As Asian private banking matures and wealth management in mainland China begins to catch up with Hong Kong and Singapore, private clients are starting to trust their banks in a way that was previously unheard of. They are gradually developing the confidence to transfer more of their financial assets to international names. This is especially true for Chinese clients, diversifying investments across banks, asset classes and booking centres.
But in order for this to happen successfully in a fast-growing market, banks must be able to recruit more high-quality staff, capable of holding deep conversations with representatives of several generations about their businesses, succession plans and investment portfolios.
Mainland Chinese clients have $2tn of assets invested outside their country, according to HSBC. Half of this has been put to work in other Asian economies, while the rest has travelled further from home, finding opportunities predominantly in Europe and the US. Many Asian clients, for instance, see an important buying opportunity in UK assets, with sterling floundering after the 2016 Brexit referendum and property prices falling as London struggles to negotiate a meaningful exit deal from the EU.
Existing clients
Private banks believe they can play a key role in advising and executing on this spreading of assets, particularly for clients already known to them.
“We are gradually increasing the share of wallet of our clients,” says Siew Mieng Tan, regional head of HSBC Private Banking for Asia Pacific in Hong Kong, entering a “back to growth phase”, central to the bank’s latest five-year plan. “We try to push for new clients, but see a lot of potential in our existing books.”
In order to benefit from this, banks must open dialogue with clients who have transacted in the past and offer them additional services including portfolio management, lending and structuring family wealth. Alternative asset solutions including private equity, hedge funds and real estate are also in demand.
Higher standards
Recent clampdowns on “shadow banking” systems, which provided returns for Chinese clients looking for wealth management products, will lead to development of higher, more professional standards in portfolio management, believes Dr Frank Zhang, CEO of China Asset Management (Hong Kong), which recently celebrated its tenth anniversary. The group’s total assets under management and advisory stands at RMB906bn ($135.9bn).
“Over the last 10 years, the emergence of shadow banking has been one of the most important stories in the Chinese financial system,” says Dr Zhang. “We have seen rapid growth of the wealth management industry, internet lending platforms and margin finance.”
Regulation of this sphere and stipulation that each fund firm must be overseen by qualified individuals will drive more clients to reputable banks and asset managers and encourage a more mature industry where investors are buying into long-term growth stories rather than chasing fast returns, he believes. Many in the industry also await further liberalisation, allowing mainland Chinese to invest greater allowances outside the country.
Despite the catastrophic performance of Asian markets in 2018, battered by Donald Trump’s trade war with China, posting losses of around 30 per cent, banks and investment providers are building a narrative of a region with a long-term growth story, in which clients can now see value.
In late November, Hong Kong’s Hang Seng index of leading shares was trading at 10 to 12 times forward earnings. “Over the last 40 years, whenever equities have been at this level, it has been the start of a re-rating and has been the time to buy. Clients are very conscious of this,” says Roger Bacon, head of investments, Asia Pacific, at Citi Private Bank.
The challenge is to encourage investors to take advantage of these dislocations, while managing risk and protecting their portfolios.
At the heart of this discussion is a more mature, sophisticated client base, interested in analysing cycles and finding the right opportunities to buy. But the philosophy is no longer about timing the market as in previous eras.
It is more about longer-term, structured themes, tied in with Asia’s industrial growth and demographics, including digitalisation, data harnessing and healthcare, often accessed through illiquid investments.
The global financial crisis of 2008 and its aftermath was an important initial catalyst for these mindset changes. Typical pre-2008 conversations with the region’s bankers were along the lines of: “How much are we going to make this year?” But the downturn triggered a changing mentality and helped banks educate clients to diversify their portfolios.
Before the financial crisis, Chinese clients only wanted to buy equities, says Marina Lui, head of China Business at UBS in Hong Kong. “They all chased returns of 20 to 30 per cent,” she says. “But that has all changed and they have realised the importance of diversification. Our job is to help them balance their portfolios.”
This typically includes purchase of real estate, not just in the property cauldrons of Hong Kong and mainland China, but in Europe and the US too.
Sustainable investments are also capturing investors’ interest. “Massive investments are happening today in Asia in this area,” confirms Pierre Vrielinck, CEO Wealth Management Asia Pacific at BNP Paribas, highlighting regional opportunities in renewable energy.
Search for talent
Banks such as BNP Paribas recognise this conversation around new age themes needs to be stewarded by energetic advisers who can relate to ‘next generation’ clients, yet there are few internal initiatives to nurture talent, and stop teams defecting to rivals for higher remuneration.
New recruitment drives involve looking beyond Asia to the diaspora in Europe and the US, persuading migrating bankers to return.
“There are Asians in other major financial centres in North America and the UK who would like to come home, as their families are here,” says HSBC’s Ms Tan. These candidates can offer language skills, cultural affinity and product expertise, she says.
There is a realisation among wealth managers in Asia Pacific that the old merry-go-round of highly mobile teams transferring between employers every two years is painful both for banks and clients. Industry sources confirm that around 30 per cent of the client book typically moves bank out of loyalty to their relationship manager.
Banks must increasingly train their own advisers, rather than rely on rivals to supply them, says Ms Lui at UBS. She prefers to take bankers from her firm’s corporate, consumer and investment banking units, then offer them intensive training in private banking.
“That way they are much more loyal and have already had an injection of UBS DNA before they get to us.”
Indeed, UBS is seen as the “trailblazer” in training advisers internally, confirms Simeon Fowler, CEO of Hong Kong financial services head-hunters Fowler Fox & Co.
Yet the larger banks are seen as relying increasingly on technology, with people becoming less of a priority than previously. This is leaving a clear path for boutique players including external asset managers (EAMs), which employ ex-bankers and can manage money for clients in accounts held in custody by the private banks.
This segment presents a major source of growth in Asia, as more RMs become disillusioned with what they perceive to be a faceless, complacent model associated with global names.
In order to preserve some revenues, the Swiss banks in particular are setting up desks in Hong Kong and Singapore to service these boutiques.
“Supporting EAMs is a must for all banks in the region, as that way they keep at least some of the revenues,” confirms Ray Soudah, founder of the MilleniumAssociates strategic advisory and M&A practice.
Private clients use EAMs because they have an existing relationship and want to stay with their long-term adviser, “who can provide them with access to a variety of custody platforms,” says Mike Blake, CEO of Union Bancaire Privée’s Asian franchise in Singapore.
“It’s a question for the client: ‘Whom do you trust to provide your advice?’ But I don’t think it will
lead to a fundamental change in the way which banks deliver their services.”
