‘Emerging markets are part of our DNA’

Chartered Bank, which later merged with the Standard Bank of British South Africa to form Standard Chartered, opened its first offices in Shanghai, Mumbai and Calcutta in 1858, adding branches in Hong Kong and Singapore the following year. Emerging markets are “part of the bank’s DNA,” according to global head of the Standard Chartered Private Bank, Peter Flavel, and as the centre of gravity of the global economy inexorably shifts eastwards, this history looks likely to stand the bank in good stead. “For us as a bank, history has dealt us a huge legacy, a positive legacy, in that we are present in nine of the top ten growth markets around the world for high net worth individuals: India, China, Korea, Taiwan, Indonesia, the United Arab Emirates, Brazil, Singapore and Hong Kong,” Mr Flavel says. “If you look at the growth rates being experienced in India and China, even despite what will be a slower growth in those markets, there’s still likely to be towards the double digit or high single digit growth,” he says. “You compare that to what would be flat or even negative growth in huge chunks of the OECD. And what flows on from that is a huge amount of wealth is being created in Asia.” Naturally, many wealth managers and private banks are now looking to open offices in the exploding wealth centres of Asia, the Middle East and Latin America, but they would be wise not to assume that their brand and experience in the west can be easily transferred to these new markets. High-touch relationships “The private banking market is different in Asia,” Mr Flavel explains. “It is predominantly first and second generation entrepreneurs, and those people and those families have worked very hard to create that wealth… they’re very close to the wealth. A lot of them are traders, and are very au fait with foreign exchange and trading by virtue of the businesses that they’ve been running. So what that means is that they’re not going to simply hand over a chunk of their wealth to a flying banker on a discretionary mandate.” European players may learn that they will need a much more high-touch relationship with a client who has a far greater connection with their wealth, and is likely to monitor and trade it more actively, than they might be used to in their home markets. This in turn demands a great degree of cultural alignment with the client and a deep local presence. Standard Chartered boasts staff from 110 countries, Mr Flavel says. “What this means is that we have two models. We have local, on the ground private bankers who live in the local communities with their clients and are in regular contact with the clients, and we have relationship managers that will fly in from time to time because we bank money into Geneva as well.” Linking the two aspects of the business is crucial, he says. Having a broader commercial bank and transactional services business also adds leverage amongst clients whose main business interests and wealth remain close. While high net worth clients may not come to the bank for credit and debit cards, they may well take advantage of its transaction network. “The other thing is credit,” Mr Flavel says. “This is a first class commercial bank, we’ve got a big balance sheet and clients continue to want us to help them with their businesses, and also to leverage them against our wealth management assets. So property, and working together with our commercial banking colleagues is a big part of what we do. You do need this blend of commercial banking and private banking together.” There is still an educative process for first generation investors, Mr Flavel says. Many are not yet accustomed to having a portfolio view of their investments. “Our fundamental proposition is through the cycle investing, so we do want our clients to have a core portfolio that they invest through the cycle. We also provide satellite, or flow products that have a tenure around one month to three months, and they’re broadly structured products that people take a view on a particular foreign exchange rate or commodity,” Mr Flavel says. “People new to Asia, they look at that as somehow not wealth management. The reality is that people in this part of the world have been trading for centuries and they’re natural traders. As long as your clients know the risk return that you’re taking on, then it’s an important part of creating wealth.” “The predominance of high net worth wealth in Asia is in cash. It’s sort of a barbell strategy, there’s a lot in cash, and there’s a smaller piece that’s traded quite actively. And I think there’s a journey for private banks to explain to clients the need for a broader based, more balanced approach to investing,” says Mr Flavel. The next generation This, he believes, will evolve as the next generation of wealth comes through. The newer generation is more international, educated or experienced overseas, and with a more international outlook. This may, or may not translate into global diversification of investments.“I think that the second generation and the third generation coming through, will [diversify]. But I also think that they’ll still invest broadly in the Asian story,” Mr Flavel says. “They’ll have a piece of Europe and the States, but the psyche is that people in Asia are much more inclined to invest in the Asian growth story than in Coca Cola, Ford and General Motors.” With an impending recession in the US, this hardly seems like a bad policy, although with the US still accounting for around 25 per cent of global consumption, there are few economies worldwide that will not suffer to some extent from a US recession. “It’s going to impact this part of the world less than it would have done previously, and we’re going to get growth just from the growth engines of India and China and other parts of Asia,” Mr Flavel says. “Our view is relatively bullish about the Asian growth story, but with caveats that it’s going to be a bumpy ride.” Standard Chartered currently does not service the lower end of the HNWI scale. Some banks have looked to the mass affluent segment as the Asian middle class expands and its wealth grows. “We’ve got two parts to our business here at the moment. The first is under $10m of AUM, and on average it’s around $3-4m. And then the plus $25m category, which we call ‘key’ clients, and our approach is slightly different for each of them. The former is much more around core portfolios, investing through the cycle, whereas at the key client end it’s more around bespoke structures,” Mr Flavel says. These segments are generating a huge amount of business as Asia creates more and more millionaires. “There are more than 100,000 millionaires in India, growing at around 20 percent this year. Over 200,000 in China. So the explosion of wealth at the top end is significant.” India had 36 entrants in the 2007 Forbes rich list, behind only the USA and Russia in its number of billionaires. Standard Chartered Private Bank has also created a service that specifically targets the global Indian market segment. The sheer number of businesses created by Indians across the world, both in the developed markets and in emerging economies in the Middle East, Asia, Latin America and Africa, is astonishing, as is the amount of personal wealth that has been generated. According to Standard Chartered, there are an estimated 20-25 million Indians offshore, with an average wealth estimated at $3m. It is a segment that is incredibly difficult to bank, as Mr Flavel explains. “What you do find, particularly in industries like electronics, jewellery, textiles, different parts of the family, or allied parts of the family, will be present in four or five markets across the world. So they’re looking for a bank that can link all of that up, and we’re one of the very few that can do that.” Having deep roots back in India helps, as the resurgent economy is helping to attract expats back to the country, Mr Flavel says. “These are long term Indians offshore. They intend to stay in the UK, they intend to stay in the UAE, or Hong Kong, or Latin America. They still have links and those links are growing stronger, as India raises its head again. And so they’re interested now in investing back into India, they’re interested now in trading back with India. And a surprising number want to be reconnected with India.” Sometimes, this takes the form of philanthropy. Philanthropic services have become a lucrative sideline for some European and US institutions, as they are appointed to create and manage trust funds. But that model is not yet prevalent in Asia, where, Mr Flavel says, investors want to give back to their communities in more tangible ways, through microfinance or development projects. “My view on it is that we do it as a part of the private bank without seeing it as a profit leader,” he says. “It’s good enough for me if we can help put the client in touch with a particular project where I don’t even see the money. It’s a donation. If they want to set up a trust, fantastic, but we’re not doing it to set up the trust, we’re doing it for the project.” This all serves to deepen the relationships that Standard Chartered has with the communities it operates in and helps it get in at the ground level of new growth stories – a strategy that has paid dividends in the past.

Peter Flavel, global head of private banking at Standard Chartered