Revenue from managing assets of the rich plunges as clients switch cash to low-risk assets Revenues at private banks managing Hong Kongers' assets dropped 13.1 per cent last year as the troubled economy destroyed wealth and investors put more of their money into low-risk assets, according to a Boston Consulting Group (BCG) survey. The survey of more than 80 private banks worldwide showed that revenue from managing high-income clients in Hong Kong fell to US$1.95 billion last year from $2.25 billion in 2001. This comes as the amount of assets managed by private banks in Hong Kong decreased by 11.1 per cent to US$192 billion last year because of a slump in the local stock markets. 'It's a killer combination,' BCG's vice-president and director Roman Scott said. 'Banks lose the commission revenue because people are trading less [as the value of equities fell]. 'They also lose the higher yield on the equity part of the portfolio because people move a lot of it to the lower-yielding cash and bonds.' The overall revenues to be made have also decreased as the value of managed assets lost ground. A depressed economy has diminished the value of some assets as Hong Kong's wealthy were likely to hold more locally traded equity in their investment portfolios than their Asian peers. It also meant lower savings rates and less new wealth being created. In recent years many private banks have set up shop in Hong Kong, eyeing the lucrative greater China market. Asia is considered the single fastest-growing region for private banks, with an untapped population. 'Hong Kong as a market is less interesting,' Mr Scott said. 'In truth, the interesting market in this part of the world is China.' However, private banking revenue on the mainland fell 1.64 per cent last year to US$6.53 billion from $6.64 billion in 2001. Mr Scott said the slight fall in revenues was due to a shift towards more 'conservative' assets, and a lack of higher-yielding structured products being allowed for distribution on the mainland. 'It's mostly limited to boring deposit-based stuff, straight and plain vanilla equities on the domestic listed market,' he said. 'In some cases people are still making money from brokerage commissions.' The tight regulatory environment also only allowed mostly on-shore private banking rather than the traditional off-shore model, he said. 'But in terms of potential in where it is going, all the hype about China as a private banking market is correct,' Mr Scott said. The BCG study estimated that, excluding Japan, managed assets on the mainland stood at about US$499 billion - or around 21 per cent of the $2.4 trillion under management in the Asian Pacific region. BCG estimates there were just over 323,000 wealthy households on the mainland last year, which is defined as those with managed assets of US$250,000. This was a rise of 0.9 per cent from about 321,000 such households the year before. The fall in private banking revenues in Hong Kong and in the mainland is in sharp contrast to the regional trend. BCG estimates that revenues from private banking across Asia and the Middle East grew by 6.1 per cent to US$109 billion last year.