90 Day Round-Up: China (Mar - May 2021)

9 0 D AY R O U N D - U P CHINA S ele c t e d s t o r i e s f r o m Ma r c h t o M ay 2 02 1

INSIDE China A recap of China themes in 2020

Operation Three pandemic blessings in disguise for Asian PBs in 2020

Investment How COVID-19 upended investments in 2020

Industry As expat packages shrink, private bankers are going back home

P6

P10

P12

P43

Dear Reader

Welcome to the first of Asian Private Banker’s “90 Day Round-Up”, where we give you a selection of stories from the last 90 days covering the trends, people and news related to Asia's wealth management industry.

It's been a busy few months for Asian Private Banker’s team of journalists, and this edition features our most popular stories related to China's wealth management industry from the past 90 days, based on the views, comments and shares within our website and social media channels.

June also sees the much-anticipated release of our latest China AUM and Client Count League Tables.

Stay tuned for its digital release.

Finally, if you want more interactive China-related content, tune in to APB Change Makers, our upcoming virtual conference, where we will focus on the people and trends that are changing the face of private banking in China. Join us live on Tuesday, 22 June for Day One of APB Change Makers – the first of three themed days – where 15 speakers will be taking to our virtual stage for a combination of presentations, panel discussions and thought leadership Q&As. Registration is free for all professionals working within the private wealth management community. You can register at apb.events/changemakers.

Enjoy the look back at our coverage from the past 90 days.

Kind regards, Patricia Jover Marketing Manager Asian Private Banker

21

12 March 2021

Digital strategy is “key success factor” for WMs expanding in GBA: Synpulse If wealth managers and banks want a slice of the wealth market in onshore China through the Greater Bay Area (GBA) Wealth Management Connect (WMC) scheme, a digital approach will be necessary, said Synpulse. The technology consultancy added that such firms will have to navigate the operational challenges arising from cross-border complications.

The consultancy has been working with banks and security brokerages in the GBA — both international and local — on technological projects that will pave the way for future cross-border operations. An important area of focus, it noted, is bridging the gaps between different core banking platforms in order to integrate with local technology providers.

The millstone of legacy IT The long-anticipated GBA Wealth Management Connect — viewed too as a pilot scheme in the relaxation of China’s restrictions on offshore investments — is reportedly ready to launch once travel bans are lifted between mainland China, Hong Kong, and Macau.

A Memorandum of Understanding (MoU) was inked last month between regulators in the region. During the early stages of the scheme, foreign financial institutions tapping into onshore China are expected to target mainly retail and mass affluent clients.

Gregory Achache, associate partner, Synpulse, argued that this client segment is technologically savvy, and therefore “a clear digital strategy [wil be] a key success factor” in engaging them.

“In the context of the GBA and the Wealth Management Connect scheme, the digital approach is what the banks need to adopt in order to succeed,” he told Asian Private Banker. “Especially since the banks are expected to onboard and serve their clients across three different jurisdictions.”

“Some traditional banks in China are still running their core banking on legacy platforms. This creates technical challenges for them to develop their digital offerings,” Andy Mo, senior director, Synpulse, shared with Asian Private Banker.

For instance, integration with certain third-party providers is pivotal if the bank wants to engage its clients and improve their experience. But a legacy banking platform complicates the issue and requires extra steps taken before any integration is possible.

“This is why it is almost impossible for [traditional banks] to compete with other players in the market if they do not invest in the right platform to serve clients at the beginning to achieve full integration,” he said.

Mo used the example of the messaging platform WeChat to illustrate his point. “It is now a trend (for banks) to integrate with Tencent WeChat to communicate seamlessly with clients and improve customer

(Continued on next page.)

3

29 March 2021 experience, because most of clients use WeChat for daily communication. The future of banking and communication need to be integrated.”

International players, on the other hand, will face operational challenges when integrating with local counterparties. “For instance, a security house will need to integrate its solutions with local exchanges and regulatory systems, and they currently do not have an existing interface for each other,” said Mo.

VP Bank takes minority stake in Chinese wealth manager

New data exchange network Furthermore, China’s stringent data management rules that strictly prohibit cross-border transfer of data would make it difficult for financial institutions operating in the GBA to readily share data and information across different locations.

Also for this reason, cloud deployment among local Chinese players’ is practically rendered impossible, “due to the sensitivity of data and security policies”.

V

But Achache observed the latest MoU has highlighted that financial firms within the GBA need to be able to exchange the right information across the border whenever necessary.

In the future, this could lead to the establishment of a new data exchange network within the area.

Under the agreement, VP Bank said the partners would “establish a cooperation platform through Hywin’s Hong Kong branch with the aim of meeting demand from wealthy Chinese for sophisticated offshore wealth management services”.

“With the opening of the Chinese onshore market, there is an immense growth potential for wealth management players,” he wrapped up. “To be there, they need the right platform, digital strategy, approach towards their clients in terms of service & offering and develop their marketing and branding.”

