By Tony Lai
Photos by Cheong Kam Ka
Bricks and mortar are one of the most sought after investment vehicles, particularly in Macau, where there is no capital market. With the rapid economic development of the city and growing wealth of residents over the past decade the real estate market has consistently hit new highs, representing more hurdles for small investors to plough their money into.
Eyeing the niche in the market, a local wealth management firm, in collaboration with the city’s largest lender and a state-owned securities firm, is launching a mutual fund tailor-made for the needs of residents – namely small investors – this year. Widening the investment channels of local investors, the company will also serve as a platform for training local financial professionals and facilitate the development of the territory, claims the experienced team.
A&P Investment & Consultancy was founded by local resident Bernardo T. Alves, who has more than 10 years of investment experience, ploughing his own capital into areas as diverse as global stocks to fin tech companies in Israel. The idea of customising a mutual fund for the Macau market started to take shape two years ago, when Mr. Alves formed a team under A&P with three veteran professionals from local commercial banks and authorities working on the project.
“Basically, I could marry my expertise with the older generation of leaders in the Macau banking industry . . . to serve the Macau market,” he says in his downtown office, accompanied by the three other executives in the firm – former bankers Abraham Kot and Jackson Ho plus Cesar I, a former official at the Monetary Authority of Macau.
According to the seasoned financial team, the wealth of local residents and government has snowballed to an enormous amount year by year but their deposits yield only a very low return, given the sequential quantitative easing undertaken by major developed economies like the United States and the city’s indirect peg to the greenback.
Figures from the local monetary authority show that residents’ deposits in the local banking system amounted to MOP591.56 billion (US$73.95 billion) as of January 2018, up 13.4 per cent from a year earlier and by more than half from five years ago, while non-residents’ deposits totalled MOP257.53 billion as of January 2018, up 3.4 per cent from a year earlier and 91 per cent from five years ago.
| At least 3 per cent
The annual yield rate the A&P mutual fund guarantees
| MOP591.56 billion
Residents’ deposits in banks as of January 2018
The Chief Executive Officer of A&P has more than 30 years of experience in the local banking and financial sectors, taking up various positions in retail banking, private banking, corporate banking and others. Launching his banking career in HSBC Macau in the 1980’s, Kot also worked in Thomson Reuters Macau and lender Banco Comercial de Macau.
Bernardo T. Alves
Founder of A&P Investment & Consultancy, the son of prominent Macanese lawyer Leonel Alves has more than a decade of experience in investment since graduating from City University of London in 2006. He co-founded a private equity arm with US$1 million in 2012 that today manages roughly US$30 million.
With more than 30 years of experience in banking, the director of A&P started out his career in Banco Comercial de Macau before joining the Monetary Authority of Macau in 1986, where he worked until 2015. He departed the city’s de facto central bank as Deputy Director of the Monetary and Foreign Exchange Department, in charge of money market and foreign exchange operations for the city’s fiscal reserve.
The director of A&P spent his entire 36-year banking career in Tai Fung Bank, a local lender founded by Ho Yin, father of the city’s first Chief Executive Edmund Ho Hau Wah.
Hoping to better help residents manage their savings, particularly depositors with small and medium accounts, the team believes it “could link up with reputable financial institutions in Hong Kong and Macau, borrowing their strengths in customer data, investment and systems, to organise some investment products tailor-made solely for Macau,” says Alves.
Thus, A&P has collaborated with Bank of China Macau Branch and China Merchants Securities Asset Management (H.K.) Co., Ltd., a subsidiary of state-owned China Merchants Securities International Co., Ltd., to launch a public offering of mutual funds targeting the gambling enclave.
Compared with over 1,000 foreign investment funds authorised to be marketed and sold here, the A&P founder says their fund emphasises its communication with clients. “Many [foreign funds] come here and give commissions to the banks for sales, and they have no responsibility whatsoever after the transaction,” he remarks, as the local market is not their focus.
“That’s not what we’re looking for,” he says. “We’re looking for partnership: clients are partners, not one of the transactions.”
The company plans to host regular seminars to explain the current scenario and trends of the financial market, as well as providing regular feedback for customers on how the fund is performing, in the wake of the launch.
“It doesn’t end after you buy our products,” he notes. “It’s actually the beginning.”
Providing an annual yield rate of at least 3 per cent after fees on maturity of three to four years, the mutual fund requires a minimum investment of US$1,000, a threshold low enough for depositors with small and medium accounts. Concerning the launch of the fund, the team says it would happen this year, with the exact date dependent upon the conditions of the macro market and regulatory approvals.
