Foreword

Peter Drucker once said, “There is nothing so useless as doing efficiently that which should not be done at all.” This statement underscores the importance of cognition in strategic decision-making.

In the ARK GROUP 2024 H2 CIO report, we advise wealth managers to take this advice into account and use the following three key dimensions when making strategic asset allocation adjustments:

1. Define the present through the lens of the future.
2. Identify emerging trends and shifts.
3. Determine what actions we must take today.

Since 2022, ARK GROUP has released seven CIO reports centered around the core theme of encouraging individual, family and business clients to elevate their cognition and strategically adjust their asset allocation over a multi-year process.

Previous reports recommended a "protect first, then grow" approach in 2022, followed by "bottom-line thinking and aligning with the trend" in 2023 H1. In 2023 H2, ARK GROUP introduced the "CATS solution" to build anti-fragile asset portfolios that benefit from uncertainty. By early 2024, under the “seizing small wins, investing in big trends” theme, ARK GROUP issued two reports - one focused on China and the other on global trends. These reports highlight the strategic value of Qualified Domestic Institutional Investor (“QDII”) fund allocations and healthcare investments, alongside global trends like corporate globalization, AI breakthroughs, and a strong US dollar.

Looking at H2 2024, ARK GROUP’s CIO Office emphasizes that "cognition drives allocation, action shapes the future." This is a pivotal time for chinese investors to develop revolutionary new perspectives on economic cycles and geopolitics, making it a critical window for strategic asset allocation adjustments.

Elevate Cognition: Driving Strategic Asset Allocation

What Drives Asset Allocation?
ARK GROUP believes that cognition drives allocation, and wealth is a reflection of one’s understanding of the world. It is rare for anyone to generate wealth beyond the limits of their own cognition.

1. Conceptual Framework: From Low-Dimensional to High-Dimensional Cognition: Over the past decade, Chinese wealth managers have undergone a three-stage cognitive evolution in asset allocation

• Stage 1: Awareness of wealth management and using investment tools for wealth preservation and growth.
• Stage 2: Awareness of global asset allocation, aiming to reduce geographic concentration and correlation risks.
• Stage 3: Awareness of bottom-line thinking, risk isolation, and asset protection, prioritizing wealth preservation before considering growth.

Each level of cognition reduces risk and improves overall wealth.

1. Achilles' Heel: Wealth Security and Global Insurance Portfolio
   In finance and commerce, an Achilles’ heel represents a blind spot that may lead to market downturns. For wealth managers today, identifying this weak point is essential.
   Since 2022, ARK GROUP’s CIO Office has published seven CIO reports aimed at aligning clients on critical issues and developed a five-dimensional wealth security review along with a global insurance portfolio (New Quality Protection) to help clients identify blind spots in their asset allocation.

• Wealth Security "Five Essentials"
  For private enterprises and high-net-worth families who are going overseas, we recommend five essentials: identity (mobility), accounts (for daily expenses), real estate (residency), large insurance policies (cash flow for education, healthcare, and retirement), and trust structures (risk isolation and inheritance planning).
  
• "New Configuration" Model for Global Insurance
  In 2024, ARK GROUP’s CSO Office introduced a "New Configuration" asset allocation model, expanding on its earlier protected growth strategy. This model carefully balances wealth preservation with growth by deploying strategies that protect family wealth against geopolitical risks, currency fluctuations, and product deficiencies.

Three-Dimensional Cognitive Enhancement: Time, Space, and Perspective

Wealth managers today face the convergence of five major cycles: product, industry, economy, politics, and technological advancement. Understanding the interplay of these cycles and adjusting asset allocation accordingly is a complex decision-making process that requires elevated cognition.

By extending time horizons, thinking globally, and learning from history, wealth managers can make “directionally correct” decisions. This is crucial for adapting to emerging global trends while optimizing strategic asset allocation.

Key Decision Window for chinese Wealth Managers

Today, wealth management in China is at a critical juncture. Major shifts in economic cycles, geopolitics, and policy adjustments require wealth managers to act swiftly in reallocating assets.