P Bank has taken a 3.4% stake in Chinese wealth manager Hywin, deepening a relationship between the two entities that goes back to 2019.

The acquisition follows Hywin Holding’s debut on the NASDAQ Global Market Stock Exchange last week and a February announcement that VP Bank had signed a collaboration agreement with Hywin Wealth Management in China and its asset management subsidiary in Hong Kong.

The step-up in collaboration comes at a time when VP Bank has singled out Asia as a “top priority” in its Strategy 2026 document, which sets out global targets of CHF 100 million in profit, 4% annualised NNM growth, and a cost-income ratio capped at 70% by the end of the cycle.

“The collaboration with Hywin provides us with an excellent opportunity to successfully continue VP Bank Group’s Asia momentum,” said Paul H. Arni, CEO of VP Bank Group.

For its part, Hywin Wealth — via Hywin Hong Kong — will be able to “unlock” VP Bank’s offshore wealth management offering, the bank said.

“We will now be able to follow and service clients more closely in their international aspirations,” commented Hywin Wealth CEO, Wang Dian.

Meanwhile, Tobias Wehrli, VP Bank’s head of intermediaries and private banking and a member of Group Executive Management, said the bank would expand cooperation with Hywin in intermediaries, including by providing exclusive asset custody.

VP Bank counts its intermediaries business as a core activity. In its 2020 annual report, it described Asia’s growing independent asset manager and family office segments as a “particularly promising opportunity”.

4

24 March 2021

Chinese renewable energy sector sees strong potential with policy tailwind: Credit Suisse

t the most

I

n view of China’s political push to reach zero carbon emissions by 2060 and lower the cost of renewable energy sources, analysts at the 24th Credit Suisse Asian Investment Conference advise investing in the renewable energy sector in China.

A higher contribution of renewables to the energy mix will benefit not just the environment, but China’s energy security as well, by reducing the country’s dependence on imported fossil fuels. (Currently, around 74% of crude oil and 43% of natural gas consumed in China is imported.)

announced in China’s 14th Five Year Plan last year — has already

The shift is in line with China’s emphasis on self-reliance and the in its “dual

the key driver behind all subsector demand-supply changes, with clean energy the key es (solar and wind) as a percentage of China’s energy mix (~5% in 2020E) is set in 15th TheFYP policy (16%). goal to become carbon neutral by 2060 — which was

recasthadtothe103GW/43GW per share year in the in14th Unlike consensus, we believe effect of increasing the market of renewables China’sFYP. building of strong domestic capabilities and demand powermix grid. target by 2030E (28% as per CSe vs.circulation model”. target of 25%). To el energy the official d upgrades and the energy storagefrom arefossil alsofuelimportant.

“We believe energy transition to electricity [generated by renewables] will accelerate in the coming five years, alongside the establishment of major policies and development directions mix for the utilities and China primary energy forecasts renewables sector as part of China’s 14th five-year energy mix 5% plan for 2021 to 2025,” said Gary Zhou, utilities 3% and 2% solar at Credit 9% sector securities 10%research analyst 5% 12% 4% Suisse.

6%

8%

He continued: “Energy mix improvement would be the key driver behind all demand-supply changes, with renewable energy set to be the key 69% Based on our 64% winner. projections, China is set to 57% overachieve its non-fossil fuel energy mix target by 2030, hitting three percentage points above its official target of 25%.”

17% 2010 Oil Coal

18%

19%

forecasts

12% 10%

50%

7%

9% 12% 13% 43%

Source: Credit Suisse

18%

2015 2020E 2025E Gas Hydro & nuclear Solar Wind

Solar and wind most competitive Among the renewables, the bank pointed at solar and wind power to drive the energy transition, because they are the most cost competitive against traditional non-renewable energy sources.

“After solar subsidies are lifted this year, Credit Suisse expects China’s annual solar installation to almost triple from an average of 42 gigawatts (GW) per year in the 2016-2020 period to 103 GW per year in the 2021-2025 period,” according to the bank’s press release.

(Continued on next page.)

16% 2030E

5

“Solar demand is forecast to continue surging thereafter as a result of further cost reductions and the widening application of energy storage facilities. Chinese companies supply most of the global solar demand, and they are continuously gaining larger global market shares while international demand is stimulated by grid parity and carbon emission control,” reads the media release According to Gary Zhou, upstream companies which produce solar glass and polysilicon are best positioned to benefit from the increased demand for solar energy, due to the supply tightness and long construction lead time in building respective plants. The room for revenue down the solar energy production line decreases as the technology becomes more common and popular.

Zhou added that the two leaders in the solar glass manufacturing industry which account for 50% of the total market share would likely continue their leading advantage and grow their market share even further.

