Issue 87 May 2015 Lite

ASIAN PRIVATE BANKER MAY 2015 • ISSUE 87

Independent, Authoritative, Indispensable

THE SCOOP

WHY MICHEL LONGHINI SHOULD ASK KAVEN LEUNG TO LUNCH...

CROW’S NEST

THE FIRST BREAKDOWN OF PRIVATE BANK REVENUE STREAMS IN ASIA

TECHNOLOGY SPECIAL THE DIGITAL REVIVAL OF PRIVATE BANKING

GOING, GOING, GONE...

RBS LOSES ITS CROWN JEWEL THE SAGA OF COUTTS

MAY 2015

CONTENTS 4

Letter from the Editor

6

Crow’s Nest: The first breakdown of private bank revenue streams in Asia

8

Technology: The digital revival of private banking

16

The Scoop with Shruti Advani: Why Michel Longhini should ask Kaven Leung to lunch

17

Going, going, gone – the sale of Coutts

18

Structured products leaderboard What’s selling at private banks

19

Fixed income: Fed hike? What Fed hike?

20

Mapping the market: Asia’s wealthy keep growing

22

Movers and shakers: Tracking people moves

PUBLISHER Andrew Shale

OPERATIONS Benjamin Yang

DESIGN Tommy Chong

EDITOR Shruti Advani

DIRECTOR OF BUSINESS DEVELOPMENT Madhuri Chatterjee

PRODUCTION Jump Web Services Ltd.

EDITORIAL Philip Macdonald, Richard Otsuki, Priyanka Boghani, Fergus Herries

BUSINESS DEVELOPMENT MANAGER Sonia Lam

ISSN NO. 2076-5320

EVENTS MANAGER Sam Chan

Printed on FSC Condat Matt Perigord paper

MANAGING DIRECTOR Paris Shepherd

PUBLISHED BY KEY POSITIONING LIMITED 1205 The Dominion Centre, 43-49 Queen’s Road East, Wanchai, Hong Kong Tel: +852 2529 5577 Fax: +852 2529 0077 Email: info@asianprivatebanker.com

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LETTER FROM THE EDITOR

If you allow it to move you, the spirit of continuous improvement - Kaizen - can propel you to ever-greater heights.

I

t doesn’t matter where you are, you are nowhere compared to where you can go, was the war cry at Asian Private Banker for the first quarter of this year, and it led to this issue you hold today. I won’t say we’re “bigger and better” or “new and improved.” The truth is, we’re continuing to do what we do best - provide independent and in-depth coverage of the issues facing the private banking industry in Asia. We’re simply doing more of it - more data points in our articles to help decision-makers, more coverage of cutting-edge products as soon as they are market-ready, and more perspectives from the people who matter.

It is only fitting that one of our feature stories should tackle change in an area that is mission critical to all private banks - 50% of the private banks we surveyed spend over US$60 million on technology in Asia. A full 100% of the banks surveyed are increasing their spend on technology. Even so, innovation and regulation are outpacing spend - how then do banks decide where to spend these dollars? The more innovative are beginning to “spend where they earn”, focussing resources on front-end, client-facing technology. As a result, several platforms providing multiple products at multiple prices have become strong enablers of a bank’s success and a client satisfaction. We talk to those at the forefront of this revolution.

For those of you I have met before, it should come as little surprise that every time you make a suggestion, it is keenly debated at our weekly editorial meetings. For the uninitiated, join the debate by mailing your comments to editor@asianprivatebanker.com. I look forward to hearing from you.

Shruti Advani Editor Asian Private Banker

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Let our results speak for themselves PineBridge Investments’ award-winning Asia investment teams and funds

Multi-Asset n Best Global Balanced/Tactical Asset Allocation Manager, Institutional Investor 6th Annual U.S. Investment Management Awards 2015 n Multi-Asset Manager of the Year, Global Investor Investment Excellence Awards 2014

Asia Fixed Income n 2nd Top Investment House for Hong Kong Dollar Bonds, The Asset, 2014 n 4th Top Investment House for Asian G3 Bonds, The Asset, 2014 n Arthur Lau, Co-Head of Emerging Markets & Head of Asia ex-Japan Fixed Income was named 4th Most Astute Investor in Asian G3 Bonds in Hong Kong, The Asset, 2014

US Large Cap Research Enhanced Equity n Best Fund over 3, 5 and 10 Years in the Equity US category in Hong Kong Pension Funds universe, Lipper Fund Awards Hong Kong 2015* n Best-In-Class in the US Large-Cap Blend Equity Mutual Fund category, 2014 Benchmark Fund Of The Year Awards**

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PineBridge Japan Small & Mid Cap Equity Fund n Gold Winner in the Japanese Equity category, Fund Selector Asia Awards 2015 in Hong Kong

THOMSON REUTERS LIPPER FUND AWARDS 2015 HONG KONG

pinebridge.com To learn more about our award-winning strategies contact AxJ_Intermediary@pinebridge.com Hong Kong hotline: +852 3970 3938, Singapore hotline: +65 6571 9360 * Based on performance history as of 31 December 2014. ** Based on performance history as of 30 September 2014.

