On March 1, the Ark Group CIO Office released the global edition of its 2024 CIO report, titled " Appreciate Life’s Little Joys, Invest in Big Trends," generating considerable attention.

Colin Huang, founder of Pinduoduo, referenced a striking analogy from Warren Buffett: "If you're sitting in a restaurant and Yao Ming walks in, you'd instantly notice him. But if an average person walks in, you probably wouldn’t pay attention. When you apply common sense, the distinction between good and bad becomes obvious. Conversely, minor details can often be overlooked. It’s essential to focus on the big picture." Recognizing major trends is akin to spotting the “giant that walks in.”

Once major trends are identified, we advise wealth managers to adopt “simple decision-making” in their asset allocation. As Buffett described it, these are like “one-foot hurdles that are easy to step over.”
The year 2024 will see elections in multiple countries globally that represent half the global population. This is introducing additional uncertainty into global politics as geopolitical conflicts may continue to cause disruptions. Wealth managers must prepare for high-impact, low-probability events by accelerating the diverse allocation of assets globally. To address investor needs for asset security, liquidity, preservation, and growth, Ark Group introduced its CATS asset allocation solutions in late 2023. Each letter in CATS represents one of the four solutions, with the following strategies for each:


3C (Cash Management Solution)
Adapting to the Environment: Adjusting Cash Allocation

The first letter, C, stands for Care for the Customer’s Cash – collectively known as our 3C strategy – and is part of our Cash Management Solution. We advise adjusting the proportion of cash assets by reducing exposure to money market funds and fixed deposits. Instead, focus on strategies that capitalize on a low-interest rate environment to mitigate declining portfolio returns. Two key areas to focus on include:

1.Investment-Grade Bonds: In light of market uncertainties, the value of high-quality investment-grade bonds is becoming increasingly apparent. While their flexibility might not match that of high-yield bonds, they offer greater safety.

2.Structured Products: The year 2024 will see elections in countries representing a population of approximately 2.5 billion globally. Although we cannot quantify the impact of these events, increased market volatility is anticipated. Increasing allocations to structured products can help mitigate extreme risks. It is advisable to consider high-quality issuers that offer principal protection or limited downside exposure to strengthen portfolio resilience.


3A (Global Secondary Wealth Growth Solution)
Seizing Opportunities in a Volatile Market with Hedge Fund Strategies

The second letter, A, stands for All Weather, Alternative, and Allocation – collectively known as our 3A strategy – and is part of our Global Secondary Wealth Growth Solution,

In a December 2023 meeting, Federal Reserve Chair Jerome Powell indicated that interest rate cuts are on the horizon, likely occurring before inflation returns to the 2% target. This announcement triggered a rally in both global equities and bonds. While the Federal Reserve may not cut rates immediately, the window for rate cuts is now open, signaling the start of asset allocation opportunities across various risk assets.

Hedge Funds and Alternative Assets Benefit from Peaking Interest Rates

Historical data indicates that within 12 months following the peak in interest rates, hedge fund strategies - such as CTA/managed futures, event-driven, macro, and arbitrage - have consistently generated double-digit returns, with CTA/managed futures often leading the pack. Additionally, private credit and infrastructure funds typically deliver average returns exceeding 10%. The real estate sector, and in particularl rental apartments, stand to gain from declining credit costs and improved valuations.

Global Secondary Wealth Growth Strategy

Since early 2023, the U.S. stock market has rebounded strongly from the downturn of 2022, with the S&P 500 index rising over 24% for the year. Major tech players like NVIDIA, Meta, Tesla, Amazon, Microsoft, Google, and Apple have significantly outperformed the broader market. However, following this unexpected surge, market volatility is likely to increase, and price divergences among different stocks, sectors, and regions will widen. This environment offers fertile ground for strategies to generate alpha and absolute returns, making hedge funds increasingly vital for diversifying into alternative investments.