Invest in early transitioners Phineas Glover, head of ESG equity research, Asia Pacific at Credit Suisse said at the conference that investors should focus on utility companies that have decided to shift into the renewable energy segment in the early stages, since they have the early-mover advantage.

“If companies are anticipating that transition [from fossil fuels to renewable energy] and decided to move earlier, they are already building that capacity in their business and identifying those premium assets that have inherent advantages. Whether it be where they’re located in China in the ability to generate solar energy, the best location in terms of wind, early movers essentially have advantages from a valuation perspective,” said Glover.

From an investment viewpoint, he said if companies leave it too late to decide on transitioning the balance sheet and allocate capital into these renewable assets, they might find themselves buying into extremely highly-valued assets.

Looking at a global perspective, Glover said the COVID-19 period seemed to have accelerated policy-maker support for tackling climate change, because a larger portion of net carbon-emitting countries committed to net-zero targets over the course of 2020.

“We may be at the beginning of one of the largest bull markets for green and renewable energies ever. The 2020 inflection point, although some [attributed to] cyclical [factors] some [attributed to] structural [factors], was just a taster of what is required in the dramatic rotation in the investment from fossil fuels to renewables,” said Glover.

“We have revised upwards our estimates of global public stimulus devoted to green end-markets from US$1.71 trillion last year to US$1.85 trillion. We expect that [figure] to increase from here and to accelerate existing trends within the energy transition, sustainable transport, energy efficiency and the circular economy.”

Having a shorter time horizon in mind, Thomas Kwan, CIO of Harvest Global Investments told Asian Private Banker last week that Chinese firms operating in the solar, wind and electrical vehicles sectors are currently at attractive evaluations, where he expects at least “a 30%40% upside” for some EV stocks and a “100% upside” for some of the solar companies. He recommends investors consider investing in these stocks as volatility in markets eases up into April-May.

6

21 April 2021

World’s biggest asset manager is taking time off on relationship with China’s Big Tech

T

he world’s largest asset manager is taking a wait-and-see approach while China’s tech industry is facing its day of reckoning.

Meanwhile, rival Tencent finds itself among the top 10 firms investigated under antitrust probes in southern Guangdong province.

Managers overseeing active strategies for global emerging market equities at BlackRock told reporters that the US manager of US$8.68 trillion in assets at the end of December 2020 prefers to “wait on the sidelines to find a better entry point” when “expectations are reset”.

After the COVID-19 pandemic, China’s tech giants ended up taking a significant part of the domestic market share, Liu noted. Some of their behaviour might have been “a little bit misconducted”, she granted.

The current scrutiny of China’s technology sector by regulators there harks back to 2018, noted BlackRock portfolio manager Lucy Liu. She manages the fund house’s China equity fund, overseeing some US$1.64 billion in investments at the end of March 2021.

“So many people actually compare this cycle versus 2018 when we saw increasing regulatory scrutiny of the sector,” Liu said. “I think that there is commonality, which basically is that the sector has been growing too fast, too strong.”

Lucy Liu BlackRock

The long arm of the law On Monday, Chinese metals trader Minmetals said the market regulator is investigating its joint venture with Alibaba Group formed in 2015, in which Alibaba transferred its 44% stake to an unrelated firm in 2019. This followed last week’s record RMB 18 billion (US$2.75 billion) fine on Alibaba after an anti-monopoly investigation found the firm founded by outspoken billionaire Jack Ma, abused its dominant market position.

Policymakers in China want to regulate these industries, like others, to “make sure they actually can continue to grow on a healthy basis”, while allowing small-and-medium sized enterprises to not get “squeezed, or marginalised”, Liu pointed out.

Where is the love?

The comments come as the use of thematic funds picked up among HNWIs, keen on capturing the upside of the market rally. Along with healthcare, big-cap tech firms were the beneficiaries of private banking inflows, Cheryl Anne Tan, head investment specialists – funds (Singapore), Julius Baer told Asian Private Banker in July 2020.

Since then, private banks have been advising taking a cautious stance and investing in cyclicals and at-value sectors, considering the run up in healthcare and tech shares. BlackRock doesn’t expect a let up in regulatory scrutiny anytime soon.

“I think it (regulatory oversight) will be very much an ongoing basis,” Liu told reporters.

BlackRock has been positioning for these developments by reducing the exposure to the sector, Liu added. Her fund’s top holding at the end of March was China Construction Bank, ahead of Tencent.

(Continued on next page.)

7

“We are seeing increasing competition in some of the areas in the sector, so it’s not just the regulatory scrutiny that will probably mitigate the upside for multiples,” Liu said. The increase in competition too will have an effect on any upward revision in earnings, she added.

From a mid to long-term perspective, the sector does have “very good quality” companies that will likely benefit from “structural opportunities”, Liu said, prompting BlackRock to “closely monitoring the sector”.