The above awards are for reference only. Unless otherwise noted, all information is sourced from PineBridge Investments internal data and may be subject to change. Information contained in this material is based on sources we believe to be accurate as of the date indicated. No representation or warranty is made. We reserve the right to revise any information at any time without prior notice. We are not soliciting or recommending any action based on this material. Past performance is not indicative of future performance. Investment involves risks including the possible loss of principal amount invested and risks associated with investment in less developed markets. This document should be read in conjunction with the offering documents of PineBridge Global Funds and PineBridge International Funds and is subject at all times to the terms and conditions as set out therein.

The offering documents are obtainable from PineBridge Investments and its approved distributors. PineBridge Investments is a group of international companies that provide investment advice and market asset management products and services to clients around the world. PineBridge Investments is a registered trademark proprietary to PineBridge Investments IP Holding Company Limited. Services and products are provided by affiliates of PineBridge. In Hong Kong, this material is issued by PineBridge Investments Asia Limited and has not been reviewed by the Securities and Futures Commission. In Singapore, this material is issued by PineBridge Investments Singapore Limited (1 Robinson Road #21-01 AIA Tower, Singapore 048542, Company Reg. No. 199602054E) and has not been reviewed by the Monetary Authority of Singapore. The website has not been reviewed by the Securities and Futures Commission in Hong Kong or the Monetary Authority of Singapore.

EDITORIAL

The first breakdown of private bank revenue streams in Asia Crow’s Nest sat down with half a dozen CEOs over the last month to collect anecdotal data with regards to revenue breakdown over the last five years, and the results provide an interesting insight into trends at private banks in Asia since the global financial crisis.

W

hile taking the aggregate mean revenue breakdowns of the six private banks interviewed by Crow’s Nest is by no means a realistic reflection of exact data, since the six banks ranged from small boutique to universal, their totals represent over US$400 billion of AUM and lead to some interesting conclusions, three of which I’ve highlighted here.

DPM? CAN DO BETTER – MUCH BETTER

I remember my senior school report card every end of term (not without dread) and each subject had a mark of 1-5 (5 being excellent, 1 being not) for both performance and effort. Allotting similar scores for private banks’ DPM client penetration for 2014 would probably be a ‘3’ for effort but still a ‘2’ for performance. While this is a marked improvement from ‘1’ and ‘1’ five years previous, it is still a rather poor indictment on the current state of the industry in Asia.

Standing at 6.1% of revenue for 2014, DPM in Asia has tripled over the past five years for these six private banks from a rather paltry 2.1% in 2010. That reflects a concerted effort to focus on convincing clients of the merits of DPM, however as a relatively small percentage of total revenue, this figure shows DPM is still a poor performer relative to structured products (15.4% of total 2014 aggregate revenue) - possibly the antithesis product set opposed to DPM. Indeed, the aggregate of brokerage-type products (structured products, mutual funds and brokerage) stands at 28.9% of total revenues for 2014.

The reasons for low DPM penetration rates are well documented and include client mindset and RM reluctance to promote this service as a preferred investment medium. However, as mentioned in last month’s Crow’s Nest, I firmly believe that training (or the lack thereof) remains at the heart of the problem. Consider that only three private banks in Asia have dedicated, established training institutions (UBS Wealth Management, Credit Suisse Private Bank6 asian private banker

ing and BNP Paribas Wealth Management) that represent 1,912 of a total 5,449 RMs in Asia, and we see that this accounts for just 35% of the industry.

Speaking to one CEO who spends a good deal of time on the Private Wealth Management Association (PWMA) - created to promote the Enhanced Competency Framework (ECF) for wealth managers and, in particular, private bankers - led me to a disappointing conclusion: those private banks that really need training most pay mere lip service to implementation of programmes or enforcement.

“It’s a little depressing that the big private banks that really do train [their RMs] are those who are trying to raise the general standards, however there is little impetus the further down the chain you go,” he maintains. “The fact that we still require just five hours of CPD for the regulators in Hong Kong tells you all you need to know about where we stand as an industry with regards to training.

Compare that to 50 hours in the UK.”

MUTUAL FUND REVENUE WITNESSES STEADY GROWTH

Understandably, mutual fund sales at private banks fell off a cliff after the GFC, but revenue from this asset class has almost doubled, in percentage terms, since 2010, for example. In 2014, our six private banks said that mutual funds accounted for 9% of total revenue, a healthy year-on-year increase for almost five years.

Crow’s Nest has met with over 40 heads of private bank sales and CEOs at fund management houses in the region since the start of the year, and I’ve been worried and encouraged at the same time.