1. Three Overlapping Phases:
• Wealth inheritance
• Economic slowdown
• Demographic shift from population growth to an aging society

For chinese investors, the most pressing needs are health, financial security (retirement), and lifelong learning. This reflects broader trends, including urbanization and a tightening policy environment.

RMB Asset Allocation Strategy

1. QDII Funds with Global Exposure:
   Utilizing QDII public funds with global exposure provides a balanced solution in an increasingly volatile domestic market for investors with RMB.
2. Healthcare and Retirement Planning:
   China’s aging population is creating long-term challenges that necessitate proactive financial planning, particularly through high-quality healthcare and retirement resources, both at home and abroad.

The Singularity is Rapidly Approaching: AI-Driven Industrial Revolution

The rapid development of AI is leading humanity towards a technological singularity—a rapid increase in machine intelligence that qualitatively far surpasses all human intelligence. This impending industrial revolution is reshaping industries and economies, offering unprecedented opportunities for innovation and growth.

Strategic Asset Allocation Adjustment: A Framework for Major Asset Classes

Defining a Future-Oriented Approach

Strategic asset allocation must be rooted in an elevated understanding of market dynamics. The key is to let insights into future trends define present decisions. The core goal of this approach includes safeguarding wealth, combating long-term inflation, managing currency depreciation, and fostering the healthy growth of both family and corporate wealth.

1. Reducing Debt in Times of Uncertainty

For investors, shifting the focus from maximizing profits to minimizing debt is a prudent strategy, especially in uncertain times. Reducing debt not only mitigates risk but also prepares individuals, families, and businesses for future market volatility. Key considerations involve understanding how common these fluctuations will become and anticipating potential destabilizing events.

2. Global Exposure Through QDII Funds

A practical way to diversify asset allocation is by utilizing QDII funds, enabling investors to passively invest in global indices. This provides exposure to international markets, balancing assets across different regions and currencies. The optimal approach for wealth management clients is to invest in global benchmarks such as the Nasdaq-100 and S&P 500 through ETFs, which offer efficient and straightforward exposure to global beta growth.

3. Global Healthcare and Retirement Insurance Solutions

As China’s demographic landscape shifts, characterized by an aging population, declining birth rates, and an increasing number of citizens moving abroad, there is growing pressure on the healthcare and retirement sectors. Addressing these challenges requires a well-structured plan, including the establishment of a third pillar of commercial insurance. Proactively managing cash flow and securing medical and retirement resources is essential for addressing the three phases of aging: active, semi-active, and dependent. Ensuring quality healthcare and dignified retirement solutions is no longer optional but a necessity.

4. Overseas Clients U.S. Dollar Asset Allocation

For families and businesses expanding globally, it is crucial to develop a comprehensive wealth security plan that incorporates mobility, living expenses, housing, cash flow and inheritance. Leveraging life insurance policies, annuities, and savings plans can quickly establish a layered security framework, which safeguards wealth across multiple regions.

5. Refining Investment Portfolios for Primary and Secondary Markets

ARK GROUP recommends diversifying between early-stage investments and AI infrastructure in the primary market while pursuing equity growth strategies in the secondary market. A balanced portfolio should include both stable, long-term assets and more liquid options. Combining hedge funds, structured products, and secured investments can help minimize portfolio volatility.

From a strategic asset allocation standpoint, it’s essential to maintain a strong safety cushion while also investing in growth opportunities. By carefully managing both the foundational (base) and growth (expansion) layers of the portfolio, investors can strike a balance between risk and return. This approach ensures that wealth management aligns with individual risk tolerance while controlling for volatility.

By combining foundational assets with growth investments, wealth managers can support healthy growth of family wealth while avoiding the pitfalls of missing out on strategic opportunities.

Conclusion

Cognition Drives Action:
The present moment represents a critical decision-making and action window for strategic asset allocation. Cognition shapes how we allocate wealth, while action ensures a secure and prosperous future.

Wealth creation, management, and inheritance are interconnected phases of a long journey that spans generations. A well-designed, adaptable strategic asset allocation framework is essential for enduring success.

Now is the time for chinese investors to elevate their macro-level cognition and adjust their strategic asset allocation to secure the future.