Issue 90 August 2015 Lite

www.asianprivatebanker.com

ASIAN PRIVATE BANKER AUGUST 2015 • ISSUE 90

Independent, Authoritative, Indispensable

APB MIDYEAR TOP FIVES A REVIEW OF 2015 SO FAR

ALTERNATIVE INVESTMENT

THE US$500m JACKSON’S ART COLLECTION: ASIAN PRIVATE BANKER MEETS JERMAINE JACKSON

WHAT KEEPS CEOs AWAKE AT NIGHT?

AMANDA CHEN, DEPUTY HEAD OF WEALTH MANAGEMENT, ASIA EX-JAPAN, NOMURA

FUND

SINGAPORE FUND ASSETS ON HONG KONG’S HEELS

AUGUST 2015

CONTENTS 3

Letter from the Editor The Arrhenius equation

4

Editorial The Scoop: Who needs a day job?

5

People: What keeps CEOs awake at night?

Amanda Chen, deputy head of wealth management, Asia ex-Japan, Nomura

6

Editorial Change helps

8

China Asian rich return to trading AH premium gap

10

Alternative Investment The US$500m Jackson’s Art Collection: Asian Private Banker meets Jermaine Jackson

14

Fund Singapore fund assets on Hong Kong’s heels

16

Midyear Review APB Top Fives – The Year So Far

21

Post-Grexit Europe: What now?

22

Technology FinTech Watch

23

People Moves Movers & Shakers

PUBLISHER Andrew Shale EDITOR Shruti Advani ASSOCIATE EDITOR Vince Chong EDITORIAL Richard Otsuki, Priyanka Boghani, Fergus Herries

MANAGING DIRECTOR Paris Shepherd OPERATIONS

Benjamin Yang, Sam Chan BUSINESS DEVELOPMENT Madhuri Chatterjee, Sonia Lam, Tristan Watkins

PUBLISHED BY KEY POSITIONING LIMITED 1205 The Dominion Centre, 43-49 Queen’s Road East, Wanchai, Hong Kong Tel: +852 2529 5577 Fax: +852 3013 9984 Email: info@asianprivatebanker.com

2 asian private banker

DESIGN Simon Kay PRODUCTION DG3 ISSN NO. 2076-5320

LETTER FROM THE EDITOR

The Arrhenius equation

A

n increase in temperature precipitates an increase in activity. The rate of this increase can be plotted using an Arrhenius equation. I would be interested to see what such an equation would yield for the frenetic activity we have seen in the industry as temperatures in Hong Kong and Singapore soar.

Post-bonus personnel changes, new regional leadership, record global fines and audits by regional regulators – it has been a summer of high drama.

As always, we endeavour to put some context to this flurry, distilling down to the truly crucial elements. In this month’s issue, readers can recap the five most memorable moments in private banking for the year thus far.

Prepare to be entertained and alarmed in equal measure. We take a similar filter to the most important regulatory milestones of the year as well as the products that were revolutionary rather than evolutionary.

Our regular features – Crow’s Nest and The Scoop with Shruti – tackle these industry developments from two different, but equally relevant, approaches. One crunches the numbers yet again – leading to a few surprising conclusions while the other gives you exclusive access to those that matter.

Thank you for all the feedback on the last issue, some of it made me smile, some of it didn’t. All of it made me think. 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.

Until we meet again,

Shruti Advani Editor, Asian Private Banker

EDITORIAL

Who needs the day job?

A

s the annual exodus West from Hong Kong and Singapore leaves both cities fallow of clients, private bankers have found inspired outlets for their time and talent. While some of these aspiring musicians, photographers, artists and athletes would do well to hold on to their day jobs, some others have proved that those who excel, excel in almost everything they do.

UBS’ Kathy Shih plays golf with the pros.

Pictet’s Claude Haberer redefines the multifaceted man – not only is he a superb polo player, he is also a wordsmith. In 2012, Haberer was bestowed with the French government’s Chevalier in the Ordre National du Merite for his work on a French-Chinese dictionary.

Equally suave is Deutsche’s head of asset and wealth management Asia Pacific, Ravi Raju, whose legendary poker game would put off many from accepting an invitation to spend the evening with him if his hospitality were not equally fabled. Kaven Leung, Julius Baer’s CEO North Asia and co-CEO for the region, held his second successful show as an artist in Hong Kong this June and by the end of the evening every painting in the room had a “sold” sign. This should come as no surprise to anyone who has seen his art. Proceeds

4 asian private banker

from the evening’s sales went towards supporting Leung’s chosen charities.

Talking about Julius Baer (aren’t we always?), the bank is walking down the path less taken – hiring ex-Credit Agricole Hong Kong CEO Serge Janowski as head of special markets. Less than six months into the job, Janowski has assembled a team of 12 – no mean feat given the time it takes to clear a new hire nowadays. Whilst many in the bank may envy the “direct line to Zurich” that gives Janowski his power, his mandate – of developing an institutional client business – is a daunting one. To court these big boys – the sovereign funds and their ilk – Julius Baer will go head to head with the world’s biggest investment banks.

Whether or not it wins that battle, I expect we will see more than a few significant changes at the bank before the end of the year, particularly at the senior levels both regionally and globally.

Regular readers of Asian Private Banker will recall that with a Hong Kong head at a leading Swiss bank recently resigned, it would not be unimaginable for someone of his pedigree for example, to fit right into Julius Baer.

Zurich-based sources talk of CEO Boris Collardi’s enthusiasm to infuse young blood

EDITORIAL

into the executive board and changes here as well cannot be ruled out. The bank could well depute some of its more senior board members to help prove its eligibility for a UK banking license before the Financial Conduct Authority – one of the most stringent regulators in the world.

Talking about banking licences, it is rare to see one being surrendered, especially in Hong Kong. But two years on from transferring the bulk of its Hong Kong business to EFG, Falcon Private Bank’s James Mok continues to tie up the Abu Dhabi-owned private bank’s loose ends from a temporary service office on Queen’s Road Central.