While the asset management industry in Asia faces a significant threat from fee contraction (and possible trailer fee decimation), this has not altered the fact the region continues to excite asset managers keen for a slice of Asian wallet. This is substantiated by the fact that Asian Private Banker has seen many new entrants in Hong Kong and Singapore, or existing fund managers, significantly beefing up private bank sales forces. New entrants and companies

EDITORIAL

2014

Three private banks have educational platforms in Asia. These cover 1,912 RMs out of a total 5,449 – or 35% of the industry

with aggressive intermediary sales growth over the past three years include Matthews Asia, M&G, Neuberger Berman, Capital International and Wellington.

STRUCTURED PRODUCTS, FROM THE ASHES…

I remember when we opened the door at Asian Private Banker and started visiting all our friends in structured product sales at the investment banks. Some of those visits were about as much fun as a daytrip to the morgue. Over the next three years, from 2010 to 2013, we witnessed a mass exodus of investment bank structured products teams and noted industry stalwarts as fees collapsed, technology disrupted, and increased regulatory requirements took a heavy toll.

However, our six private bank interviews now reveal structured products’ contribution to revenue has witnessed steady growth of 12.0% since its nadir in 2012. It is fair to say that the heady days of 2007, when structured products accounted for a whopping 30% of revenue for some private banks, may not be witnessed again. However, with incumbent leaner teams and expanding product ranges - not to mention insatiable client appetite for flow favourites such as the accumulator - this revenue stream looks set to enjoy an even more impressive 2015. As I write the Hang Seng has risen 566 points (2.09%) and stands at 27,662. Gulp.

DPM is still a poor performer relative to structured products (15.4% of total 2014 aggregate revenue)

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TECHNOLOGY SPECIAL

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TECHNOLOGY SPECIAL

Private banks are addressing their burgeoning technology needs by relocating and redistributing budgets to different parts of the value chain.

With the recent influx of external vendors to private banks, from product distribution to delivery channels, Asian Private Banker maps the various disruption points caused by technology

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TECHNOLOGY SPECIAL - DISTRIBUTION

Structured products shift

As the latest product to undergo automated distribution, structured products distribution platforms are constantly changing to adapt to a competitive environment. Asian Private Banker takes a look at how these platforms look now

A

new generation of structured products providers are insisting it holds the key to multiplying revenues and improving digital efficiency for private banks. Connectivity hubs, Contineo and Investment Products Distribution System (IPDS) (launched this year) are newcomers. The industry is asking: with the onset of two new breeds of multi-dealer platforms in a short space of time, will more consolidation follow?

And what will the rapidly evolving structured products distribution platform look like over the next year?

A resounding 80% of structured product providers polled by Asian Private Banker believe the industry will move towards consolidation.

Mahesh Bulchandani, CEO and managing director of FinIQ, Asia, believes these two new hubs are a sign of things to come and welcomes the consolidation. “I think at this stage in the market more platforms are good,” he says. “It increases competition, and forces innovation and quality. At some point though either some will drop out, or there will be M&A activity.”

Anup Gupta, Vontobel’s deritrade head Asia Pacific agrees, noting that the consolidation will eventually create a monopoly in the market. “Right now we’re seeing more new entrants. While there will always be a need for independent external vendors to build bespoke products such as cross-asset solutions, there is not enough space for more than one or two players providing standardised multi-issuer platform services in the future,” he says.

The industry currently has a glimpse of the future of consolidated platforms. Contineo’s amalgamation of Barclays, BNP Paribas, Goldman Sachs, HSBC, J.P. Morgan and Societe Generale Corporate and Investment Banking with technology provider, AGDelta, represents a connectivity hub for buyers and sellers. The platform allows the sale of equity-linked structured notes to private banks in Asia through a web-based interface and a set of open application programming interfaces (API). The platform is in the process of on-boarding its sellers and has signed on private bank, Julius Baer.

More recently, DBS bank partnered with technology providers Numerix, Leonteq and Avaloq to form IPDS. It will also sell equity-linked notes and fixed coupon notes to private banks. It is in the process of on-boarding DBS Private Bank and EFG as distributors.

While the two platforms share a partnership component with multi-dealer platforms for structured products selling ELNs, they differ in their depth of focus.

IPDS has chosen to focus on the buy-side with post-trade functionality through an Avaloq adapter. “We differentiate ourselves by providing a multi-issuer and dealer platform across asset classes

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with automated documentation, pre- and post-trade analytics, as well as straight through processing including full-lifecycle management,” says Erdem Ozgul, senior vice president, Asia South Sales, Numerix.

Mark Munoz, managing director of Contineo, says that the main selling point of Coninteo is its ability to connect to various technology vendors, buyers and sellers. He says Contineo has “multiple payoffs covering multiple markets from multiple issuers. Our focus is direct and available versus solutions trying to cover a variety of differentiated operations that need to be pieced together from multiple vendors.”

Contineo aims to be the first to bring a six bank consortium to the industry, while IPDS claims its differentiating point is its straight-through processing to banks’ existing core operating systems. Both these hubs signal a new trend of external technology providers consolidating to survive and match a surging demand for structured products in the industry.