Specific Strategies: Consider focusing on following trends and adopting market-neutral equity strategies. These approaches typically maintain significant cash positions that benefit from higher interest rates. Additionally, the short-selling environment is improving, with returns from short-selling now outpacing dividend yields for the first time since 2008. A multi-strategy approach through funds of funds (FoF) can lower investment thresholds and reduce management efforts.


3T (Global Primary Wealth Growth Solution)
Focusing on Quality Assets and Diversified Primary Strategies

The third letter, T, stands for Technology, Trans-Cycle, and Top Assets - collectively known as our 3T strategy – and is part of our Global Primary Wealth Growth Solution.

In private equity, merger and acquisition (M&A) strategies and Silicon Valley venture capital (VC) assets are particularly noteworthy. Historical data from the past 30 years indicates that investing in M&A strategies during the latter stages of a rate-hiking cycle yields returns significantly above the historical average. Additionally, emerging technological innovations—such as AI, blockchain, and room-temperature superconductors—combined with well-timed investments, presents excellent long-term opportunities in Silicon Valley VC assets.

The Revolutionary Potential of Large Language Models

The rapid rise of ChatGPT-like applications signals a major technological revolution, significantly impacting knowledge-based industries such as education, science, and culture. This disruption is set to reshape information processing and resource management, driving transformative change within the knowledge ecosystem. Gartner’s latest report, Hype Cycle for Artificial Intelligence, 2023, praises generative AI and recognizes it as one of the most influential technologies of the past decade.

Milestones in AI Development

AI is a breakthrough technology with substantial long-term global innovation potential. At the recent Asian Financial Forum, industry experts projected that global revenue from AI software, hardware, services, and sales will reach US$900 billion by 2026, up from US$318 billion in 2020. Furthermore, by 2030, AI-driven cloud services are expected to contribute $15.7 trillion to economic growth worldwide.

The Growing Appeal of Physical Assets

In recent years, physical assets have garnered increased attention from investors due to their ability to weather economic cycles, hedge against inflation, and maintain low correlation with other asset classes. We advise focusing on two types of high-quality physical assets:

1.Rental Apartments: High-interest rates have led to a significant reduction in new project starts. This decreased competition is expected to enhance valuations when projects reach the exit phase in 3–5 years, following the completion of the rate-cutting cycle.

2.Infrastructure Rental Strategies: Mature infrastructure assets, such as public utilities, are in strong demand, irreplaceable, and benefit from inflation while being less correlated with economic cycles. These assets provide stable, long-term returns and are essential components of a conservative portfolio.

Private Equity Fund Allocation Strategy:

•Optimize allocation pacing and leverage DPI (Distributions to Paid-In Capital) funds: Begin by allocating to private equity in the first year, followed by a subsequent allocation two years later. This strategy supports rolling returns over the long term. Selecting flagship strategies from top-tier managers ensures that the IRR remains stable. For a 7-10 year outlook, reinvest DPI funds from private equity distributions.

Start with (FoFs) for new private equity investors: For beginners, we advise starting with FoFs. After developing a solid understanding of PE over a few years, consider transitioning to single-sector funds (e.g., technology, healthcare) and real estate funds in sectors with shorter payout cycles, such as U.S. rental apartments or data centers.


3S (Global Security and Legacy Solution)
Ensuring Wealth Preservation and Legacy through Multiregional Insurance Solutions

The fourth letter, S, stands for Security, Succession, and Sustainability – collectively known as our 3S strategy – and is part of our Global Security and Legacy Solution.

As the opportunity for intergenerational wealth inheritance approaches, we advise over-allocating to insurance to achieve key objectives in wealth management and legacy planning.

Key advice:
1.Cash Flow Protection Post-Retirement: Ensure adequate preparation for reduced cash flow during retirement.
2.Providing Options for the Next Generation: Ensure flexibility and security for future generations.
3.Early Wealth Succession Planning: Prepare for smooth intergenerational wealth transitions, ensuring each generation has the resources to pursue happiness.

This comprehensive set of CATS solutions aims to equip wealth managers with adaptable and diversified strategies to navigate the uncertainties of 2024 and beyond.