Now if only UBP – which would like a banking license in Hong Kong after its acquisition of Coutts – and Falcon were to swap places, imagine the time and money that could be saved!

When the European powers-that-be at Asia’s private banks make the slow crawl back to work from a summer spent in the sun at the end of August, expect a slew of announcements from

these rested and refreshed leaders. This should make next month’s column an interesting read.

PEOPLE

What keeps CEOs awake at night?

Amanda Chen, deputy head of wealth management, Asia ex-Japan, Nomura

O

ne of the major challenges keeping business leaders in my industry awake at night is leading a company amid shifting legislation and tightening regulation. It is difficult but necessary that the business continues to be agile and learns to manoeuvre in an industry undergoing pivotal changes.

The world is still recovering from the global financial crisis. Looking at what is happening in parts of Europe, it is little wonder that the investing community is conservative and cautious. My concern is whether the industry can withstand other storms.

Technology is a game changer in industry after industry. Digital private banking has been in the limelight, and CEOs need to consider how that would impact the traditional private banking model.

There is also a war for talent. The private wealth industry is rapidly growing and there is a shortage of experienced and good bankers. The questions are how do we compete for talent and how do we hire to keep up with the growth of the industry?

asian private banker 5

EDITORIAL

Change helps Of the top ten global private banks by revenue in Asia, three reported a double-digit jump in proceeds. Congratulations to UBS Wealth Management (UBS), Deutsche Asset & Wealth Management (Deutsche) and Standard Chartered Private Bank (StanChart).

B

ased on our collated data, Deutsche’s global revenue jumped a strong 23% to US$1.5 trillion in the first quarter of the year against Q1 2014, StanChart’s saw a 17% hike to US$124 billion and UBS’ leapt 16% to US$2.3 trillion.

So what have they done that appears different from the rest? Change, for one, though the devil lies in the details and we cannot hence extrapolate further on specifics apart from the obvious.

Which is that UBS is continuing to reap benefits from a shift away from investment banking – where there has been a significant amount of cost-cutting in previous years – and into wealth management; Deutsche has since 2012 devoted energies to boosting its asset and wealth management units; and StanChart has just ten months ago changed its organisational structure, splitting its client segments into corporate and institutional, commercial, private banking and retail.

Assuming this observation is correct, we might be able to expect better things from other banks going forward. For instance, new Credit Suisse CEO Tidjane Thiam, who just came in, is expected to increase client focus within the group, and give a bigger role to its wealth management unit. Also, HSBC’s problems are well documented, and a restructuring looks more likely than not.

Let’s see how this prediction pans out this time next year. In the shorter term, I can’t wait to see how the results are for

6 asian private banker

Q2, some of which will be out by the time this publication hits the streets.

For now, I shall leave you with nutshells of how these top banks performed globally in the first quarter.

IN A NUTSHELL Morgan Stanley Private Wealth Management Wealth management revenue was US$3.8 billion, up 6% from the first quarter of 2014. Fee-based asset flows totalled US$13.3 billion, with total client assets sitting at US$2 trillion at quarter end.

Client assets in fee-based accounts of $803 billion rose 11% compared with the prior year quarter.

Credit Suisse Private Banking The Swiss major’s private banking arm saw an 8% fall in revenue between Q1 2015 and Q1 2014. This reflects lower recurring commissions and fees, partially offset by slightly higher net interest income.

Net revenue was also lower compared to Q4 2014, due mainly to a better fourth quarter performance fees in asset management, gains on the sale of the local affluent and upper affluent business in Italy, and the partial sale of an investment in Euroclear.

Goldman Sachs Private Wealth Management Goldman Sachs’ investment management division, which includes the firm’s asset

management and private wealth management businesses, grew 1% to US$1.584 billion in Q1 2015 against the previous corresponding period. This was due mainly to slightly higher management and other fees, as a result of higher average assets under supervision, and lower incentive fees compared with the first quarter of 2014.

Total assets under management of US$1.18 trillion were essentially unchanged compared with the end of 2014. Long-term assets under management increased by US$13 billion, including net inflows of US$7 billion, reflecting inflows in equity and fixed income assets, and net market appreciation of US$6 billion, primarily in equity assets.

Deutsche Asset & Wealth Management Deutsche’s revenue grew most among the top global private banks in Asia, based on this Asian Private Banker Q1 2015 survey. It rose by €314 million (US$341 million), or 23%, to €1.4 billion (US$1.5 billion) compared to Q1 2014. Management fees and other recurring revenues rose by €209 million (US$227 million), or 34%, due to higher invested assets, positive asset flows, increased market levels and foreign exchange movements.

Assets under management were €1.2 trillion (US$1.3 trillion) as of March 31 2015, an increase of €120 billion (US$130 billion), year-on-year. This was mainly driven by foreign exchange movements,

EDITORIAL

market appreciation inflows.

and

increased

J.P. Morgan Private Bank J.P. Morgan’s revenue increased by 7% year-on-year to some US$1.5 billion at the end of Q1 2015. The global private banking arm of the US lender also saw its assets under management rise to US$1 trillion from US$992 billion.

UBS Wealth Management The Swiss bank saw a revenue increase by 16% at end of the first quarter in 2015 against Q1 2014, mainly due to higher transaction-based income, most notably in Asia Pacific where assets under management stood at US$286.5 billion.

The overall increase was related to mandates, structured products, investment

funds, foreign exchange trading and fixed income. Overall assets under management for UBS Wealth Management, excluding America, was US$1.1 trillion.

BNP Paribas Wealth Management The French lender’s global private banking division’s revenue increased by 5% to US$783 billion. This was due to the profitable business of the wealth management division in its domestic markets and in Asia. The bank’s global assets under management stood at US$359 billion globally.

Citi Private Bank Private banking revenue increased by 6% to US$708 million year-on-year, driven by increased client volumes and growth in capital market products. In the first

quarter of 2015 alone, the private bank’s revenue increased by US$12 million against Q4 2014.

HSBC Private Bank Revenue for the global private bank business fell by 3% to US$613 million year-on-year. Its legal woes are well documented, and it is reportedly struggling to cut costs. All these suggests a restructuring might be in line.

