Singapore: The rich in Asia should expect smaller annual returns in the next five years as the economic outlook remains challenging and the easy money has been made, Citigroup said on Monday.

The US bank also said that while its private banking clients in Asia are not as risk-averse as they were at the end of last year, they continue to hold large amounts of cash and bonds and shun complex investment products.

“There’s been a massive shift to simplicity," Debashish Dutta Gupta told the Reuters Global Wealth Management Summit in Singapore.

Millionaires could see total annual returns to slow to 5-7% in the next five years from 8-10% in the past five years, he said.

“Over the next five years, returns will be very challenging because broadly speaking growth rates will be much lower across global economies," he said.

Many wealthy investors suffered heavily when financial markets slumped in 2008. According to Capgemini and Merrill Lynch’s annual global wealth management report, the number of high net-worth individuals fell 15% last year, while their total worth declined by a fifth.

Many rich investors also shifted their assets from riskier hedge funds and stocks to bonds and cash as well as moved their money closer to their home markets, the report said.

Dutta Gupta said Citigroup private banking clients in Asia held, on average, about 20% of their assets in cash and another 30% in fixed income.

About 40% of their assets were in equity, down sharply from the middle of 2007 when clients had about 70% exposure to equity through direct investments, funds and derivatives.

“There’s still a large amount of liquidity on the sidelines," he said.

Dutta Gupta said clients have begun investing in hedge funds but were selecting large hedge fund managers with strong track records, and smaller funds were still having trouble raising money.

As for structured products, “there’s been a massive shift to transparency," he said.

Dutta Gupta said the bull run in stock markets since early March appeared to be over and he is advising clients to be selective and buy stocks on dips.

“Our big theme continues to be relatively overweight US and select Asian countries like Taiwan. We are neutral to underweight in other markets like India," he said.

Citigroup is also cautious on Asian residential property, particularly in Singapore following the strong run-up this year.

“Property is another risk asset. It’s also a leveraged asset and less liquid... Given the speed of the recovery in the main markets of Hong Kong and Singapore, it has made us very cautious."

Singapore, he added, was riskier than Hong Kong because of the upcoming supply of new apartments in the next few years.

Citi is the second-largest wealth manager in Asia-Pacific, according to research firm Calamander.

The US bank says it has more than 500,000 priority banking clients and over 6,000 private banking clients, and that its clients include over one-third of the billionaires in Asia excluding Japan.

Citigroup’s private banking clients have investments of $10 million and above, which makes them wealthier than the people surveyed in the Capgemeni-Merrill report which defined high net-worth individuals as people with more than $1 million in investible assets.

Dutta Gupta, who was with Lehman Brothers in London at the time of the collapse of the US bank, said his personal portfolio is up 15% as he bulked up bonds earlier this year and only recently bought US and Chinese stocks.

“The day Lehman happened I sold everything. I didn’t know what the future was holding for me. In hindsight that turned out to be a good decision because markets went much lower and things turned really ugly."