HIGH VOLUMES

The supply of structured products in the region has been largely manual, via phones or email enquiries. Those that do offer automation, operate on single-dealer platforms. After witnessing a resurgence of structured products in 2013 when revenue in the space registered a 13.1% year-on-year increase, according to Asian Private Banker’s structured products survey 2013, private banks have been eyeing the structured products distribution space judiciously.

The onset of external technology providers promising increased efficiencies at lower costs have prompted private banks to increase their technology budgets further.

A resounding 80% of structured product providers polled by Asian Private Banker believe the industry will move towards consolidation

TECHNOLOGY SPECIAL - DISTRIBUTION

The majority of respondents surveyed believed that more than 50% of private banks in Asia have increased their budgets in the structured products distribution market over the past year. Furthermore, the expense of building a single- or a multi-dealer platform outweighs the cost of signing onto an external vendor.

Bulchandani says building platforms that offer full lifecycle management support is almost five times more expensive for private banks than outsourcing. “If a private bank builds a multi-dealer ‘end-to-end’ platform from scratch, including pre-trade and posttrade processing support, it could cost as much as US$50 million or more,” he says. The days of single-dealer platforms are numbered.

The future lies in external technology vendors, consolidated or not, Bulchandani concludes.

THE FUTURE

If the launch of Contineo and IPDS are ripples of an emerging and larger wave, what will the platform for structured products distribution look like in the near future?

External vendors believe the platform will target the post-trade lifecycle.

AGDelta is working to streamline the technology from the product provider to the relationship manager. “The next step is to connect a very smart and state-of-the-art investment ideas module, which will transform the way wealth managers use ideas going forward,” says Robert Saly, head of products at AG Delta. Bulchandani also says the focus will be post-trade lifecycle management - something that IPDS has just rolled out.

Gupta at Vontobel agrees, adding that this is where deritrade stands at the moment. “We believe around 60% to 70% value via automation can be captured on the post-trade processes, such as static data delivery, lifecycle management, redemption and repayments, and trade reporting,” he says.

A few believe external vendors will broaden their product suite.

Bulchandani says platforms will shift from price discovery and execution to different products, such as FX options and interest rate derivatives.

While David Schmid, CEO of Leonteq, says the focus will be continue to be on flow products.

“It is likely that consolidated platforms will predominately focus on flow payoffs and the majority of the business will eventually flow through such platforms,” he says.

As technology providers work at tweaking, adding and adjusting features to their platforms to stay relevant, they will undoubtedly face more next-generation entrants.

Humdrum single-dealer platforms will be phased out in the next five years and multi-dealer hubs will be created as vendors and banks team up. asian private banker 11

TECHNOLOGY SPECIAL - INTERNAL

Digital budgets booming

With revenues strained, private banks in Asia are undergoing a digital transformation with the aim of increasing efficiency and driving down costs

A

significant pool of capital is flooding into the private banking market for technology expenditure as a result of budget increases. According to an Asian Private Banker survey, 50% of the private banks surveyed spend over US$60 million on technology in Asia.

TECH BUDGET INCREASES AT PRIVATE BANKS

TRIAL AND ERROR

While banks are still shelling out 40% of their budgets on core operating systems, according to Asian Private Banker’s estimates, the remaining 60% is distributed across different parts of the bank’s operations.

However, at present, private banks are at a trial-and-error stage about where to reallocate their budgets. “The biggest conundrum the private banking industry faces is how to segment the technology spent in the bank - should it be on the client delivery channels or on the product distribution?” asks Venkatesh Narasiah, chief operating officer, Asia Pacific, Deutsche Asset & Wealth Management.

Adding to their woes is the changing regulatory landscape in Asia. “The biggest trend we are seeing is regulatory and compliance changes, and clients are looking for customer experience; however, banks are struggling with more than 50% of their technology budgets dedicated to just running the bank and sustaining the status quo,” says Peter Scott, general manager, Avaloq. This trend is reflected in Deutsche Asset & Wealth Management’s recent technology strategy. “Over the past few years, a large part of the technology budget at Deutsche Bank has been invested in risk management to meet regulatory requirements, and this is an industry-wide trend,” says Narasiah.

About 30% of a bank’s technology budget is rebalanced and allocated to its private bank, according to Divyesh Vithlani, a former Credit Suisse group technology chief operating officer.

Vithlani says that this is a significant shift from five years ago, prompting him to ask: “Are banks spending enough? Yes. Are banks spending wisely? No.”

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TECHNOLOGY SPECIAL - INTERNAL

The respondent base in the APB Tech Survey 2015 includes chief technology officers and chief information officers at private banks in Asia

As the chart above indicates, a large portion of the bank’s budget lies in its core operating systems (40%). Interestingly, when polled, the client was ranked by private banks as among the most important users of technology, yet only a collective 4% of the budget is dedicated to building out client delivery channels such as apps for mobile and tablet capabilities and social media networks. This illustrates a trial-and-test era for private banks.

In addition, the production execution desk was ranked the least important user of technology. This is perhaps a reflection of the onset of external product technology providers promising to deliver structured products to relationship managers and investment advisors/counsellors.