Standard Chartered Private Bank StanChart’s revenue increased by 17% to US$124 million between Q1 2015 and Q1 2014, as it continues to streamline its banking and regional units. These changes play into the bank’s previously announced plans to cut costs by US$1.8 billion by the end of 2017.

GLOBAL REVENUE AT TOP 10 BANKS IN ASIA Q1 2015 Rank Private Bank

Global revenue Q1 2015 (US$m)

Global revenue Q1 2014 (US$m)

YoY change (%)

1

Morgan Stanley Private Wealth Management

3,834

3,609

+6

2

Credit Suisse Private Banking

3,086

3,367

-8

3

UBS Wealth Management**

2,333

2,019

+16

4

Goldman Sachs Private Wealth Management*

1,584

1,574

+1

5

Deutsche Asset & Wealth Management

1,495

1,154

+23

6

J.P. Morgan Private Bank

1,472

1,382

+7

7

BNP Paribas Wealth Management***

783

744

+5

8

Citi Private Bank

708

668

+6

9

HSBC Private Bank

613

633

-3

10

Standard Chartered Private Bank

124

106

+17

* Includes Goldman Sachs’ investment management division ** Does not include UBS Wealth Management Americas *** Includes the bank’s asset management division

asian private banker 7

CHINA

Asian rich return to trading AH premium gap Returning to relative calm after a two-month Chinese equity roller coaster, Asia’s HNWIs are once again trading the AH premium gap, albeit sparingly, as discounts become plentiful in the Hong Kong exchange.

O

“

ur private banking clients have not really been hurt by the recent Chinese market plunge and had in fact bought into the Hang Seng after a 2,000 point decrease [in early July],” says Rocky Cheung, head of investment product and advisory, Hong Kong, wealth management, at DBS Bank.

“In fact, many had been holding Chinese stocks listed in Hong Kong because it was trading at a decent discount to A-shares, which saw a much sharper correction. Some of the small caps experienced the greatest losses and clients avoided them due to a lack of familiarity.”

As this publication went to print, 95.5% of stocks listed in both Shanghai and Hong Kong were trading at a discount in the latter exchange. Of the dual-listed equities, 86.4% were trading at more than a 20% discount.

Credit Suisse joins the AH premium trading camp having recently launched a new ten-security portfolio in Asia focusing on reflation and reform banking, on the back of a recovery story rather than one of deceleration. According to the bank, “the worst of the growth slowdown is behind us and financial stability risks have subsided.” It added that now was a good entry opportunity into China H-shares.

Lena Teoh, head of asset allocation, Asia Pacific, for Credit Suisse’s private banking arm, says its clients were not significantly damaged by the China correction and had in fact taken some profits from investing in A-share ETFs from early December to May this year.

“We had always been advocating investments in H-shares on better corporate governance, attractive valuations, discount to the concurrent A-share stock as well as stock coverage from research,” Teoh tells Asian Private Banker.

“Of course, after the sharp correction, sentiment needs to be restored and that could take some time. Having said that, once we see the economic recovery being reinforced and

8 asian private banker

improvements in corporate earnings, risk appetite is expected to resume and spur our clients’ entry into Chinese equities again.”

CAUTION AHEAD

Elsewhere, the view on Chinese equities is not so flowery.

UBS, for example, remains neutral on MSCI China in its tactical allocation despite its belief that policy easing remains supportive of the stock market. The Swiss major’s APAC head of equity & credit Harmut Issel expects selective sectors with

Since the correction, the Shanghai Composite Index remains up by some 90% year-on-year. It is also up by some 60% since the Shanghai-Hong Kong Stock Connect scheme first launched in November 2014

earnings and policy support to see gains, such as financials.

Deutsche Asset & Wealth Management Asia Pacific CIO Sean Taylor also advises clients to be selective amid an economy driven by accommodative policy and a structurally changing market driven by the opening of new “through trains.”

Since their June highs, the Shanghai Composite Index and the Hang Seng China Enterprise Index (HSCEI) have shed 23% and 15%, respectively.

While there were signs that some HNWIs in the region were selling junk bonds to meet margin calls – US$797 million in

CHINA

value was wiped off of risky fixed income issued by Asia’s largest economy in in early July – the biggest losers of the plunge were, by and large, retail Chinese investors with more short-term objectives.

100 “Portfolios have not been significantly impacted as 76 80 our high net worth clients have been buying A-shares for so many years at different price points,” says Belle 60 Liang, head of investments at Hang Seng.

Since the correction, the Shanghai Composite Index 40 remains up by some 90% year-on-year. It is also up by some 60% since the Shanghai-Hong Kong Stock Con20 5 4 3 nect scheme first launched in November 2014.

0 0 0 “The current correction is reducing gains more >20 10 to 200 to 10 -10 to 0 -10 to -20 <20 than causing our private banking clients to incur H-share trade premium (%) losses,” Liang adds.

More pressing than fundamentals and economic Source: AAstocks.com outlook, analysts note, is the appetite Asia’s wealthy have for China’s onshore market, in spite of volatility unprecedented liquidity boosts. This, many say, signals a precreated by inexperienced investors. cedence for party agenda – social harmony, for example – over Of the more than 258 million stock trading accounts on the market fundamentals.

Shanghai and Shenzhen exchanges, one-third were opened in “Our clients are losing some confidence in the onshore the past nine months, primarily by retail investors. Excessive market due to its retail-oriented nature and lack of stability,” leveraging aside, a recent report noted that two-thirds of the adds Liang. newly opened accounts were owned by individuals who hav“Many are considering just staying in the offshore maren’t graduated from high school. kets due to better market mechanics and moderated leverage.