11 March 2021

Wealth Management Connect ready to launch once travel bans lifted

T

he Wealth Management Connect (WMC) scheme will be launched once COVID-19 related bans on travel between mainland China, Hong Kong and Macau are lifted, according to Bai Hexiang, the head of the PBoC’s Guangzhou branch.

In a recent interview with Commercial Radio Hong Kong, Bai said the preparations for implementing the WMC scheme are basically completed and both North-bound and South-bound WMC quotas will be available for investors once the travel restrictions are lifted.

Bai reminded Hong Kong and Macau investors to first understand the risks of mainland China investment products and suggested they begin with medium to low risk products.

He pointed out that the interest rates on wealth management products in mainland China can be as high as 4-5% per year, which is more attractive than the fixed-term RMB savings rate offered in Hong Kong.

He explained out that the WMC scheme is built on the experience of cross border account opening over the past two years, when over 135,000 mainland Chinese banking accounts were opened via Hong Kong and Macau agent banks. The PBoC will continue to work with Hong Kong and Macau financial regulators to streamline relevant

regulatory arrangements, as it is still early days of trialling cross-border account opening business.

Authorities in the Greater Bay Area (GBA) inked a memorandum of understanding (MoU) in February to establish the cooperation framework and liaison mechanism for the launch of the WMC scheme.

According to the MoU, cross-border investments will initially be capped at RMB 1 million per individual per year in a “closed-loop management of funds” in accordance with China’s capital controls on foreign currency exchange.

Private banks are currently taking a “wait-and-see” attitude, because of the limitations on the investment amount, and the uncertainty surrounding the availability of products in the initial phase of the WMC scheme.

The WMC scheme in the GBA is seen as a pilot for the overall policy of relaxing offshore investment restrictions in China. Another PBoC official has indicated that authorities are studying the feasibility of relaxing restrictions on individuals participating in investments offshore, as a next step to liberalise China’s two-way capital account flows.

8

1 April 2021

Guotai Junan to launch fully automated onboarding for WM clients

G

uotai Juan Securities has been developing a remote onboarding and KYC solution for wealth management clients, which is expected to go live in April. The solution enables clients to set up an account through the mobile application, while remaining compliant with regulatory requirements.

The remote onboarding solution is in the final stage of testing, with a prototype already rolled out. Bassanio Lo, managing director of Guotai Junan Securities (HK) Limited, said much progress has been made over the last 12 months, spurred on by the COVID-19 pandemic.

“We have made tremendous efforts to design a remote onboarding application and an e-KYC solution. We have redesigned the ongoing due diligence process using “robotic process automation” (RPA) to achieve improved efficiency for our KYC and onboarding process,” he told Asian Private Banker.

In addition, the wealth management business in Hong Kong has launched a dedicated team to oversee fintech research development, which sits under the business unit. The team is mandated to research and formulate competitive fintech strategies, capitalising on connections with technology vendors, fintech start-ups, quasigovernment agencies, and the academia.

Lo explained that the ultimate goal is to “think ahead and identify solutions that create value for the clients and generate ROI for the company”.

Speaking of the progress the company has made in digital transformation, Lo pointed out that its deployment of big data and analytics tools to analyse client behaviour and their business network has resulted in more than HK$3 billion in AUM within the past year alone.

“We integrated big data of investment behaviour with our client base and identified the existing clients who have not been actively engaging with the firm,” he elaborated. “By analysing external information on substantial shareholder movements, its associated persons, and the client’s tendency to invest in particular sectors, we have come up with a strategy and reached out to the client with a tailor-made solution.”

Striking a balance “Fintech is something that we must steer carefully to strike a balance between the disruptive technologies and the current regulatory environment,” Lo cautioned.

He believed that while there is a first-mover advantage for innovators of novel technologies, the practicality and applicability of the use case are equally critical.

“Take robo-advisor as an example: it has a distinctive advantage for the mass market, but when it is applied to the HNW sector, we must consider issues such as the fulfilment of investment suitability for multi-asset class portfolios and the best execution policy.”

The firm has been working closely with its parent company in mainland China — which serves a much larger domestic client base across a wide spectrum. In the next few months, it is expected to roll out AI customer service and chatbot functions.

“For all wealth managers and private banks, human touch and tailormade advisory services are key components of the service value chain,” Lo noted. But, he added, the post-pandemic reality has compelled wealth managers to find digital alternatives to fill in the gap where human services are difficult to deliver.

9

20 April 2021

StanChart to hire 1,000 in GBA in next three years, 400 in Hong Kong by end of 2021

S

tandard Chartered has pledged to hire 1,000 staff in the Greater Bay Area (GBA) in the next three years, and 400 in Hong Kong by 2021. Most of these hires will be in frontline roles across divisions.

The bank is keen on growing its market share in the GBA and aims to have achieved 200% income growth in four to five years’ time.

