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SCMP Reporter

The private banking pearl continues to grow and gain lustre in the Asia-Pacific, with private bankers well aware  that the region is the fastest-growing wealth management market in the world.

It is no surprise that private bankers have returned in big numbers since the crippling financial crisis took hold in the late 1990s,  and they now serve a growing  elite of wealthy individuals.

According to figures released by Credit Suisse,  about 2.4million people in the region now have financial assets worth more than US$1million.

Asia-Pacific total wealth for high-net-worth individuals amounts to US$7.6trillion, with China and Japan accounting for more than 65 per cent of regional high-net-worth wealth, the figures show.

High-net-worth wealth is expected to reach US$10.6trillion by 2010, growing at an annual rate of  more than 10 per cent (ex Japan), which easily outpaces the growth rates of Europe (at 3.7 per cent) and North America (7.4 per cent).

This rapid accumulation of wealth in the region presents a tremendous opportunity for the private banking industry.

'While some [Asian] markets are small compared to European markets, the growth rates of these are significant,' said Anuj Khanna,  managing director and head of Credit Suisse's Private Banking Division for North Asia.

Mr Khanna said the industry was becoming increasingly global, due in part to the growing sophistication of clients who were now demanding more.

'The leading players are moving beyond their home markets and the traditional industry hubs,' Mr Khanna said.

'They are building both onshore and offshore capabilities in all major regions. High-net-worth investors are also increasingly turning their attention to diversification as a way of reducing risk, be it in terms of asset classes or jurisdiction.

'They want to capture opportunities across Asia, not only in their country, but also in Europe and, to some extent, in the United States.'

These sentiments were echoed by  Claude Haberer,  chief executive of BNP Paribas Private Bank, Hong Kong and North Asia, who said that  having a global reach was certainly becoming more necessary as clients became more sophisticated and wanted to increase their own reach for better returns.

For example, BNP Paribas was providing local clients with expert advice on locating and buying European real estate, Mr Haberer said.

Another important trend shaping the  growth of the local private banking industry was the growing interdependency of private banking  and investment banking, Mr Haberer said, describing BNP Paribas as having a 'close-far' relationship with investment banks.

He said investment bank support was important for product ideas and innovation.

However, BNP Paribas aimed to maintain an 'open architecture', whereby if solutions could not be found in-house, then the bank would look outside.

Mr Khanna concurred that clients, especially the ultra-wealthy ones, were no longer satisfied with classic private banking services. Instead, they expected their bank to combine the full range of private banking and investment banking expertise to deliver new products and solutions.

According to Mr Khanna, the focus of private banking has moved beyond free investible assets and is increasingly focused on total client wealth, which includes liabilities as well as illiquid assets such as real estate or shares in client companies.

Mr Khanna said that client segmentation was also finally taking off, instead of pure segmentation taking place based on asset size alone.

'These trends are particularly pronounced and relevant for Asia, where significant wealth has largely been generated over the past 30 to 40 years,' Mr Khanna said.

' The entrepreneurs are wealthy individuals, may be at most in the second generation. They are much younger and want to leverage their personal wealth to grow their own enterprises, many of which are in IT, hi-tech businesses, trading and real estate.'

With liquidity continuing to increase, supported by strong economic growth and equity market performance among Asian and emerging economies, the consensus among private bankers is that Asian investors are  focusing their short-term investments on equity and related structured derivatives products, as well as investing in foreign exchange products.

'We are in a mostly equity-driven age,' Mr Haberer said.

Mr Khanna said: 'Interest rate ideas are less popular amid tighter interest rate volatility with less attractive return prospects.

'In addition, the idea of establishing 'trusts' is attracting more interest among traditional Asian families, focusing on smooth transfer of wealth and assets from current generation to the next one, and succession planning of business operations.'

Mr Haberer said estate planning was certainly gaining momentum in Hong Kong. This was a very important part of the global private banking business, and an important tool for client retention.

Stephen Richards Evans,  managing director and head of private bank, Greater China, for Standard Chartered, said there was an element of cyclicality about the private banking business.

'People need private banking services in the bad times as well as the good. A lot of what we do is about avoiding loss,' Mr Richards Evans said.

'Because our customers have wealth, they are not so concerned about the economic cycle, but about preserving wealth for themselves and their families.'

Mr Richards Evans added that prospects for players in the private banking industry in this part of the world would remain excellent for the next few years.

However, it would be important for banks to have a meaningful and differentiated strategy.

'Because scale is becoming such an important aspect, there will inevitably be some consolidation in the industry as fixed costs versus variable costs increase,'  he said.

Hot picks

Short-term investment alternatives on equity and related structured derivatives products are popular

Interest rates are less popular, offering less attractive return prospects

Foreign exchange products have become an important asset class lately, as there is more volatility and directional movement in underlying currencies

Renewed interest in commodities and precious metals as prices rebound on rising demand from large end-users

Hedge funds, private equity funds, special theme funds (such as water, infrastructure and property), real estate investment vehicles, are forming an important part of overall asset allocation and portfolio management

Establishment of trusts to allow for succession planning and smooth transfer of wealth is attracting more interest

Source: Credit Suisse



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