Three key factors will shape the fortunes of wealth management in the Asia-Pacific region during the 2020s, say leading practitioners: questions over renewed Chinese growth; changing industry dynamics fuelling competition for advisers and investment specialists; and political uncertainty.
“Our number one growth market today is China,” confirms Amy Lo, co-head of Asia-Pacific wealth management at UBS, employing approximately 1500 advisers in Hong Kong and a similar number in Singapore. Her bank expects Chinese GDP growth to peak in the second quarter of 2023 at around 8 per cent.
Currently, around one third of Ms Lo’s bankers in Hong Kong deal with clients on the mainland and she spends much of her time in neighbouring cities in the Greater Bay Area (GBA), particularly Shenzen, accessible in 15 minutes from the West Kowloon high speed rail hub. As well as tech entrepreneurs, UBS is targeting the rising middle class in this region, many of them working in the digital sector. “This is the fastest growing segment in China,” confirms Ms Lo, focusing on the GBA’s 11 cities.
One of the main challenges, she acknowledges, is how to recruit enough advisers to service the vast enthusiasm for wealth management in this dynamic market. “While we have good penetration in the region, our research shows 85 per cent of wealthy people have not even heard of UBS, which means we are missing some of the clientele,” she says, not seeing anything negative at all about this statistic.
“On the contrary, this presents a huge opportunity, because I haven’t been tapping into these potential clients,” she says, buoyed by Beijing’s recent curtailing of Covid restrictions, which previously curbed travel from mainland China to Hong Kong. “Now with the border open once more, it’s easy to talk to these clients and so convenient for them to catch the high speed train to see us.”
In order to serve this growing constituency, Ms Lo plans to convert some of the region’s corporate and investment bankers to private client work. Not only does she expect her preferred area of the “new economy” across the frontier to continue generating business for UBS, but she believes these firms may list in Hong Kong to raise further assets.
“Last year, we saw the emergence of 77 new economy unicorns in China, and even in such a challenging year, we have seen 20 of these types of companies looking for financing, so I think Hong Kong is still very much the capital hub,” says Ms Lo. Her bank, she says, is pledging to go “all the way” in its backing for the Chinese market.
While many foreign investors from the US, Canada and western Europe have stayed away from Hong Kong as a listing destination, because trading volumes have been too low for them as geopolitical tension between Beijing and Western capitals rises, it remains an attractive destination for mainland company IPOs, say academic researchers.
Discussion about finding the right talent to cater for this demand is a common topic among Hong Kong’s wealth managers.
Good hunters needed
“If we are considering the Greater Bay Area and particularly mainland China, we are not going to look at salespeople, purely because they are good at pitching to clients,” says Arnaud Tellier, CEO of BNP Paribas Wealth Management Asia. “The bankers we are looking at also need to be good hunters, able to sell the bank to some very demanding clients. If you don’t understand banking, if you don’t understand finance, it’s very difficult to survive, particularly in our organisation.”
The demise of Credit Suisse and the future merger of the two largest players in Asia is creating a new situation
The recent banking crisis has led to a sudden influx of new advisers into the market, now that Credit Suisse, one of the best-resourced banks in the region, is being folded into Swiss rival UBS. “The demise of Credit Suisse and the future merger of the two largest players in Asia is creating a new situation,” says Mr Tellier. “There are lots of skilled and qualified talents in Credit Suisse. At this moment, we do see increased interest from clients and private bankers to engage with us, but our model of selective hiring will prevail.”
For these advisers, maintaining relationships in such as broad geographical region as Asia was particularly difficult during the height of the Covid pandemic, says Mr Tellier. “Being locked down, prevented from travelling and living through family issues, both our advisers and clients were facing a lot of stress,” says Mr Tellier.
“But it’s still a people business and clients want to conduct business in person. That became a challenge, because we could not see clients when they wanted to meet us in Taiwan, China, India and Malaysia, all countries where we have a very strong presence.”
In order to get round these restrictions, banks such as BNP Paribas were forced to “build a new infrastructure”, allowing clients to interact with bankers on mobile phones or video calls. Accelerated development of digital channels included giving bankers access to WeChat and WhatsApp in a secure manner, allowing recording of calls and digital conversations for compliance purposes.
Like many banks in the region, BNP Paribas is increasingly targeting both the northern countries including China and growing markets in south-east Asia. Part of the bank’s regional expansion involves launching a new wealth management business in Thailand, “the billionaire capital of south-east Asia”, where managed assets are expected to grow annually by 10 per cent over the next five years, according to McInsey. “This rising wealth is driving greater demand for wealth planning, investment diversification and international banking,” says the French bank.
Hong Kong is also seeing a trend towards creating family offices, such as Raffles, which works on behalf of several wealthy clans. “The reality is that Hong Kong still has the highest concentration of billionaires in Asia, with 10,000 billionaires for a population of 7m people,” says Chi-Man Kwan, CEO of the Raffles Family Office. “If you look at the whole of south-east Asia, including Indonesia and Thailand, that’s a huge region with a population 100 times that of Hong Kong, but less than half the number of billionaires.”
Hong Kong still has the highest concentration of billionaires in Asia. Image via Getty Images
Most clients, he says, are interested in technology-led themes, including biotech, fintech and renewable energy, often invested through a private equity format. “In the past three years, we have put money into around 10 projects,” says Mr Kwan. “Most have a tech element to them,” especially those chosen by younger generations.