Anthony Lin, CEO of the GBA at Standard Chartered, shared in an interview with Bloomberg that the focus in the hiring of 1,000 will be on growing the wealth management business, in addition to expanding the retail, corporate and institutional banking businesses.

Standard Chartered has invested US$40 million to set up a new GBA centre in Guangzhou with the first batch of staff moving to the centre in July. By 2023, the GBA centre is expected to house 2,300 employees, some having come from internal moves.

Besides an ambitious plan in the GBA, Ong Lay Choo, Standard Chartered’s head of consumer, private and business banking in Hong Kong, told local media last week that the firm intends to hire 400 staff in 2021, across retail and wealth management, with most of the new hires being frontline staff.

Ong shared that the firm has successfully captured the macro trend of digitalisation over the past year, in which two-thirds of all clients now access the bank’s services through the mobile app, in addition to visiting branches. HNW clients enjoyed the convenience of digital but still expected the human touch of an RM. By the end of this year, added Ong, the bank hopes to launch a digital personalised investment advisory service.

Leaner structure Standard Chartered’s online wealth management business income doubled YoY in 1Q21. Helped by the current low-interest environment, fund flows into wealth management products doubled YoY. AUM from HNW clients enjoyed double-digit growth YoY in 1Q21.

Last year, Standard Chartered decided to update its organisational structure and bring the individual client and related product functions (retail banking, private banking, and wealth management) under one umbrella as CPBB. The aim is to focus on individual clients, expand its network business and create a leaner organisation.

10

21 April 2021

Natixis expands global markets Asia business with six hires

N

atixis has added six to its global markets team in Asia, to support the growth of its corporate and investment banking business in the region.

Eddison An has been appointed global markets sales, China, focusing on credit, cross-border solutions, and cross-asset transactions. He is based in Hong Kong and reports to Kirk Liu, head of global markets sales, Greater China. An comes from Deutsche Bank and brings 19 years of global markets sales experience.

Also reporting to Liu, Marcus Teng has joined as head of corporate sales, global markets, China. Teng is based in Shanghai and reports locally to Hong Liu, senior country manager, Greater China. Teng will lead the China corporate sales team and work closely with stakeholders to deliver products across the corporate platform. He will also develop new business and strengthen relationships with onshore and offshore Chinese firms. Prior to Natixis, Teng was director in global markets at ANZ Bank. From 2007 to 2013 he worked at Deutsche Bank in corporate treasury sales.

Jason Lee too has joined corporate sales, global markets, China. He reports to Teng and locally to Simon Qin, Beijing branch manager.

Apart from supporting Teng in his role, Lee will work with the asset manager’s sector teams on strategic finance transactions and provide multi-asset solutions with risk hedging, liability and liquidity management, and yield enhancement. Lee has 20 years’ experience in financial advisory and acquisition finance for leading private equity firms and large corporates in China. Prior to joining Natixis, he was with ANZ Bank, where he was director of corporate sales for global markets in China for the last decade.

Based in Hong Kong, Michael Man has been made global markets sales. He is responsible for the Global Securities Financing (GSF) fixed income business with a focus on supporting interbank cross-asset products. He will also assist in the development of the GSF equity franchise in the region. Man reports to Eric Elbaz, head of sales & financial engineering, Asia Pacific. Prior to Natixis, Man had been with BNP Paribas since 2015, most recently in its prime service and financing team in Hong Kong.

The firm also hired two for its team in Tokyo: Hiroshi Hara has been appointed regional fixed income sales, focusing on developing relationships with regional institutions, covering non-flow products and expanding Natixis’ flow business. He reports to Kazuoki Shirase, head of regional financial institutions sales. Hara has 24 years’ banking experience. Prior to joining Natixis, he was with Natwest Markets Securities Japan Limited (previously RBS Securities Japan Limited), where he was most recently head of solutions sales for Japan.

Satoshi Harada joins the Tokyo office as flow product sales, Japan.

He is responsible for executing trades on fixed income products and works closely with trading desks and local flow sales. He reports to Hirofumi Satoi, global markets sales, Japan.

Viet Linh Ha Thuc, head of global markets Asia Pacific at Natixis, pointed out that China and Japan are “key geographies” for its global markets business and that the new appointments will bolster the sales teams and allow Natixis to “deepen its client dialogue and enhance its focused development of new activities and products”.

11

6 May 2021

EVs are just “tip of the iceberg”: PE manager GLy on new mobility theme

G

Ly Capital Management, a Hong Kong-based private equity manager owned by China’s Geely Holding, said its newly rolled out mobility fund is looking beyond electric vehicle (EV) makers and focusing on opportunities across the industry vertical.

A first for GLy Capital Management, its mobility fund will zero in on post-revenue, pre-profit, later-stage companies across the supply chain for EVs. It invests in companies in common law jurisdictions and has the capabilities to invest in those in the US and Europe.

