the world decreasing the regional risk and developing countries where the market is less efficient can generate higher returns. This way, if not 100% but they can have higher probability of proving “Wealth Doesn’t Last 3 Generations” wrong.
It’s the best time for these families to book their profits and shift to this model. This way they can dodge what happened in Japan and the USA.
The only issue for shifting to endowment policy will be finding a good manager to handle these funds. This can be easily handled as the total number of fund managers in Asia are over 5000.
So, it can be said that this is the right time to book the profits and shift to the endowment approach and learn from history.
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