Another worrying factor is the ease with which Beijing We expect to see continuous offloading of the onshore RMB introduced fiscal intervention during July’s market slump, assets, especially from foreign investors.” which included permitted trading halts, stock selling bans and Number of stocks

A+H SHARE PREMIUM DISTRIBUTION

HSCEI v SSE Composite (Oct 2014 to Jul 2015)

SSE Composite % Change from 08 Oct 2014 HSCEI % Change from 08 Oct 2014

140% 120% 100% 80% 60% 40% 20% 0.0% -20% Oct 2014

Nov 2014

Dec 2014

Jan 2015

Feb 2015

Mar 2015

Apr 2015

May 2015

Jun 2015

Jul 2015 Source: Yahoo Finance

asian private banker 9

ALTERNATIVE INVESTMENT

The US$500m Jackson’s Art Collection: Asian Private Banker meets Jermaine Jackson In the world of alternative investments, not many deals would beat owning a painting by Michael himself, or his famous brother Jermaine, who talks to this publication about that and his family’s legacy.

M

usic royalty, art owned by the late Michael Jackson worth over US$500 million, and did I mention music royalty?

It’s not every day Asian Private Banker has the opportunity to meet with a member of the Jackson Five and a family about to celebrate 50 years in the business.

Clearly, I am more familiar with meeting private bank CEOs, investment bankers and fund managers, so when I met Jermaine La Jaune Jackson I really had no idea what to expect.

The result was a fascinating interview with an extremely engaging, intelligent and humble pop star, businessman and philanthropist with myriad interests and an incredible insight into the legacy the Jackson family has created, how it was fashioned and the drivers behind the history.

Jermaine meets me in Admiralty’s AMMO restaurant and the first, overwhelming impression is that of an immaculate individual. Immaculate hair, immaculate black suit replete with v-cut black tee shirt and a pleasant aroma of cologne, thoughtfully decorated with gold chains that beautifully juxtapose the clothes behind them.

Softly spoken, his voice belies the ability to belt out the classic Jackson Five 1969 hit “I want you back”, and it is simultaneously disarming and a little hard to hear. He’s just in from a hectic schedule, playing a concert at the Malaysian Grand Prix and presenting awards at the Asian Film Awards ceremony in Macau.

MICHAEL’S ART

Today, however, Jermaine is in Hong Kong to talk to me (among other things) about a collection of art, 142 pieces in fact, worth over half a billion dollars, that is about to be sold to aficionados of Jackson family art, including works painted by Michael, King of Pop, who was clearly an inspired artist with pencil and brush.

10 asian private banker

Former US President Bill Clinton with “Abe”, a piece of art by Michael Jackson. “Abe” was recently bought by a Japanese collector for US$4 million.

ALTERNATIVE INVESTMENT

Michael creates one of his special portraits in pencil in 1988. His technique was to work from photographs of his subjects, as shown here.

The works are in fact being sold by Australian-born artist Brett-Livingstone Strong, a good friend of both Michael and Jermaine. Strong, who is well known for his sculptures of Hollywood celebrities, ended up owning the art after agreeing with Michael that each would inherit the other’s collection upon death.

Michael used to paint endlessly. As a child his teacher couldn’t keep up with the sheer volume of art he produced and, unfortunately for her, she only kept one drawing!

Unsurprisingly, demand is said to be brisk. While the investment value is expected to rise with time, it is expected that most buyers are just looking forward to owning a piece of the Jackson Five.

“Michael used to paint endlessly,” explains Jermaine. “As a child his teacher couldn’t keep up with the sheer volume of art he produced and, unfortunately for her, she only kept one drawing!”

Paul McCartney with “Geisha”, by Michael Jackson

asian private banker 11

ALTERNATIVE INVESTMENT

Unfortunate indeed as individual collectors are paying US$5 million on average per piece.

Jermaine continues: “In between breaks from a hectic tour schedule, Michael would go out to a hangar [an executive hangar at Santa Monica Airport, next to actor Harrison Ford’s and Oracle’s Larry Ellison’s in fact] and relax by losing himself in his painting.”

It appears that Michael was almost as fastidious with his drawn art as that of his music, following an insatiable work ethic that, says Jermaine, represents the results of a collective childhood for the Jacksons – well documented as it is – that instilled discipline. And he tells a good story to underline the point.

Brett Livingstone-Strong with his good friend Michael Jackson. The Australian-born artist inherited Michael’s art collection after the star’s death.

Michael wrote in the signed photograph: “To Brett, you’re the modern day Michelangelo.” (Photo credit: www.blsart.com)

“We’ve worked hard all our lives,” Jermaine explains. “It was something my father insisted on. He worked himself picking potatoes in the fields and as a steel worker and while we enjoyed messing about as kids, when my dad told us to do something, we got it done. I remember hauling cinder blocks all day at my dad’s insistence. That was how we got our work ethic.”

About the best analogy is that of a garden.

You can keep taking things out of it, but it’s what you put into it, what you build that provides the legacy

Jackie Chan with “Sunflower”, by Michael Jackson

12 asian private banker

Jermaine is putting that work ethic in many things now, among which is continuing the legacy of his younger brother Michael’s artistic prowess, even though Jermaine himself is similarly an artist in his own right. One day, he says, he plans to stage an exhibition that narrates the Jackson story through painting and music.

“We all loved painting,” Jermaine says passionately. And he tells a wonderful story of their joint love for Charlie Chaplin.

Jermaine has a painting of Chaplin and himself overlooking Switzerland’s Lake Geneva, with the late comic legend handing a scroll to Jermaine – a passing of the entertainment legacy torch, if you will.

“I loved Charlie Chaplin and so did Michael,” says Jermaine.

“One time I travelled all the way to Charlie’s house only to

ALTERNATIVE INVESTMENT

find that Michael was already there – what an incredible coincidence!”

THE JACKSON FAMILY LEGACY

Art aside, he is also determined to grow the Jackson legacy, which he says is “not about money, it’s about what you achieve for other people.”

“About the best analogy is that of a garden,” he says. “You can keep taking things out of it, but it’s what you put into it, what you build that provides the legacy.”

And build he has. Jermaine Jackson has many projects around the world, with Hong Kong being his headquarters for Jackson House Holdings (JHH) in Asia Pacific. JHH is also in music and other entertainment businesses, consumer products such as electronics and jewellery, luxury cars and hotels. Jermaine is also involved in many charity projects worldwide.