Geely and South Korean conglomerate SK Group have onboarded as anchor investors of the fund, contributing around 20% of the targeted year-end close of US$300 million. In addition, the mobility fund has drawn interest — and received commitments from — family offices and HNWIs in Singapore, Hong Kong, Europe, and the US.

Hrvoje Krkalo, GLy Capital Management

“The hype in this particular sector has generally been around the industry big names, the EV manufacturers. But that is just the tip of the iceberg — the biggest story has far more breadth and is about the entire industry vertical,” Hrvoje (“Ha r r y ”) K rk a lo, co- CEO of GLy Capital Management said, explaining the rationale behind the fund’s choice of portfolio companies.

The investment due diligence of the fund capitalises on both an internal research team of the firm and the research capabilities of its two partners, the research centre of Geely and the investment arm of SK Group.

“Unlike other fund managers that do due diligence on the specific products, we look at it from two perspectives,” Krkalo told Asian Private Banker. “One is the financial return from the perspective of a fund manager, and the other is its technical relevance from the perspective of a customer (in the auto industry).”

He said the automotive industry’s rigorous technical due diligence on its supply chain has lent further strength to the fund’s due diligence process. “These have been done on the potential companies before we deploy the capital.”

Different from the public markets, where the EV bigwigs have of late experienced marked price swings, private markets are in general less susceptible to the market momentum seen in listed stocks. Krkalo argued that accessing the new mobility sector through a PE fund offers a “differentiated deal flow”.

Concurrently launched with the fund is a “single project fund”, which received particular interest from family offices and HNWIs. Together with the new mobility fund, the single project fund participated in the first external funding round for Polestar, a Volvo-owned car maker, and deployed around US$130 million.

“Polestar is the cornerstone asset of the new mobility Fund. By launching a single project fund, we offered our investors a preview of the new mobility fund and the calibre of co-investment opportunities available,” said Krkalo.

GLy Capital Management will explore opportunities to invest in firms in onshore China, an electrification market too large to ignore.

Krkalo said the firm is looking for opportunities to work with Geely onshore as well.

12

11 May 2021

Noah delivers record quarterly revenue on the back of 65.4% jump in active clients

N

oah Holdings has reported its highest quarterly net revenue ever, supported by a surge in the number of active wealth management clients. While public securities products still dominated, there was a marked increase in the number of private equity product distributed.

By the end of 1Q21, Noah’s group-wide net revenue increased 64.1% YoY and reached RMB 1.2 billion (US$186.9 million), a historical record. Net income was out of the red this quarter, increasing 86.9% YoY to RMB 454.1 million (US$69.3 million). This came after Noah in 4Q20 paid off the Camsing settlement, which had resulted in a loss of RMB 745.2 million (US$114.2 million) for the firm’s shareholders.

Noah said the jump in revenue was attributed to strong growth in all of its revenue streams, including one-time commissions, recurring services, and performance-based income.

Within the wealth management business, revenue from both onetime commissions and performance-based income enjoyed a marked increase. Net revenues from performance-based income for 1Q21 were RMB 325.6 million (US$49.7 million), compared with RMB 15.1 million in 1Q20, representing a 20.6 times increase. The increase was primarily due to more performance-based income realised from public securities.

The number of active clients — registered HNW clients who made investments during the period, excluding those who only transacted

through the firm’s online mutual fund platform — reached 6,299, up 54.6% YoY, while the total number of registered clients at 384,021 as of 31 March 2021.

Corresponding to the growth in active clients was an uptick in the RM headcount to 1,246 — up 3.1% YoY. Noah said it has managed to keep the turnover rate of core “elite” RMs (RMs who raise a minimum of RMB 50 million per quarter, or an average minimum of RMB 10 million per month) to as low as 0.3%, down from 5.1% as of 31 December 2020.

Noah reiterated its plan to establish a “future service model” that provides services in a more organised manner, building comprehensive consulting and service capabilities through an “iron triangle” model for the front line of the business.

“The smallest unit serving the client has changed from a financial planner into an ‘iron triangle’ composed of product managers, investment consultants, relationship managers (financial planners), and post-investment managers. For those with more sophisticated needs, there will be another iron triangle layer of fund managers, product experts, and other experts to deliver comprehensive services to the client,” Noah told Asian Private Banker.

Rotation to private equity continues Noah distributed investment products worth RMB 27.1 billion (US$4.1 billion) in 1Q21, including private equity products directly distributed by its asset management arm Gopher.

Public securities products still dominate the pool of distributed investment products — around 79.4% in value. On the other hand, allocation to private equity products increased 62.5% YoY, while the asset class took up 17.6% of the total value of the products distributed in 1Q21.

(Continued on next page.)

