No substitute for local knowledge

One clear trend emerging from the Asian wealth management market is that local expertise – whether in market investing or portfolio management and client servicing – is the key differentiating factor. This is evident in the rebalancing of portfolios currently taking place among Asian investors, with an even stronger exposure to domestic growth stories. While there is a note of caution from hedge fund managers such as GLG, that clients are over-exposed to emerging markets, and that a rebound in the US economy could see the old order restored, even US groups such as Northern Trust are recommending wealthy investors vastly increase Eastward allocations. Fidelity’s legendary Special Situations fund manager, Anthony Bolton, who was making significant investments in Chinese shares between 2005 and 2007, has come out of semi-retirement and is moving to Hong Kong to set up a new product investing in local stocks. Domestically-driven economies, particularly India and China, are particularly favoured by the big groups. And it is no co-incidence that global brands, HSBC and Citi being the prime examples, are gradually relocating more of their top managements to Asia. But that does not mean the big names are infallible. During 2008 and 2009, UBS, Credit Suisse and HSBC, as well as Standard Chartered made significant inroads in private banking across the region. But UBS has already had to pay out fines and significant compensation to private clients after staff from its former Indian desk used wealthy customers’ money to hide losses incurred by unauthorised trades. The Indian government’s Enforcement Directorate has also been involved in investigations. Do we expect a backlash against the invaders? Looking to the future The purchase of ING’s Asian private banking assets by Singapore’s OCBC points to a future where local groups will enjoy a stronger profile. In India, Kotak Mahindra Bank is stepping up its presence and trying to differentiate itself from the foreign interlopers. Chinese banks, such as China Merchants Bank and Bank of Communications, which traditionally control the country’s fund distribution market, are strengthening and broadening their wealth management offering. If anything they are increasing their stranglehold over product sales by refusing to sell funds managed by external providers. But the foreign groups will not give in without a scrap. So-called global managers without an Asian footprint will become an irrelevance, suggests consultancy McKinsey. The battle for back office business is intensifying, with BNP Paribas and RBC Dexia beginning to reap the benefits of long-standing investments in infrastructure. And the increasing numbers of air miles which London and Zurich management of Credit Suisse is accumulating from flights to Beijing, Hong Kong and Singapore clearly shows from where the Swiss bank hopes to derive its future profits.