BUILD VS. BUY

The growing number of financial technology companies in Asia has added to the debate surrounding allocation of technology budgets. They are forcing private banks to question existing models of building in-house software over buying externally.

With up to 20 technology software providers working in unison within a private bank, Vithlani says there is plenty of overlap due to old-fashioned spending habits. “There’s a lot of duplication in the industry as the mentality still exists that banks need to build their own platforms; however, now banks cannot afford to build it, maintain it and tweak in a timely fashion,” he says.

Francois Monnet, chief operating officer, private banking Asia Pacific, Credit Suisse agrees. “Gone are the days of when private banks only build their own systems and rely on legacy systems,” he says, having witnessed the debate morph over the past five years.

“The trend has moved to buying from external vendors, with careful consideration of integration costs,” Monnet says.

Both UBS Wealth Management and Deutsche Asset & Wealth Management also use a mixture of in-house and external vendors.

“We heavily invest in enhancing our digital capacities and nurturing the cooperation with FinTechs, startups and universities,” says Geoffroy De Ridder, managing director and operating head, Asia

Pacific, UBS Wealth Management. Narasiah adds: “We use both inhouse platforms and external vendors. For example, we have our own DB Autobahn for FX transactions and our own system for discretionary portfolio management. We also use external software providers, such as FinIQ, for structured products and Avaloq for BPO services.”

Some banks prefer to keep their technology in-house and build from within. “Increasingly, we are building our teams of in-house designers, app developers and data scientists to build technology platforms that are proprietary to the bank. This allows DBS to ensure an optimum client experience,” says says Olivier Crespin, group head digital bank, DBS. DBS Private Bank operates on Avaloq and has recently signed on with IBM Watson to build the DBS Wealth Advisor for its relationship managers. But due to the bank’s structure, the private bank leverages off investments made from the retail segment.

The larger cost weighing down on these decisions is integrating different platforms which can make up for 50% to 60% of the private bank’s budget. Narasiah says that the integration process is also time consuming. “There is a lead time for integration procedures for any products or regulatory changes. There is also an overhang of the legacy systems that are already in place,” he says.

Private banks will need to adapt and remain architecturally light to keep up. Currently, private banks are streamlining front-end processes with the introduction of relationship manager and client-enabling technology, such as mobile and tablet apps. Back-end services will be outsourced to business process operating services such as Avaloq’s newly formed subsidiary. And this will inevitably change the private banking business model as we know it.

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TECHNOLOGY SPECIAL - DELIVERY CHANNELS

Migration to mobile

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sian high net worth individuals spend over five hours a week on banking and investments, according to a survey by Scorpio Partnership and SunGard. Yet, private banks have been slow to adopt digital technologies related to mobile and tablet apps.

Reasons for this lag include a dearth of relationship managers equipped with the digital skills relevant to their clients, fragmented operations within firms with retail banks that drive technology initiatives, and existing legacy systems creating heavy infrastructure and cumbersome integration, according to IT provider Cognizant’s 2014 report, How to Embrace Digital Transformation.

Asian Private Banker surveyed the top 20 private banks in Asia to document which have rolled out mobile or tablet apps designed specifically for its private banking clients. Only 10 private banks were able to reveal their apps currently on offer. Banks that did not have an app for Asian private banking clients included ANZ Private Bank, Bank of Singapore, Barclays, Coutts, Deutsche Asset & Wealth Management, EFG, J.P. Morgan Private Bank, Morgan Stanley Private Wealth Management, Nomura Wealth Management and RBC Wealth Management.

PRIVATE BANK

MOBILE/ TABLET APP

ASIAN LAUNCH DATE

MAIN FEATURES

COMMENT ON MOBILE/ TABLET TECHNOLOGY DEVELOPMENT

ABN AMRO Private Banking

Private banking Research [tablet only]

Date not stated

• Insights of research and strategy team of 40 analysts worldwide • Recommendations on equities, bonds, currency, commodities and alternative investments across sectors and regions

“In today’s market, clients want to be in tune with latest developments in the financial markets … this app allows them” Hugues Delcourt, CEO, ABN AMRO Private Banking in Asia at the time of the launch

BNP Paribas Wealth Management

Structured Product Selector

February 2012

• A catalogue of 13 structured product categories • Search function for relevant structured products by underlying asset class, maturity and market view

“The SPS aims at narrowing the knowledge gap in structured products and more generally in financial investments” Thierry Derungs, head of wealth management digital solutions, BNP Paribas, at the time of the launch.

Citi Private Bank

In View

April 2014

• Clients are able to look at their portfolio at any time, including its real-time asset allocation, a list of the most recent transactions and an analysis of its performance.