13

Assets under management through Gopher was mostly f lat compared to 4Q20 and experienced a 4.7% YoY decrease to RMB 154.1 billion (US$23.5 billion), largely attributed to ongoing redemptions in legacy credit-backed products. Gopher continued to zero in on private equity products, which accounted for almost 80% of its total AUM. Commenting on the outlook for the entire year, Grant Pan, chief financial officer at Noah Holdings, said the firm is largely content with its 1Q21 results while it is conscious of t he volatilit y in t he Asia market, especially in China for the rest of the year.

“As much as we are confident with our top line, we will be reasonably conservative i n t e r m s of t he e x p e c t at ion s for t he overperformance of the markets this year, which will, in turn, affect the transaction value and client investment appetite this year,” said Pan.

He added that the firm will keep up its investment in several strategic initiatives, i nclud i ng d ig ita l t ra nsfor mat ion a nd recruiting new talent.

Apart from asset and wealth management, the group has been ramping up a transition of its “other business segment” towards “Noa h Dig it a l I ntel l igence”, a n a sset management platform that will serve as an additional distribution channel beyond wealth management for the firm.

Net revenue in this segment was down 70% YoY, due to the continuously reducing volume of loan origination since 2H19.

“Our strategy will in particular focus on upgrading management and organisational capabilities. We have been transforming […] into a mid-level modern corporation,” Pan remarked.

25 May 2021

When it comes to China, spread your bets: Alex Wolf of J.P. Morgan Private Bank

A

multi-asset approach spread across asset classes and different types of exposures works best from a risk-return perspective when investing in China, according to J.P. Morgan Private Bank.

“Globally, we have seen some moves to diversify China exposure among clients,” Alex Wolf, head of investment strategy, Asia, J.P. Morgan Private Bank told Asian Private Banker.

“Partly that’s because access to a wider range of markets has become possible as China liberalises access by foreign investors to its domestic markets,” he said.

Alex Wolf J.P. Morgan Private Bank

As centra l ba nks a nd governments around the world resorted to unprecedented stimuli and interestrate cuts, China’s better-than-expected recover y helped draw interest from

investors seeking returns in a low and negative yield environment.

Foreign ownership of onshore (excluding Hong Kong) Chinese stocks and bonds grew nearly eightfold to RMB 5.7 trillion (US$837 billion) at the end of September 2020, from January 2014, according to the Peterson Institute for International Economics.

The power of five A portfolio of five assets — benchmark 10-year Chinese government paper, investment-grade, and high-yield corporate bonds, offshore equities (MSCI China), and onshore equities (CSI 300) — delivered an annualised return of 7.5% in US dollar terms with a Sharpe Ratio of 0.75 times since mid-2009, said Wolf. The eponymous measure was introduced by Stanford University professor William Sharpe to measure the performance of mutual funds and a reward-tovariability ratio to describe it.

(Continued on next page.)

14

Better and stronger With average annualised returns of 7.5%, the five-asset portfolio performed better than the 6.4% return from onshore equities with a lower volatility of 10.5% versus 25.6% for A-shares. In terms of the maximum drawdown — how much the investment was down from the peak before recovering to the peak — this strategy was down 15% versus the 38% drop for MSCI China and a 43% fall for the CSI 300, J.P. Morgan Private Bank said.

“This framework can help mitigate many of the idiosyncratic risks across China’s markets, such as high volatility in equities and the difficulty in assessing credit risks,” said Wolf. “Most importantly, a multi-asset approach has historically provided a better risk-adjusted return than equities alone.”

The American private bank postulates such a portfolio construction approach helps because of the different types of exposures within asset classes. “For example, offshore and onshore equity indexes offer a different sector composition and different exposure to China’s GDP growth,” said Wolf. The CSI 300 has “better reflected” China’s nominal GDP, despite the volatility, he added.

Risks differ among different China exposures, Wolf explained to Asian Private Banker. While MSCI China is heavily concentrated in technology, locally traded RMB shares or A-shares have high volatility, with high-yield bonds carrying credit risks, he added.

“This has moved some clients to adopt a more diversified approach to China in order to gain a more balanced exposure,” Wolf said. “It’s not just rotating out of Big Tech; there has been some recognition that risks can be quite idiosyncratic and unpredictable by market (to take tightening in the property sector as an example).

And despite various economic indicators suggesting China’s “first in, first out” advantage may have “largely faded” as other economies, particularly in manufacturing, resume production, growth in China is still robust, Wolf said. He pointed to the mixed April print which showed external demand strong on a global rebound, with demand at home rather soft.

“On the one hand, the growth recovery has been pretty steady and policy tightening has not meaningfully surprised in either direction,” said Wolf. “On the other hand, regulatory tightening remains a headwind for a large part of the market (particularly MSCI China, which has many of China’s tech giants).”

A degree of caution J.P. Morgan Private Bank is cautious on China’s tech and internet sectors while “favouring more cyclically-oriented sectors and exposures such as A-shares,” said Wolf. “In fixed income, we continue to reduce duration and diversify our exposures.”