On August 29 – also Michael’s birthday - the Jackson family will celebrate, for a whole year, 50 years of being at the top of the music business.

It promises to be an amazing time to party. And with so much of Jermaine’s interests entrenched in Asia, you will never know when you might just bump into music royalty.

You can find further information on the Jackson’s Art Collection at www.jacksonsartcollection.com

asian private banker 13

FUND SELECTION

Singapore fund assets on Hong Kong’s heels Singapore’s total fund assets under management (AUM) rose by an annual 30% in 2014, three times more than that of rival hub Hong Kong. Experts tell Asian Private Banker the Lion City’s fund sector might just catch up with its Fragrant Harbour counterpart.

F

unds managed in the Lion City rose to S$2.36 trillion (US$1.73 trillion) from S$1.82 trillion in 2013, according to the Monetary Authority of Singapore (MAS). This was driven by an increasing number of overseas pensions and sovereign wealth funds setting up shop in Asia.

“Allocation to Asia Pacific Investments accounted for two-thirds of total AUM, reflecting continued global investor interest in the region,” the latest MAS annual report stated.

In contrast, Hong Kong’s fund AUM grew at a lower rate of 10.5%, sitting on HK$17.7 trillion (US$2.28 trillion) of assets in 2014 compared to HK$16 trillion in 2013, said the city’s Securities and Futures Commission (SFC). The main driver was overseas investment, including a spike in mainland Chinese-linked interest.

This makes the Hong Kong sector 30% larger than the one in Singapore, although market watchers believe Singapore can catch up if it maintains its meteoric growth.

FAVOURABLE REGULATORY REGIME

One reason for the Lion City’s rise in fund AUM is its regulatory set-up.

“It is probably easier to get a manager license and set up new funds in Singapore,” says Jiffriy Chandra, managing partner at Hong Kong-based asset manager TransAsia Private Equity.

Indeed the government has helped develop the regulatory landscape and this has boosted Singapore as as asset management hub.

“Singapore and Hong Kong both have a place in the Asian financial services market. However it is clear that Singapore’s strictly governed policies, robust regulatory framework and the availability of such a diverse population are its key strengths,” says Singapore-based Anuj Kagalwala, partner at PricewaterhouseCoopers (PwC).

He adds that while Hong Kong has been through a few changes in its tax regime, they were made very recently.

“Singapore has had clear rules around taxation of funds including private equity, real estate and infrastructure for some time now,” Kagalwala notes.

Both MAS and SFC released its fund figures within days of each other last month.

In Singapore, the main drivers of fund assets were sovereign wealth and pension funds that set up shop to access investment opportunities in the region.

14 asian private banker

In late 2014, Canadian pension manager La Caisse de dépôt et placement du Québec, which primarily manages public pension and insurance plans, opened its doors in Singapore, joining Investment Company of China, Norges Bank Investment Management and the Swiss National Bank. South Korea’s National Pension Service also decided to establish its third office in Singapore in 2015.

At end-March this year, 335 fund management companies registered in Singapore, up from 289 in 2014.

SINGAPORE TO NARROW GAP

While both Hong Kong and Singapore remain well positioned to capitalise on mainland Chinese demand, analysts believe the pie is big enough to go around.

“Chinese investors with offshore assets prefer to split their holdings into a Hong Kong and Singapore bucket,” says Chandra, explaining the Asian investor mindset.

While the 1 July launch of the Mainland China-Hong Kong Mutual Recognition of Funds scheme further boosts Hong Kong as a fund domicile and investment management hub, Singapore continues to cement its reputation as the world’s second largest offshore RMB centre, after Hong Kong.

RMB deposits in Singapore grew by almost 20% year-on-year to reach RMB257 billion (US$41.4 billion) in March, even though this was a quarter-on-quarter drop from RMB277 billion at the end of 2014.

It seems so, says Kagalwala, who points out that Hong Kong’s strong ties with China could affect its assets under management in times where there is volatility onshore.

“Singapore will surely catch up with Hong Kong as an asset allocation hub and the gap will narrow,” he tells Asian Private Banker.

“For Hong Kong, China plays an important role and given the markets recently, this could affect Hong Kong while Singapore is not tied to any such market.”

The relative “growth of the private wealth management/private banking market in Singapore is also a factor to consider”, Chandra adds.

Singapore also continues to grow as a trading hub for foreign exchange and financial and commodity derivatives. Average foreign exchange turnover volume rose by an annual 40% to US$478 billion in October 2014, said a Singapore Foreign Exchange Market Committee survey.

MIDYEAR REVIEW

APB Top Fives – The Year So Far It’s time for a midyear review of the industry. Asian Private Banker takes a look at the top five defining moments not just across the private banking board, but also in the specific niches of Products, Regulations, Technology and People Moves.

APB TOP FIVE KEY MOMENTS UBP acquires Coutts Ending six months of speculation since it first put its international private banking business up for sale, the Royal Bank of Scotland (RBS) sold Coutts International to Switzerland’s Union Bancaire Privee (UBP).

The deal, which includes Coutts’ internationally managed private banking and wealth management business in Switzerland, Monaco, UAE, Qatar, Singapore and Hong Kong, but not the India franchise, is expected to reach completion in early 2016.

The deal was pegged at US$350-450 million, below market estimates of US$600-US$800 million.

UBS opens Kowloon office UBS Wealth Management announced on June 15 that it is opening a new office in Kowloon to target the 25,000 high net worth entrepreneurs residing in Kowloon and the New Territories.

The Swiss bank aims to arm the new office with 30 relationship managers when the office opens in 2016.

It will target entrepreneurs with investable Hong Kong-domiciled assets of US$5-$25 million. The move away from the traditional finance hub of Central marks a significant development for UBS in Hong Kong, itself home to more than 256,000 HNWIs.

J.P. Morgan integration J.P. Morgan merged its HNWI and UHNWI units into one single entity. Previously, the American lender’s private banking business was divided into two arms, with one servicing high net worth clients with US$10-$30 million in assets, and the other servicing ultra-high net worth clients with more than US$30 million.

