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PRIVATE BANKERS are beating a path back to Asia after either quitting the region or scaling down their operations in the wake of the financial crisis of 1997-98. The lure, say bankers, is the fabulous wealth being generated as a result of economic growth in the region - with China acting as the centrepiece of the action.

'APAC [Asia-Pacific] is the fastest-growing wealth management market in the world,' said Allen Lo, regional market manager, Greater China, for UBS Wealth Management.

The company has seven wealth management offices in the Asia Pacific region run by more than 1,600 professionals, as it bids to capture a larger share of the market.

According to an internal UBS estimate, the liquid assets held by individuals in the region (excluding Japan) were projected to grow by 8.9 per cent annually from 2004 and 2008, against  a corresponding global asset growth rate of 5.5 per cent.

However, despite that large and growing asset pool, wealth managers had so far achieved a relatively low 'share-of-wallet penetration', the study said.

Among the prodigals hoping to remedy that shortcoming is Zurich-based Julius Baer, which reopened for business in Hong Kong this year, after packing up its bags and leaving in 2000.

The company returns with a considerably beefed-up operation, having  bought three small private banks and an asset-management company from UBS, with UBS  keeping a 21.5 per cent non-voting financial stake in the expanded company.

'We are  witnessing wealth generation in the region on a large scale,' said Andrea Benenati, chief executive North Asia and chief representative of the Hong Kong office for Julius Baer.

Mr Benenati formerly worked for Credit Suisse, as did Alex Widmer, who joined as chief executive in January, Regis Burger, who will open a Dubai office, and Rolf Schaerer, who will develop new business for Julius Baer in India. Another private banker, Wilfried Kofmehl,  who will head Julius Baer's southeast operations out of Singapore,  comes from UBS.

These most recent examples of 'poaching' reveal the skills shortage that has accompanied the rapid expansion of private banking in Asia. This is a problem that Credit Suisse hopes to address through its funding of the Credit Suisse Business School's  Campus Asia.

Siegfried Hoenle,  the head of the Singapore-based school, said rapid economic growth across the region had created wealth at an astonishing pace and this in turn had affected the balance in the labour market.

'The demand and take-up of talented private banking professionals, especially relationship managers, continually outstrips supply,' Dr Hoenle said.

Mr Benenati, of Julius Baer, said: 'In Hong Kong alone, a city of just seven million people, there are between 200,000 and 300,000 millionaires. I doubt you would find that many millionaires in Switzerland, which has the same population.'

What is more, the rich in the region are richer than those in Europe.

'Here, at least 10 to 20 per cent of those millionaires are very, very rich. The ultra-high net worth individuals in the region may have liquid assets of US$20million to US$30 million, and a total net worth of over US$50 million and up to US$100 million,' Mr Benenati said.

Not surprisingly, China's new rich are a big drawcard for private bankers, some of whom have chosen to  open offices in the mainland rather than use Hong Kong as a gateway, despite the present restrictions on services.

The first to do so was AIG Private Bank, the private banking subsidiary of American International Group,  the insurance and financial services conglomerate in the United States.  The group secured a licence to open an office in Shanghai in September last year, and hot on its heels was Citigroup, which opened for business last month.

Wealth generation across the region is largely the result of a sustained economic expansion in China that has made its own new entrepreneurial class wealthy and boosted the earnings of  regional suppliers, who are  fuelling its growth.

Domestic investment and exports resulted in a gross domestic product  growth of 9.9 per cent last year. In fact, the GDP has been above 9 per cent for the past four years. Since the new economic census of 2004, that added US$284billion to estimated 2004 GDP, and there is no sign yet of much let-up.

In its 2006 regional economic outlook report, the Asian Development Bank expected GDP growth in China this year  to be about 9.5 per cent, and 8.8 per cent in 2007.  The prediction was that the GDP would grow to 26.1 trillion yuan by 2010 (from 18.2 trillion in 2005).

That expansion would ensure the steady growth of China's new millionaire class,  raising the  GDP per capita from the  present 13,985, yuan to 19,270 yuan.

Property remains a cornerstone of the wealth of many of Asia's new millionaires. According to private bankers, the region's rich retain a soft spot for property in their investment portfolios, despite the sector's volatility.

But the times are 'a'changing', they warn, and say portfolios should be restructured  in line with  new investment developments.

Increasingly high bids for property are coming in from across the region, and with interest rates still on the march, yields have tumbled.

This means the days of easy money to be made out of property are over and that investors now have to be extra selective.

Seeking sound advice about cross-border markets has become paramount, and hedging investments through structured products including reits (real estate investment trusts) has become an attractive alternative to direct investments, say wealth managers in the region.

Historically high yields  on Asian bonds have helped investment portfolios  over the past three or four years. But, like property yields, these spreads have also now been bid narrower.

Ratings' agency Standard & Poor's rang  a warning bell in its 2006 Asia High Yield bond report.  It said that while 2006 was likely to pass without much incident or default, the road  ahead for Asian bonds was likely to be marked by 'potholes'.

'A recent high-yield default study by Standard & Poor's shows that an average of 18 per cent of all B-rated category credits and 6 per cent of all BB-rated category credits have historically defaulted within three years,' the agency pointed out. Another wild card for high-yield credit quality was the potential fallout from the spread of bird flu.

The message has clearly got through to the investment managers, who are now re-engineering the portfolios of private bank customers for duration and risk exposure.

Returns expected from emerging market bonds are  typically projected at 7 per cent from the 12.2 per cent recorded  for 1994 to last year.  A typical neutral weighting of high-yield bonds would keep this asset class down to just 3 per cent.

Meanwhile, the outlook for equities is also troubled as the oil price continues its surge to above US$70 a barrel and US interest rates look set to keep rising.

In the circumstances, Asia's new millionaires were likely to show growing interest in private equity deals that provide access to direct stakes in carefully selected investment targets, said bankers.

In its 2006 world wealth report, Capgemini said private equity returns more than doubled what was on offer from an equity index investment - 23.5 per cent versus 10.9 per cent for the S&P 500.

But whatever choices Asia's wealthy make, say the bankers lining up to advise them, it is time to 're-engineer'  their portfolios.



Lured by Asia's brightest lights