• Gives clients access to Citi’s research reports, and descriptions of the products and services available

“As clients are looking at their portfolio, they may decide they want to engage with their banker, investment counsellor or product specialist and they’ll be able to see if they are available online and immediately speak to them” Dena Brumpton, COO, Citigroup

Credit Suisse Private Banking

Digital Private Bank

February 2014

• Clients can oversee their portfolio valuations and performance • Access to Credit Suisse’s investment strategy research publications • Message or voice call relationship managers • Allows clients to trade securities including equities, ETFs, REITs and spot foreign exchange

”Developing the digital private banking platform in less than a year, the team embraced a completely new delivery model, inspired by successful technology companies, adopting a much more agile approach to developing banking technology solutions” Francois Monnet, COO for private banking, Asia, Credit Suisse

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TECHNOLOGY SPECIAL - DELIVERY CHANNELS

Private bank

Mobile/ tablet app

Date launched in Asia

Main features

Comment on mobile/ tablet technology development

DBS Private Bank

Your DBS

2014

• Clients can check account balances and transaction history • Transfer funds to other DBS accounts or any other local banks • Exchange foreign currency 24 hours a day

“Our apps for our wealth clients gives them quick access to customised DBS insights as well as bespoke privileges” Olivier Crespin, group technology head, DBS

Goldman Sachs Private Wealth Management

Goldman Sachs Private Wealth Management App

September 2012

• Access to portfolio information, including positions, asset allocation and recent transactions • Insights, strategies and research from across Goldman Sachs

No comment

HSBC Private Bank

Investment Outlook [tablet only]

Date not stated

• Published quarterly • Showcases latest investment views on the global economy • Exclusive access to articles, charts and videos

No comment

Julius Baer

Julius Baer Y Investment Workshop

July 2014

No comment

Julius Baer Next Generation- The Future

September 2013

• The official mobile app for the Julius Baer Gen Y Investment Workshop • Provides workshop-related info for participants • An execution-only trading platform, with more than 20,000 instruments across most asset classes including equities, foreign exchange, precious metals and commodities on various exchanges worldwide

LGT

LGT Publication [tablet only]

January 2012

• Provides currently updated market information • A library containing annual reports, company profiles and the latest editions of LGT’s client journal CREDO

“Mobile/tablet development is increasingly important in all LGT markets. Media compliant data, editing capabilities, client usability and content strategy will be key to success” Gernot Bilz, technology team, LGT

UBS Wealth Management

Navigator

April 2014

Advisory

Q2 2015

• Allows clients to explore various scenarios for their investments by simulating different possibilities in an interactive environment • Engagement between existing clients and their advisors and investment specialists by delivering relevant information • Allows clients to follow a specific research analyst and message their advisors directly

“UBS understands that clients in Asia have stronger demands for digital offerings and has invested in a new programme in Asia to specially cater to their digital needs” Geoffroy De Ridder, managing director and operating head, Asia Pacific, UBS Wealth Management

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EDITORIAL

Why Michel Longhini should ask Kaven Leung to lunch …

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ow that high-street brand RBS has chosen Swiss pureplay UBP as the worthiest beau for the international business of blue-blooded private bank Coutts, we can all get back to business.

And what a lot of business there is to be had (see Crow’s Nest on pages 6-7 for data on just how much the industry has grown over the past 12 months). Julius Baer, for one, has “been going gangbusters,” as one acquaintance rather elegantly put it.

While Kaven Leung’s appointment as Julius Baer’s North Asia CEO in 2012 was greeted with a rather high degree of cynicism, the bank’s regional franchise has thrived under the former-Citibank and Goldman Sachs banker’s leadership. I suspect he does not deign to court favour even among his own troops; however, he can certainly clear a chessboard Grandmaster style.

Taking top-performing Merrill Lynch banker Wilson So into his fold, Leung created significant momentum for the business to the tune of an estimated US$180 million in revenues, which should have added anywhere between US$30-40 million to profits in 2014.

In fact, the folks at UBP could do worse than take a leaf out of Leung’s book since, like it or not, that integration (of Julius Baer and Merrill Lynch’s international wealth management business) set the standard to which all subsequent deals will be held. Man-ofthe-hour and UBP CEO Michel Longhini should pay heed; capable as he is, he faces many challenges.

First there is the problem of plenty - Coutts employs 265 people in Singapore and 235 in Hong Kong, give or take the odd member of staff. That is 500 people tasked with managing US$12 billion in assets and a US$2 billion credit facility. If you’re missing the subtext, LGT, which some would argue is a close and most worthy competitor, has 280 people across the region managing US$22.4 billion in assets, according to Asian Private Banker’s AUM League Tables.

Then there is the question of a banking license - UBP did not have one in Hong Kong before the Coutts deal and RBS will retain the license Coutts had for itself. In the short term, UBP could use its Singapore branch (with its fully-fledged banking license) as its sole booking centre in Asia. However, a number of the products it wants to offer clients post-integration will be predicated on deposit-taking capabilities in Hong Kong.

Ensuring that assets - in this case, top-performing bankers as well as clients - can be first transferred to and then retained by UBP is by no means a given either. Unlike Europe, where asset sales such as this are covered by an implicit transfer, asset transfer must be explicit in Asia.