BNY Mellon shuts down SMA platform After a two-year journey pushing its separately managed accounts (SMA) platform to private banks in Asia, BNY Mellon Investment Management shut down the unit altogether in the region. Potential returns “were too far in the future”, the bank said.

The SMA business, SPECTRUM, was launched in Asia in mid-2013 with the aim of offering institutional asset management capabilities – those with portfolios of US$100 million and above – to private bank platforms dealing with as little as US$1 million. Days before the news, BNY Mellon onboarded CIMB Private Banking for the SPECTRUM platform.

UBS exits Australia Following a review of the domestic Australian market, UBS Wealth Management withdrew from Down Under. It attributed this to regulatory requirements and the market’s largely brokerage model that led to “increasingly complex operational processes.”

UBS continues to operate in Australia through its investment bank and asset management businesses.

16 asian private banker

MIDYEAR REVIEW

APB TOP FIVE – TECHNOLOGY Structured product consortium A multi-issuer platform and messaging network, Contineo, backed by HSBC, BNP Paribas, Goldman Sachs, JP Morgan and Societe Generale, was launched at the start of the year to automate the distribution of structured products to private banks in Asia.

This marked a shift in the distribution of structured products to private banks as they turn to technology for faster and more efficient price discovery.

IBM Watson data driver Amid the growing hype of technology buzzword “big data”, DBS Private Bank became the first Asian private bank to officially roll out a data analysis solution called DBS Wealth Advisor for its relationship managers (RMs).

The Singaporean lender partnered with supercomputer IBM Watson and is currently in the process of giving all of its 267 RMs in Hong Kong and Singapore access to it.

DBS CEO Piyusg Gupta and IBM senior vice president, Global Business, Bridget van Kralingen

Credit Suisse’s digital private banking application While many private banks in Asia tend to leverage off the mobile apps rolled out by its global units, the private banking arm of Credit Suisse underscored the importance of having an Asian presence by launching its digital private banking app in Singapore. This will be followed by a staggered global launch later this year.

Among other things, the app lets clients oversee their portfolio valuations and performance, curate a watchlist to help monitor their selected investment, and access to market information sourced by Credit Suisse and third-party providers.

UBS Wealth Management’s portfolio tracking application In a bid to keep pace with its Swiss rival, UBS Wealth Management also piloted its portfolio tracking app to all its clients in Asia. This app gives clients access to UBS intelligence, and is able to deliver tailored content at any point of time. It leverages investment technology that can track a client’s portfolio, test it against critical factors and flag up any deviations from the client’s investment strategy. The portfolio health checks are all benchmarked with UBS’ CIO house view.

Singapore, HK governments’ backing financial technology The fintech industry may be at US$12 billion - small in global terms - but it is growing incrementally as financial institutions prepare themselves for different forms of technological disruption.

Singapore’s regulatory body, Monetary Authority of Singapore, committed US$225 million to its fintech scheme Financial Sector Technology and Innovation (FSTI) over the next five years.

And in its latest budget report, the Hong Kong government announced a HK$50 million injection to set up a corporate venture fund for co-investments in fintech start-ups.

asian private banker 17

MIDYEAR REVIEW

APB TOP FIVE – REGULATIONS MRF scheme greenlit The long-awaited Mutual Recognition of Funds (MRF) scheme was given the green light on May 22, with applications being accepted from July 1.

The initial system will allow 850 Chinese funds to market directly into Hong Kong, and 150 Hong Kong funds to market on the mainland. The main interest is expected to come from mainland clients wanting access to international or Hong Kong funds.

feeding the country’s shadow banking industry - off-balance sheet loans securitised through trust companies and sold through local banks.

HKMA investigates claims of FIFA money laundering in Hong Kong Reports surfaced in May that Hong Kong banks may have been implicated in the multimillion-dollar money laundering scandal that engulfed world football body FIFA.

Suspension of Hong Kong CIES On January 15, Hong Kong chief executive CY Leung announced a decision to suspend the Capital Investment Entrant Scheme (CIES). This surprised many as it effectively closed a source to Chinese clients and assets for the local private banking industry.

The CIES, designed to attract immigrants to invest and gain residency in Hong Kong, required a US$10 million investment into prequalified assets. The scheme attracted many mainland Chinese nationals, who made up more than 89% of total applicants.

The Hong Kong Monetary Authority (HKMA) stated it is “monitoring the implications” to banks in the city with regards to alleged charges against FIFA officials for money laundering and corruption brought by the US Department of Justice (DoJ).

Of the alleged US$150 million in bribes paid and received, more than a dozen banks were named by the DoJ, including HSBC’s Hong Kong unit.

CBRC planning to create regulatory body to oversee China’s trust industry Following concerns stemming from a flurry of activity within China’s US$6 trillion shadow banking industry last year, China’s banking regulator reportedly plans to establish a new department dedicated to the regulation of the nation’s trust industry.

China’s trusts industry is currently pegged at US$2 trillion with 68 trust firms, making trusts the single biggest financial sector after commercial banks, official data indicates. However in the last two years, the trusts industry has expanded rapidly,

18 asian private banker

China regulator props up Shanghai market amid rout A bruising few weeks this midyear not only saw the Shanghai Composite and Hang Seng Index lose some 30% and 15% of their value respectively, it also highlighted Beijing’s willingness for fiscal intervention.

Following the correction, the CSRC suspended over half the market, simultaneously relaxed rules on margin financing, banned short-selling, and offered credit lines to China’s biggest brokerages. Most analysts however, have decried the intervention policy, mainly as it detracts from market fundamentals.

MIDYEAR REVIEW

APB TOP FIVE – PEOPLE MOVES A new wave of Asia leadership at HSBC Private Bank Few weeks after HSBC’s global chief Stuart Gulliver unveiled a three-year plan to restructure the London-based lender, its private banking arm in Asia introduced a new wave of fresh faces at the top.

These included Yau Chingyee and Kevin Herbert as co-heads of global private banking, North Asia; Annie Kwok, in addition to Teddy Kwong, as co-head in Hong Kong; Fiona Hsu as market head of Taiwan; Bala Balagopalan as market head of Philippines; and Anthony Hingley as market head of the international segment.