The technological prowess of the Pearl River Delta, where Asia tech titans including Alibaba and TenCent, and the lion’s share of China’s digital entrepreneurs are based, is key to the culture of clients. “I am very confident about this area and Hong Kong is not fighting this one all alone. We are part of the Greater Bay Area, where we are the most developed financial hub,” he says. “Even the population of this area and its GDP is comparable to many developed markets. The way that Hong Kong is moving forward, it will play an important role in cross-border collaborations.”
The shake-out from the implosion of Credit Suisse and collapse of Silicon Valley Bank, which provided finance to many Asian start-ups is, however, leading wealthy families to re-assess their banking providers, he says.
“The recent banking crisis has certainly shaken the ultra-wealthy, prompting them to take a hard look at their risk management strategies and explore a broader range of investment options,” says Mr Kwan. “The crisis forced them to recognise the importance of diversification, including where they choose to hold their wealth. As such, Asia, especially Hong Kong and Singapore, has become an increasingly popular destination to steer their assets. Many of our clients are considering moving around their assets, ensuring their portfolios are well-prepared to weather any future storms. In light of these developments, multi-family offices are gaining traction as an option for clients seeking independence.”
In addition to money from this northern, ‘Greater China’ area, DBS Bank, headquartered in Singapore, is sourcing new assets from south-east Asia, where Western firms and investors are increasing their presence. “A lot of investors from the ASEAN region are benefiting from Western countries diversifying their supply firms out of China,” suggests Joseph Poon, group head of DBS Private Bank, with new clients recruited in Malaysia, Vietnam, Thailand and Indonesia. Chinese investors are similarly looking to spread their businesses to India and Indonesia, so as not to be subject to US sanctions, which pose increasing risk for Chinese mainland operators.
DBS Private Bank has recruited new clients recruited in Malaysia, Vietnam, Thailand and Indonesia, says its group head Joseph Poon
“Our competitors, like UBS and JP Morgan, are strong in Asia, but they don’t have a corporate franchise and lot of our clients are people running businesses, so we have benefited from that,” he says. DBS has been one of the prime beneficiaries of the south-east Asian family office boom, moving the bank away from a tech-led offering in the mass affluent segment to a more holistic wealth management strategy for families concerned with legacy and succession issues.
“This is a foundational change for us,” remarks Mr Poon. “What has happened in the last couple of years is that ultra-high net worth people come to look at us and then ask: ‘Can I put money with you?’”
Private deals in focus
He mentions billionaire clients attracted by the bank’s ability to conduct major deals in private markets. “The public market here doesn’t quite represent the GDP as in the UK and Europe,” he says. “We have access to a lot of private deals, because we know business people and the private market have been very strong in Asia.” This can include acting as a “matchmaker” for Asian and European families interested in investing in each other’s home markets.
Tax efficiency for families registered in Singapore, conscious of the need for effective succession planning, is also important, says Mr Poon, whose bank registered $20bn in net new money during 2022, including Chinese, European and Middle Eastern funds.
European high net worth clients increasingly view Singapore as a springboard to invest in the broader region, he says. “They want to look at the individual opportunities in Asia in private equity or fixed income and they want an Asian bank which understands business to help them do this.”
Middle Eastern money, he says, is increasingly drawn to Singapore’s safe haven status. “I was in Dubai a few weeks ago and a client there tells me: ‘I love this region and I’ve been here for three generations. Even though there’s a lot of talent here, there are too many tensions, between countries such as Iran and Saudi Arabia. I need to move my money somewhere else and I think Singapore is the place. I trust you guys and I trust your franchise.’ I think we are just at the beginning of this story.”
Discipline of diversification
But with Singapore’s rents rising as wealthy families from across Asia seek refuge in the territory’s booming economy, Mr Poon warns against over-exuberance. “We believe wealthy families in both Hong Kong and Singapore should continue to stay nimble and keep a watchful eye over any lingering geopolitical risks which may threaten to derail any sustained recovery trajectory,” he says.
These families, Mr Poon reminds us, are still recovering from the serious impact of Covid-19 across Asia and must maintain “strict discipline of risk diversification”, while positioning businesses and investment portfolios to benefit from any improvements in China’s economic environment.
Wealthy families from across Asia are seeking refuge in the Singapore’s booming economy. Image via Getty Images
As Asia’s leading regional player, DBS has seen enough crises to understand that threats to the region’s long-term economic health can arrive internally – particularly challenges relating to Chinese growth – and externally, especially from the US.
This is why the SVB collapse, in distant Silicon Valley, is being closely studied in Asia, where many start-ups which invested with the bank and are left with a nagging sense of unease. “This uncertainty could disrupt funding to venture capital firms, which may lead to less equity capital for start-ups and medium-sized companies,” says Koh Kar Siong, group head of small and medium-sized enterprise banking at DBS. “Banks and financial institutions may impose stricter lending standards, making it more challenging for these businesses to access loans or credit.”
It is vital, say DBS bosses, that entrepreneurs maintain regular dialogue with bankers and sector specialists to monitor digital technologies driving innovation, sustainability and productivity.
In Singapore’s bustling Marina Bay Financial Centre where the DBS headquarters is located, the famous mantra laid down by the bank’s CEO, Piyush Gupta, to counter the rise of Chinese big techs is still front of mind for most staff: “Innovate or die.”