“We are still wary of the impact of targeted tightening on the property sector, but continue to like China Government Bonds (CGBs),” Wolf said, even as the bank expects the RMB to trade stronger versus the USD this year.

“Many global clients were often just looking for ‘China exposure’,” Wolf told Asian Private Banker. “But now, they are warming to the idea that diversification across asset classes, currencies, and listings makes sense from a risk/return basis.”

15

21 May 2021

‘Young’ GBA entrepreneurs drive family office interest in Hong Kong: Susanna Fung of Morgan Stanley

A

growing league of ‘young’ UHNW entrepreneurs with roots in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) is giving impetus to the Hong Kong government’s bid to raise the city’s profile as a family office hub.

Susanna Fung, head of wealth planning at Morgan Stanley Private Wealth Management Asia in Hong Kong, told Asian Private Banker that the bank has seen an increase in enquiries from Greater China entrepreneurs in their forties and fifties looking to establish what she called ‘new age’ family office entities, amid strong momentum in Hong Kong’s IPO market and heightened awareness of the importance of family wealth planning.

Capturing the potential upside of early-stage deals Furthermore, recent Hong Kong government initiatives to woo private equity and venture capital funds — including via the Unified Fund Exemption and Limited Partnerships Ordinance regimes — speak to the growing demand from family offices for more diversified investments beyond listed equities and fixed income, and for investment opportunities in China’s tech sector.

InvestHK recently told Asian Private Banker that family offices in Hong Kong are becoming more involved in Greater China’s startup ecosystem, with more than half showing “great interest in investing in a portfolio of a diverse group of startups”.

“The uptick in interest was especially pronounced during 4Q20 — for pre-IPO trusts and tax efficiency solutions, but also for family “For these ‘new age’ UHNW family investment offices, the entity is succession plans,” explained Fung. not simply for parking assets and money but rather it is a platform for GBA contributes to the strong wealth growth momentum in Greater China providing the family with an opportunity to grow their investments GBAnot contributes thebut strong wealth growth momentum Greater China “That was always the to case, the pandemic has triggered these in and assets and, importantly, to consolidate their investments younger entrepreneurs to think about — and begin — planning for and realise a more sophisticated risk management system,” Fung UHNW families in Greater China their families earlier.” continued, also pointing to Hong Kong’s ranking as the secondUHNW families in Greater China largest IPO market in 2020 as an important drawcard for the city.

Fung said Hong Kong offers a compelling platform for so-called “new age family investment offices” — which she described as having a Indeed, Fung said Morgan Stanley Asia is seeing greater interest in different mentality towards wealth creation and wealth management pre-listing employment benefit trusts and employee share option than more ‘traditional’ family office entities seen in Europe — in schemes, in a sign that younger entrepreneurs are thinking beyond part because of the city’s deepening links with their families as a “mark of appreciation” to key UHNW families in the GBA mainland China, and the GBA specifically. employees and to incentivise talent loyalty.

84,000+ 84,000+ +20% +20%

UHNW families in the GBA

“Hong Kong’s role as the bridge between China and international markets is in its DNA, and government initiatives — such as the [Stock and Wealth Management] Connect programmes and the wider GBA project — have • 84,000+ UHNW families in further highlighted the opportunities presented Greater China, increasing by the • 84,000+ UHNW families in city as a cross-border and by aroundcentre 20% infor theinvesting past 3 Greater China, increasing wealth management,” Fung said. years

19,300+ 19,300+

>1/5 of Greater >1/5 of China Greater China

by around 20% in the past 3 years

The GBA is currently home to more than 19,300 UHNW families — greater than one-fifth of the total number of ultra families in Greater China — according to InvestHK, the Hong Kong government agency which has been tasked with promoting the city as a family office destination and providing support services to family offices eyeing the financial hub.

19,300+ UHNW families are in the GBA (>1/5 of the entire • 19,300+ UHNW families are Greater China) in the GBA (>1/5 of the entire Source: InvestHK Greater China) •

However, despite a rise in family office-related enquiries, the family office concept is still “not well understood”, according to Fung, who emphasised her role in guiding clients towards understanding whether such an entity is, in fact, what they require.

“This is a gradual journey, from deciding on the applicability to progressing from a smaller-sized set-up with limited resources to a larger more institutionalised and professionalised entity,” she said.

“And at Morgan Stanley, the close partnership between Private Wealth Management and our investment bank means that we can facilitate this growth of ‘new age’ family offices, no matter the initial relationship began with our PWM or IB side.”

16

Note: UHNW family is defined as family with assets over US$30 million.

INSIDE China A recap of China themes in 2020 P6

www.asianprivatebanker.com Operation Investment Industry Three pandemic blessings in disguise for Asian PBs in 2020

How COVID-19 upended investments in 2020

As expat packages shrink, private bankers are going back home

P10

P12

P43