Spectators are monitoring closely the possibility of a headquarter switch to Hong Kong, which would be a natural fit for Gulliver’s strategy of an “Asian Pivot” and a focused charge into China’s Pearl River Delta region. Gulliver is expected to make a call on a headquarter relocation by the end of the year.

J.P. Morgan merges both segments to become one private bank Consolidation in the industry persists as the long-rumoured merge of the HNW and UHNW segment at J.P. Morgan materialised. The combined unit, which manages US$90 billion in Asia, is now headed by the former regional CEO of the UHNW business Andrew Cohen, while Peter Flavel, formerly head of the HNW segment, reports to him as deputy Asia CEO. The industry has mixed views about segmentation and access to offerings when client accounts are just slightly below the explicit threshold.

According to this publication, Morin was picked partly because regulators like him as “a neutral and external” leader.

Ex-Asia head of Clariden Leu exits Credit Suisse Jimmy Lee leaves Credit Suisse following a two-year stint as its market leader for Greater China. The 25-year veteran first joined Credit Suisse in 2012 as part of the acquisition to assist in the integration between the Swiss giant and Clariden Leu. In an industry where talent pool continues to suffer turnover, Credit Suisse is no exception. Leadership at Credit Suisse’s Greater China business has seen a fair amount of movement in the past.

UBS’ product team contracts again Industry veterans will know all about the shifting dynamics of product units at private banks. UBS Wealth Management in Asia appears to enter a contraction cycle after it folded its formerly standalone fund sales unit and other product-specific activities into a single team.

The new team will now be headed by Sean Cochran, head of IPS portfolio specialists, Asia. Paul Stefansson and Michael Christo will act as heads of IPS portfolio specialists for Singapore and Hong Kong respectively.

UBP UBP’s appointment of Eric Morin as Asia CEO came as a surprise to many onlookers.

After spending a little over a year with J. Safra Sarasin as its Southeast Asia head, Morin moved to spearhead UBP in the region, following the acquisition of Coutts’ international business by UBP.

asian private banker 19

MIDYEAR REVIEW

APB TOP FIVE – PRODUCTS Multi-asset fund fever It sounds unlikely that Asian HWNIs would delegate a global portfolio, given their preference for a more hands-on approach, but delegate they did where it came to multi-asset funds. These sprung up on the back of dichotomising monetary policies, record low yields and heightened volatility.

This willingness to delegate may be a sign of things to come in an industry that continues to endure an uphill battle to persuade clients on the benefits of investing in discretionary mandates and recurring revenue.

The return of private equity In their bid to seek superior returns, Asian HNWIs continue to make a gradual re-embracement of alternatives and, in return, sacrifice their perennial need for liquidity.

For example since 2014, millionaires in the region have shown significant interest in a Blackstone opportunistic fund, which tactically invests across a broad private equity universe. In March this year, Morgan Stanley successfully introduced a student housing portfolio to its wealth clients in Asia and in June, Goldman Sachs raised US$400 million from its HNW clients into a “first-look” portfolio to invest into headline pre-IPO companies like Spotify.

Liquid vs traditional alternatives While some private banks continue to sell traditional alternatives, the rise of liquid alternatives has taken the global asset management industry by storm and given hedge fund managers a run for their money.

20 asian private banker

American wealth managers such as J.P. Morgan Private Bank and Goldman Sachs Private Wealth Management continue to seek hedge funds as a way to allocate into uncorrelated assets.

Surge in ETF inflows from Asia’s private banks A lack of education has long been the primary hurdle to inflows, according to multiple exchange-traded fund (ETF) providers, but Asia’s HNW segment may now be turning a corner.

Following extensive seminars to promote various ETF features, banks believe investors are getting more adapt at ETF usage and jargon.

This may have led to, for example, Vanguard’s ETF flows from Asian HNWIs doubling year-on-year, while flows from the segment to iShares increased up to 50% year-on-year to reach US$5.25 billion. Multiple sources have also told Asian Private Banker that clients even insisted on building a portfolio comprising only ETFs. Mind the gap!

The Chinese equities roller coaster has undoubtedly been a predicament for most HNW investors who typically have large allotments in the mainland market. What seems to be recurring however, is trading of the AH premium gap. Since the launch of the Shanghai-Hong Kong Stock Connect, Asian HNWIs have closely monitored discounts available from dual-listed Chinese companies.

The launch of the Stock Connect channel and the plunge in the A-share market has catapulted the Hang Seng China AH Premium Index - a benchmark for measuring the price gap between dual-listed shares - by 40% after a convergence in late 2014.

POST-GREXIT

Europe: What now?

With Grexit ended, as of time of publication, investors can now turn their focus back to fundamentals, rather than sentiment and politics. Asian Private Banker asks experts on what the near-term future holds for Greece and Europe.

W

“It was the new government which caused the problem in Greece; the economy and debt situation led it,” he noted at a recent briefing.

Stan Pearson, head of European equities at Standard Life Investments, believes that “politics create volatility and there will be flashpoints along the way.” yet jolt markets.

“However, the ability of politicians to “The big question is, will the Greek dramatically change economic direction economy be able to collect sufficient is relatively limited in reality,” he tells this revenue in order for the economy to pay its Potential flashpoints publication. future borrowings, which are substantial, 20th August Whatever the outcomes of political due to debt compounding, asks Kelvin Tay, e3.2 billion Greek ECB Bond repayment due upheaval in Europe, the main focus for asset and managing director Southern APAC managers and private bankers have now CIO at UBS Wealth Management. shifted from headlines to fundamentals.