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In Europe, once it has conducted a due diligence on client accounts and decided which ones it would like to retain, UBP will send letters to erstwhile Coutts International clients telling them how happy it is to assume responsibility for their assets and offer new and improved services and capabilities.

In Asia however, UBP must push on down the same path Julius Baer blazed and obtain explicit consent from every Coutts’ client who wishes to become a UBP client.

As one would imagine, leakages can be aplenty; however, in recent town halls in Hong Kong and Singapore, it was speculated that as much as US$25 billion of the US$31 billion in assets managed

by Coutts International were likely to remain post-integration. The benchmark for asset-retention in Asia has been set by the admit-

Coutts did its best to keep as many people in the room as it could, putting golden handcuffs onto its best and brightest to tide them over the uncertainty of the sale

tedly larger Julius Baer and more recently, DBS Private Bank at 90% (with the SG Private Bank International acquisition).

Retaining bankers will not be a cakewalk either. Coutts did its best to keep as many people in the room as it could, putting golden handcuffs onto its best and brightest to tide them over the uncertainty of the sale. The ones that stayed have not been overly impressed by the guarantees being offered by UBP. Not that a man with a career as long as Longhini does not have options, he may well decide to tap into his protégé pool. Both Eric Morin (previously BNP Paribas) and Rajesh Malkani (currently Standard Chartered Private Bank) would be obvious choices.

See Going, going, gone ... Page 17

COUTTS TIMELINE

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CLIENT INVESTING

STRUCTURED PRODUCTS LEADERBOARD LONG DATED CRAN WITH TARGET REDEMPTION

Contrasting with Asia’s preference for short-dated products, our clients continue to show interest in long-dated callable range accrual notes with target redemption features (CRAN). The maturities may potentially last up to 10 or 15 years but these notes are set to be early-redeemed; early redemption occurs as soon as the targeted return is reached, (i.e. when sum of paid coupons reaches a given level) or even earlier, at issuer’s discretion. Private banks have shown interest in linking the note with currency pairs such as euro-USD, where there is a near-consensus view on depreciation against the dollar.

Edward Lee Head of private bank sales Hong Kong and Singapore, global markets Société Générale

HSCEI-LINKED KNOCK OUT ELN

A reverse convertible note with a continuous monitoring knock level at 105%, with a two-month tenor.

Currently we want to use a strategy that allows the client to enjoy a high yield with the feature of an ELN while also having an exit strategy, using a knock-out level at 105%. This is less leveraged versus the accumulator, but has a similar risk and reward profile.

Eugene Lee Head of financial products advisory, APAC Vontobel Investment Banking

WHAT’S SELLING AT PRIVATE BANKS EUROPEAN EQUITY, MID-AND SMALL CAP FUNDS

Clients are still adding to European equity positions since the European Central Bank finally adopted all-out Quantitative Easing. This is often in the form of a rotation away from US equity, where the current earnings season adds to valuation concerns. Higher risk-tolerance clients are looking at specific markets such as Spain and Italy, which both have some catching up to do, while more generally, mid- and small-cap funds are also popular.

Simon Grose-Hodge Managing director Head of investment advisory, South Asia LGT

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EQUITY-LINKED ACCUMULATORS

Equity-linked accumulators have been in demand due to investors capitalising on the rally at the Hong Kong Stock Exchange. The accumulators are generally 12-month termed.

Alfred Mak Head of investment products and advisory department Bank of East Asia

FIXED INCOME

Fed hike? What Fed hike?

Asia’s high net worth individuals are taking the impending Federal Reserve rate hike in their collective stride, as their appetite for fixed income continues

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lobal investors may be bracing for the consequences of the US Federal Reserve’s imminent decision to increase interest rates, but Asian HNWIs are less concerned, believing the consequences of a Fed hike remain minor.

They may have moderated their appetite for fixed-income investing but not reined it in completely.

“The pending decision for the Federal Reserve to increase rates hasn’t actually impacted [high net worth] investor’s appetite for bonds,” says Alfred Mak, head of investment products and advisory at BEA. “Most believe it will happen very gradually. On the other hand, defaults in Chinese property bonds have actually scared some clients more, and activity in these high-yield bonds has since moderated.”

Fears about Chinese defaults and, according to Clifford Lee, managing director and head of fixed income for DBS, a slide in oil prices, has actually tamed appetites for higher yielding bonds.

This contrasts with rising sentiments in the west, concerned about contagion, as companies borrowing in US dollars face potentially crippling credit terms.

“The local currency bond markets in the first quarter of 2015 were choppier than the same period in 2014,” says Lee. “The slide in oil prices along with China corporate credit concerns were among the factors at the beginning of the year that gave our high net worth investors a nervous start.”

But Lee adds that the market has since calmed and activity is picking up as the region’s fervour for yield persists.

“We have, however, seen [investors] returning to the market selectively, as evidenced by the strong interest from [private bank clients] in the S$700 million (US$520 million) Fraser Centrepoint perpetual bond issuance, yielding about 5%; and another bond issuance by Gallant Ventures, yielding about 7%,” Lee says.

The slide in oil prices along with China corporate credit concerns were among the factors at the beginning of the year that gave high net worth investors a nervous start

Defaults in Chinese property bonds have actually scared some clients more, and activity in these high-yield bonds has since moderated

With yield still a key component in Asian HNWIs’ portfolios, investors in the region are searching for bond issuances with the right name and yield, especially local or regional ones, cognisant of the difficulty of picking them up in the secondary market.

Despite the prospects of an impending Fed rate hike, analysts are still largely pointing to the west as a source of potential credit risk stemming from any rate action by the Fed. Single line bonds aside, asset managers will be tested by the aftermath of the near-zero-rate environment as multiple unconstrained bond, and multi-asset portfolios have attracted significant amount of assets in recent years.

Asian investors remain indifferent to any impending Fed rate hike.

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MAPPING THE MARKET

Asia’s wealthy keep growing The region’s rich are getting richer and their ranks are swelling at a significant rate, according to reports charting the rapid expansion of Asia’s big earners

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s the private wealth market in Asia develops and its size expands, independent studies are mapping its progress in greater detail. Several studies have been published in recent months, ranging from the newly wealthy, aspirant middle class, through to high net worth individuals, and up to those in the ultra high net worth segment.

Examining these three segments can provide an intriguing glimpse into the private wealth market in Asia today – where growth is occurring, which subsets are growing the fastest, and predictions of opportunities for private banks in Asia.

Three recently published reports examined the growing numbers of Asia’s wealthy in detail: The Economist Intelligence Unit (EIU) global report, The New Wealth Builders, looks at households earning between US$100,000 and US$2 million - the aspirant HNWI population; the 2014 annual Capgemini/RBC Wealth Management HNWI report presents figures for Asia’s HNWI population, which it defines as those with investable wealth of US$1 million or more, while the Knight Frank Wealth Report 2015 examines UHNWIs, defined as those with a net worth of US$30 million and above.

The New Wealth Builders (NWB) segment, the grass roots of Asia’s wealthy and HNWI populations is growing rapidly, with a CAGR across the region of 11.6% from 2010-14 – a rate that is predicted to rise to 13.8%. While this number is much smaller in the more developed economies such as Australia, Japan, Taiwan and Singapore, the standout region is Indonesia, where the wealth of NWBs is expected to grow by 759% by 2020.

While this growth far outstrips others in the region, in real terms, China’s continued growth means that it will maintain and even grow its position as by far the largest market. The Chinese market, while predicted to grow markedly less than that of Indonesia, is building off a base of US$19.43 trillion, while Indonesia’s is US$ 42.12 billion.

HNWI populations and wealth in more developed economies have been growing faster in recent years as markets improve

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MAPPING THE MARKET

The story is slightly different with the HNWI segment, the next level, which makes up the bulk of the private banking market. There are 4.16 million HNWIs in Asia, representing wealth of US$12 trillion, a figure growing on average across the region at 10.2%.

China represents a quarter of this market, with US$3.7 trillion, while Japan remains the biggest market, with US$5.5 trillion.

What is interesting is that the HNWI populations and wealth in more developed economies have been growing faster in recent years as markets improve. Hong Kong’s HNWI wealth growth has also been the most volatile. As the centre for private banking in the region, the transience of HNWIs in the SAR may be a factor in causing these wide swings.

HNWI wealth is also gradually becoming more concentrated by about 2% per year across the board. Thailand is a significant outlier, with almost 6% in 2012, although with the region’s third smallest HNWI population at 80,200, this is not a significant shift.

Malaysia’s HNWI population has the most concentrated wealth, although the population is significantly less than Thailand, with 61,800 HNWIs. Japan’s makes up 1.9 million (just over half) of the region’s HNWIs, and is also the least concentrated.

The UHNWI population is growing roughly in line with the HNWI and NWB populations, both growing at nearly 10% CAGR, although the Knight Frank report predicts that this will decline significantly to near 4%. Again, Indonesia is expected to record strong growth; the Knight Frank report predicts there were only 650 UHNWIs in 2014.

Japan, again, is home to nearly half the UHNWIs in the region, with other countries and jurisdictions making up nearly a third, after China is taken into account. The Knight Frank report expects this share to shrink slightly as China’s growth, although diminished, continues.

All three reports detail booming growth in wealth and of the wealthy. While growth in the developed markets will continue, the rate will be less. The ultra-wealthy’s ranks, perhaps surprisingly, are being swelled at the same rate as the “grass roots” wealthy. China’s growth continues unabated, and Indonesia is growing at the fastest rate. With HNWI wealth across the region estimated at US$12 trillion and US$1.5 trillion in assets under management at the top 20 private banks in Asia, according to Asian Private Banker estimates, the opportunity for growth for Asia’s wealth management industry is massive and growing.

New Wealth Builders, the grass roots of Asia’s wealthy, is growing rapidly, with CAGR across the region at 11.6% from 2010-14

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PE O PL E MO V ES

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asian private banker