Describing Macau investors as “more conservative” than other regions like Hong Kong, Mr. Alves explains that their mutual fund would just focus on bonds, such as the corporate bonds of large corporations like Apple Inc. and IBM, which are deemed “safer investments” than equities that fluctuate more often.
The latest data from the Monetary Authority reveals that the investment of residents in securities – including individuals, companies and government departments – amounted to MOP582.6 billion as of 30 June 2017, with nearly 62 per cent in long-term debt securities, 1.8 per cent in short-term debt securities and 36.2 per cent in equity securities.
Talking about the expected reception of the fund and the target of capital to be raised, Mr. Alves remarks: “For this to be economically feasible, we need between US$80 [million] and US$100 million – I don’t know whether the market is there for these but we will be here regardless.”
“We need to launch the first product to [gauge] market reaction and understand what the demand is of the population,” he continues. “We can sit here and try to forecast, but there is nothing like going to the reality to see.”
Mr. Kot, Chief Executive Officer of A&P, adds that they have had in-depth discussions with local lenders, who are responsible for the retail of most securities and fund products in the city, about the local investment market in preparation. “Macau investors want safe sound investments so that they can sleep well at night,” he laughs. “[Our] fund has a competitive edge because it’s very simple and doesn’t consist of any leveraged products or derivative products.”
“Perhaps it might not prove to be a big hit but [we believe] it will still appeal to the demands of some investors here, like the depositors of small and medium accounts,” he adds.
Due to the lack of legal framework applicable to funds here, funds sold in the city are not incorporated locally. “It is quite difficult to set up a mutual fund with Macau characteristics because there are no relevant rules here,” says Mr. Ho, a director of A&P. “We can do it this time because we use the Hong Kong framework [in partnership with China Merchants Securities].”
“Many [foreign funds] come here and give commissions to the banks for sales, and they have no responsibility whatsoever after the transaction,” Bernardo Alves, founder of A&P says. “That’s not what we’re looking for . . . we’re looking for partnership: clients are partners, not one of the transactions.” “The fund issuance takes place in Hong Kong, where Macau residents have faith in the regulatory authorities, while [Bank of China Macau Branch] is responsible for the retail,” he continues. “Everything aligns at the right place this time.”
Besides broadening the investment channels of residents, A&P also intends to serve as a platform to cultivate local talent in the financial industry. “Amid the lack of capital market and equity market here, many financial university graduates can only work in Hong Kong to utilise their skills,” says Mr. I, another director of the firm. “We hope [after the launch of the fund] we can gradually provide room for these youngsters to unleash their potential and nurture their skills.”
“[The fund launch] can also showcase how the rules here in regards to the financial industry could be improved and elevate the status of the city,” says the former Deputy Director of the Monetary and Foreign Exchange Department of the local de facto central bank.
Mr. Kot hopes more financial firms and funds will be interested in the local market in the future, creating more opportunities for the city’s talent. Looking ahead, he believes they will create more products in the future, such as setting up a private equity fund. “There are always wealth management needs in any developed economy, [the same applies to] Macau,” he says with a confident tone.
And their ambitions are more than that. “Although we started as a consultancy firm our long-term objective is to have a financial institution licence [in Macau] so that we can create our products from zero to end,” says Mr. Alves.
With the government’s recent efforts to diversify the economy from gaming to developing a “characteristic” financial industry, the A&P team believes they have a role to play. “The government says we need to diversify the economy. But what does it mean and how can we do it?” Mr. Alves asks. “We shouldn’t just expect the government to tell us what we should do.”
“We have an office based in Macau, investment ideas generated by Macau people, and Macau people as the target,” he repeats throughout the interview. And that is their way of contributing to the city’s goals.
Safe and sound
Investing in fields they have a clear grasp of without any risk of permanent loss is one of the rules A&P Investment & Consultancy says it adheres to in making investments.
The company’s founder, Bernardo T. Alves, who has more than a decade of experience in investment, is very familiar with the ups and downs, perks and losses of the financial markets. “Many people ask me whether I stay up to 4:00am [every day] to look at the financial markets,” Mr. Alves notes. “I say, ‘I don’t do that. I just stay at home and read’.”
“There is too much noise in the market: brokerage reports, your friends saying this and that . . . At the end of the day you need to look in the mirror and ask yourself: ‘Does this investment make sense?’”
How can he ensure the investment will turn out well? Read and have a thorough knowledge of companies and industries that your bets are made on. “If I don’t understand clearly what it is doing, I won’t even touch it,” he explains.
“[The key is] finding good companies that have good products and competitive sustainable advantages,” he continues. “Then buy at a price that is cheaper than you think it is worth in the market, and give yourself a big margin of safety.”