“It will realistically take six months at 11th October And that’s healthier. the very least to find out the full impact, Portuguese general election “We are predicting growth of 14% and whether Greece’s economy will be earnings growth in Eurozone markets, 4% able to stand the strains of the austerity 20th December in the US and 2% in the UK,” says UBS’ Tay. package. But the social and political Spanish general election “We are overweight European equities.” strains are already emerging. The chances Pearson is less bullish, predicting of anything going wrong are very slim, but corporate earnings growth of between 5% they [the Greeks] are going to go through a and 10%. period of civil unrest and protest. There is a feeling that the new deal In any case, analysts note that Eurozone earnings are still among is worse, in terms of austerity.” the strongest in the developed world, helped by a combination of low The consequence of that, Tay tells us, may be a protest against interest rates, low oil prices and a weak Euro.

Greek prime minister Alexis Tsipras that Banks and asset managers are also signalling could reverse the agreed deal.

Major banks’ overweights their confidence in European equities with “His own party might kick him out, and a series of overweight calls on the back of whoever replaces him (a hardline socialist) BlackRock improved earnings. may renege on the terms of the deal,” he J.P. Morgan Central bank divergence following a likely says.

US Federal Reserve rate hike in September, Indeed, it is not just Greek political UBS Wealth Management and its accompanying volatility, are potentially unrest which could derail the Eurozone’s Credit Suisse the next major bumps on the road to market tentative recovery. Spain and Portugal recovery. Bankers and asset managers are both accepted tough austerity measures, Citi expecting the ECB to further support markets and both have elections coming up in and prevent contagion in the event of any crisis.

2015. The measures though appear to J.P. Morgan’s Hui believes that whatever happens “will not be a case be working, with Spanish GDP growing at 2% and outstripping of sustained volatility.“ the Eurozone’s average of 1.2%. However, victory by an anti“With Greece calming down as we speak, we should be able to enjoy austerity party in the upcoming election could threaten this the rest of the summer without much fanfare,” he said at the briefing, recovery. echoing the general market hope.

For Tai Hui, managing director and chief market strategist, Asia at For now, many will be looking forward eagerly to the next European J.P. Morgan Asset Management, Italy and Spain are “much more of earnings season to see where the dust has settled. a worry if anti-austerity parties get in, as they represent 25% of the If it has.

Eurozone’s GDP.” hile a deal between the European Central Bank and Greece has been agreed, and passed through the Greek parliament, and Greek banks have reopened, there are potential pitfalls which might

asian private banker 21

TECHNOLOGY

FinTech Watch The pool of startups in non-bank businesses is expanding in Asia. Asian Private Banker delves deep into the fintech wealth management circuit and selects three to watch.

T

he fintech revolution, valued at US$12 billion globally, is rattling through Asia and forcing banks in the region to change the way they operate.

Such startups, traditionally defined as the application of IT within financial services as a means of lowering barriers both to entry and costs within the industry – according to KPMG’s latest fintech report “Making Hong Kong a FinTech Centre” – have mushroomed in Hong Kong and Singapore at a rapid pace over the last two years.

Now, there are an estimated 90 fintechs in Singapore and 50 in Hong Kong, and many see this growing exponentially over the next few years.

Indeed, the Singaporean regulatory body has recognised its potential and are working to create an ecosystem through financing and monetary injections. The Monetary Authority

8 Securities Founded in: November, 2013 Founder: Mikaal Abdulla, CEO Function: Its online and mobile investing app acts like an online brokerage, giving investors access to over 15,000 global stocks and exchange traded funds, market information, research and a private investor community through its real-time peer to peer dashboard.

Customer assets: US$750 million Venture capital: US$20 million Clients/Custodian: HSBC, Standard Chartered Bank and Bank of China Location: Hong Kong and Tokyo

22 asian private banker

of Singapore is spending US$225 million on its fintech scheme Financial Sector Technology and Innovation (FSTI) over the next five years. Similarly, Hong Kong’s government announced a HK$50 million injection to set up a corporate venture fund for co-investments in startups based in the city.

With low overheads and high scalability, fintechs are also beginning to encroach on wealth management territory.

Heralding the promise of cutting-edge innovation at a fraction of what it would cost private banks, fintechs are carving a niche in a region that is pegged to hold US$2.2 trillion in wealth.

As the startups need a channel to access customers and data, herein lies the opportunity for a partnership to form between private banks and fintechs.

Asian Private Banker believes these are three fintechs to watch:

Koolla Founded in: 2013 Founder: Chuang Shin Wee, CEO/founder Function: Koolla has three applications in its stable.

Acebanker acts as a personal wealth manager, helping clients keep track of their financial products, portfolio and sends notifications depending on risk tolerance and financial goals.

Game of Money is a wealth management simulation tool that lets investors learn how to manage their wealth using financial principles and real-world data, while doing so in a risk-free environment. Over a three month period, users can buy and sell wealth management products based on set algorithmic recommendations.

Wealth Management in Shanghai is a WeChat public account that is updated with latest tips, news and information on managing wealth in Shanghai.

Customer assets: Venture capital: Clients: ANZ Bank and DBS Location: Shanghai and Singapore

Call Levels Founded in: September, 2014 Founder(s): Cynthia Siantar, co-founder and Daniel Chia, co-founder Function: Its app offers a cloud-based service providing real-time financial monitoring and notifications. It covers more than 5,000 assets including US equities, FX and Bitcoin. The app alerts investors when their stocks, commodities or other investments hit a specified price in advance.

Customer assets: N/A Venture capital: US$500,000 Clients: 6,000 users Location: Singapore

PE O PL E MO V ES

MOVERS & SHAKERS

Movers & Shakers is a monthly compilation of the private banking industryâ&#x20AC;&#x2122;s key talent moves.

For the full version of Movers & Shakers, login or register at:

asian private banker

SELECTORS...

MAKE THE MOST OF YOUR MORNING FUNDS SELECTION NEXUS 2015

The FSN offers fund selectors the rare opportunity to meet with five hard-to-access fund managers.

These selected fund managers will present a series of 35-minute presentations in a group round-robin or speed-dating format.

Save the date and reserve your spot in the most efficiently designed event of its kind.

For attendance reservations and details, contact Madhuri Chatterjee at +852 2529 5577 or madhuri.chatterjee@asianprivatebanker.com

Hong Kong | JW Marriott 13 Oct 2015 Singapore | The Fullerton 15 Oct 2015 Participating Fund Houses: