Issue 96 February 2016 Lite

www.asianprivatebanker.com

Independent, Authoritative, Indispensable

ASIAN PRIVATE BANKER FEBRUARY 2016 • ISSUE 96

FEBRUARY IN NUMBERS 2 An expert’s forecast number of 25%

FIXED INCOME 2016’S NEEDLE IN A HAYSTACK?

90% 57.7%

Fed rate hikes in this latest cycle, pg 8 The ideal private banking revenue contribution from advisory & discretionary fees, pg 11 The amount of high yield bonds being traded electronically at private banks, pg 14 The forecast proportion of global mobile phone users in sia acific in pg 20

STRAIGHT TALK

BAREND JANSSENS, THE ROYAL BANK OF CANADA, p11

Cover-r3.indd 1

2/2/16 11:36 am

FEBRUARY 2016

CONTENTS 3

Letter from the Editor Monkey business... in the good sense

4

Editorial The Scoop: Ready to raise the ante?

6

Editorial Crow’s Nest: Fixed income business limited to select banks?

8

Income Fixed income to stay elusive in 2016

11

People Straight Talk: Barend Janssens, The Royal Bank of Canada

14

Income Tech platforms: More bang for your bond?

16

Industry Eye on China

18

Income Fixed income funds: More defensive than ever

19

APB On-the-Spot Online poll results

20

Technology Driving Digital Transformation among FSIs in Asia Pacific

22

People Moves Movers & Shakers

CHIEF EXECUTIVE OFFICER Andrew Shale

MANAGING DIRECTOR Paris Shepherd

DIGITAL DIRECTOR Tristan Watkins

EDITOR Shruti Advani

OPERATIONS Benjamin Yang, Sam Chan

DESIGN Simon Kay

ASSOCIATE EDITOR Vince Chong

BUSINESS DEVELOPMENT Madhuri Chatterjee, Sonia Lam, Michael Chan

PRODUCTION DG3

EDITORIAL Richard Otsuki, Priyanka Boghani, Tom Wan

ISSN NO. 2076-5320

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

Contents-r1.indd 2

2/2/16 11:36 am

LETTER FROM THE EDITOR

Monkey business… in the good sense Welcome to a new year – the year of the Monkey in the Chinese Zodiac, symbolising energy and ambition. Not many expect this energy to propel global markets upwards although lovers of volatility may be rewarded with monkey-jumps on global indices. Nonetheless, the new year will offer the opportunity to start again, to re-calibrate. Anecdotally, asset flows have been strong although deployment may once again prove to be tricky.

In this context, The Scoop with Shruti is an exploration of what it will take for private banks to succeed in 2016 – where the industry leaders are allocating both spend and attention.

The Crow’s Nest is a commentary on the lacklustre fixed income business. Consequently, the drastic reduction some banks have made to their fixed income teams means private banks will no longer benefit from economies of scale and the pricing advantage they bestow.

We carry the theme forward through the lead story with interviews with heads of fixed income at private banks, with whom we discuss the opportunities in this business, against the backdrop of deleveraging as well as a strengthening greenback.

Further, we introduce in this issue a new monthly column that puts the spotlight on individual jurisdictions or themes, a segmental analysis, if you will. We kick this off with a look at what three of the region’s biggest private banks are doing in the first-tier Chinese cities.

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

asian private banker 3

Letter from the editor-r2.indd 3

2/2/16 11:37 am

EDITORIAL

Ready to raise the ante?

W

hat will help private banks survive 2016? Too gloomy a question for the inaugural column of the year? If, like me, you spent most of January surprised at the viciousness with which prices fell across equities, commodities, currencies and the majority of bonds, you may want to dwell on the question, maudlin or not.

Several private banks – international as well as regional players – have automated the pricing of flow products on vendor neutral platforms as well as invested in quasi-automated investment platforms, that match triggers and client profiles, for example. In other words, several private banks – international as well as regional players – have taken proactive measures to ensure they can respond with swift and competitive pricing and that the system bombards client advisers with sales ideas and logs their response to each, all the while lowering costs.

Private equity expertise – so any credible investment banker or family office executive really – is hard to come by but very hot right now

Laudable? Well actually, this is now industry standard. So although we are each invited to several events when a particular structured products platform or messaging hub is launched/ re-launched/goes live, the truth is, this is last year’s work. The playing field has already been levelled and industry leaders whose core business is wealth management, boutique banks with a particular focus on product as well as the integrated banks with large structured products teams, all offer automated product and pricing platforms as standard. If this is an area your bank plans to focus on in 2016, you’re simply late to the party.

Why then, are we discussing these platforms in the context of what will help private banks survive 2016? Because they are industry standard. Which means many banks that were previously focused on getting the hygiene factors (product, pricing) working efficiently, now have the organisational bandwidth

to offer clients more. And they should. Will it be what clients want? Yes, if they focus on access. A-C-C-E-S-S, the six-letter word that will separate the men from the boys (or the wheat from the chaff, if you prefer) in 2016.

Access, whether it is to private deals, club investment opportunities, niche funds, or other high yield or distressed assets is the thing clients care most about as they scramble to add alpha to their portfolios.

The second priority is funding – plain vanilla credit or structured wrappers. Clients want banks to part-fund their investments at reasonable pricing notwithstanding the (slowly) rising interest rates. That is the secret sauce. Not surprisingly, quick chats with both private banking CEOs and their preferred headhunters put bankers with deal experience top of the hiring totem pole for 2016.

“Private equity expertise – so any credible investment banker or family office executive really – is hard to come by but very hot right now,” says the head of one such firm with offices in Singapore and Hong Kong.

Where once banks differentiated themselves based on their product manufacturing and structuring capability, they will now do so based on the deals they can help clients access and whether or not they can help fund them. Private equity is perhaps the most popular of these investment choices but club investments, especially into real assets, are interesting as well.

This is good news for more than just bankers with deal experience or credit structurers (or indeed, the head hunters who represent them). With private banks forced to mine alpha at non-exorbitant costs despite unsupportive markets and rising rates, the industry must, and will, go in for what I call an intellectual upgrade. This is what raising the ante is about, and how private banking (the rules are different for core affluent banking) will cease to be about execution in 2016. Combined with a robust discretionary platform – which I still consider the holy grail – this is what will define the next set of industry leaders.

No doubt some banks will continue to either be ravaged by costs and markets or marginalised by their own capital constraints. Of these, the luckier ones will be bought before the rout is institutionalised or becomes public. But for the majority of the industry that is not vulnerable, 2016 may be the year that they upped the ante. I hope it is.

4 asian private banker

The Scoop-r2.indd 4

2/2/16 11:37 am

+65 6812 9540 www.rwcpartners.com

Authorised and regulated by the Financial Conduct Authority Intended only for Professional Clients and Eligible Counterparties as defined in the Financial Conduct Authority (FCA) rules. Past performance is not a reliable indicator of future performance and the value of investments and the income from them may fall as well as rise. An investor may not be able to get back the amount invested and could lose all of their investment. Issued in the UK by RWC Partners Limited, 60 Petty France, London SW1H 9EU, which is authorised and regulated by the FCA. This material is intended for use only in select countries.

EDITORIAL

Fixed income business limited to select banks?

A

simple plan of attack for banks when interest rates rise is the pushing of short duration funds or securities.

But in order to get any significant yield from this, investors will need to increase the credit risk by buying say, higher yielding bonds.

Sounds good? Not really, because with the drop in commodity and oil prices, this strategy risks increased defaults and credit spreads; when one invests in a high yield bond, you minus from the coupon the average default rate, and assuming growth is going to be weaker, the yields ends up in fact being low. Plus there is a premium to exiting a high yield bond, all of which ends in a case of damned if you do, damned if you don’t for the fixed income business this year.

Even Asian government bonds, typically popular among high net worth investors (HNWIs) in the region, aren’t particularly attractive in the current stock market malaise. For example, yields for 10-year Chinese government notes fell three basis points to a record 2.7% last

month. Japan’s benchmark bond yield, too, dipped to a record 0.19%.

Others have also pointed to emerging market debt, another popular fixed income tool for Asian HNWIs, as an option. But with the greenback set to strengthen against such currencies, following the US Federal Reserve’s rate hike in December, the jury remains out on this option.

Case in point, in 2015, Standard & Poor’s (S&P) cut credit ratings for the most number of issuers since 2009, on the back of slowing emerging markets and commodity prices tumbled.

S&P last year downgraded 892 issuers, or 69% of all ratings actions, it said in a report last month. This compares to 1,325 issuers, or 83% of all actions, six years ago.

Separately, in terms of Asia Pacific sovereign ratings, the agency noted that economic prospects in the region “have dimmed somewhat despite the continued pickup in the advanced economies”.

“This partly reflects the tighter credit conditions facing emerging markets as

international investors turn more cautious toward the asset class,” it added.

“Perceptions of increased risk of a sharper-than-expected slowdown in China likely add to investors’ risk aversion. Slower export growth to the decelerating Chinese economy will also directly hurt economic growth elsewhere in the region.”

This echoes what the International Monetary Fund (IMF) and World Bank say, which suggests that previous income strategies are not likely to work anymore. As the IMF noted, emerging economies are facing a “new reality” that is hindering its pace of economic convergence with the developed world. This may result in further market volatility, said IMF managing director Christine Lagarde last month.

“Growth rates are down and cyclical and structural forces have undermined the traditional growth paradigm,” she noted at a conference in Paris.

“On current forecasts, the emerging world will converge to advanced economy income levels at less than two-thirds the pace we had predicted just a decade ago.

That is a concern.”

This, she added, would impact the rich economies too, with a 1% slowdown in emerging countries potentially set to slow down growth in developed ones by 0.2 percentage points.

Further, in the aftermath of the global financial crisis, banks have been the primary target of regulatory action that has reduced their ability to hold riskier debt on balance sheets. Through higher capital requirements and a ban on proprietary trading, banks have been de-risked and strengthened in an effort to avoid a repeat of the events of 2008.

6 asian private banker

Crows Nest-r3.indd 6

2/2/16 11:37 am

EDITORIAL

INCOME FUTURE GREY

All in all, it is an understatement to say that fixed income operations are facing headwinds.

In January, reports cited sources saying that Morgan Stanley may include some 470 frontline staff – sales and brokers – from its fixed-income and commodities business as part of a wider plan to cull about 1,200 employees globally. This would be 25% of the firm’s fixed-income trading staff. Similar source-cited reports say that Goldman Sachs may also cut more than 5% of such frontline fixed-income staff globally.

These follow the exit of the fixed income trading business by the world’s largest wealth manager UBS Group in 2012, while Barclays and Deutsche Bank have also reportedly made plans to reduce such operations as part of global cost-cutting exercises.

While these allude more to investment banking operations, the private banking side of things are bound to be affected with the loss of economies of scale, as more

than one private banking expert has told Asian Private Banker.

A global survey also noted that fixed income trading revenue is expected to be relatively flat over the next five years; nearly 150 analysts and portfolio managers reckon in the study that such revenue could rise by just 0.2% annually through to 2020.

This comes after the fixed income business’ strong showing, particularly in rates trading, during the recovery period following the GFC. Then, to help economies cope with the crisis, central banks everywhere flooded markets with trillions in liquidity, which helped fixed income desks rake in record revenues of over US$100 billion in 2009.

Could it be that the days of high fixed income trading so enjoyed by banks for decades are now behind us? Perhaps only for those institutions that are unable to cope with the costs of losing such revenue.

As this issue’s Straight Talk guest Barend Janssens tells Asian Private Banker, the heightened regulatory regime means banks start off with “very high costs to run

these kind of businesses in a market that is depressed in the sense of return.”

“In a normal interest rate environment, you pick up 10-20 basis points of your total revenue by working on your rate management,” notes the head of emerging markets for wealth management for The Royal Bank of Canada.

“Hence, if you don’t have that component anymore and you have to be prudent on your lending right now because of the market volatility while the actual activity from the clients in transactional activity is reducing, it creates a drop from 125-130 bps over AUM in the market five-six years ago to now 85-90 bps for the average private bank.”

Another veteran private banker adds in this issue (page 8) that banks must be prepared “to offer more credit advice/recommendation to provide hand-holding, (and) this will involve proper position of professionals and services.”

“Major players”, he says, will have cost and competitive advantages over smaller participants, as “the latter group do not have the economies of scale.”

asian private banker 7

Crows Nest-r3.indd 7

2/2/16 11:37 am

INCOME

Fixed income to stay elusive in 2016 Weak growth and diverging monetary policies to set the stage for fixed income operations this year, experts tell Asian Private Banker.

L

everaging is set to be a thing of the past, risk control will take priority, and the fixed income business may increasingly be limited to just a select few banks.

These are just some of the thoughts from private banking experts and business heads polled on their perspective of the fixed income business in 2016.

With the global market shifting away from its ultra-low-risk days following the end of the US Federal Reserve’s (Fed) zero interest rate regime, they added, lower leveraging activity and higher risks mean it is now a great challenge for private banks to provide sound credit advice to Asian clients.

Diversifying and the never-ending-but-increasingly-essential search for yields, henceforth, becomes two reigning

Cheng Wing Son, head of research APAC, Credit Suisse Private Bank

themes for private bankers in this environment of weak global growth and expected market volatility. It might not be as bad as searching for a needle in a haystack but as one analyst noted, the banks have got their work cut out for them.

RISK CONTROL EDUCATION GETS EASIER

This is the first time that the modern emerging Asia growth story has met a rate hike, and what this means is that diversification has for the first time become the main objective for some high net worth (HNW) investors in Asia. While the region’s fixed income investors moves on from leveraging and traditional investment picks, experts noted, the true job of the private banker now reaches beyond picking the right products to educating the clients on better risk control concepts.

Arnaud Tellier, head of investment services Asia at BNP Paribas Wealth Management, sees the Asian fixed income market focusing on “enhancing portfolio’s credit quality” and “tactical play instead of carry play”, and at a time when valuation is still “not very cheap”, it is crucial to introduce risk control concept to the clients.

As optimistic as BNP Paribas is over the long-term, believing that “terminal interest rates may be lower than expected”, he reckons clients should swap carry play for nimbleness in portfolio management and “be prepared to trade as opportunities arise.”

Cheng Wing Son, head of research APAC at Credit Suisse Private Bank, goes

Arnaud Tellier, head of investment services Asia, BNP Paribas Wealth Management

one step further to say that private wealth managers must be prepared to offer more client “hand holding” at a time of constant volatility.

But he warned as well that the offering of more client time and advice will involve more “professionals and services.”

“Major players will have cost and competitive advantages over smaller participants, as the latter group do not have the economies of scale,” Cheng noted.

The good thing is, private bankers say, clients have already been deleveraged, which takes the surprise factor out of this equation. Much of this was down to the Fed having hinted at the subsequent rate hike for much of the year before pulling the trigger, which meant that the market had tons of breathing room to price in the impact.

8 asian private banker

Fixed Income desks-r2.indd 8

2/2/16 11:38 am

INCOME

Ben Sy, managing director and head of fixed income, currencies and commodities at J.P. Morgan Private Bank, believes that negativity may have been overplayed.

“Going forward, the market has priced in around two more Fed hikes. The markets tend to be more right than wrong on predicting the Fed fund rate, while the Fed itself tends to overestimate rate hike cycle,” he said.

“We forecast only two hikes in this cycle, if not less.”

Ivy Li, head of investment consulting in fixed income for North Asia at Julius Baer, expects the Fed rate hike to be a “one-anddone” deal.

On the other hand, analysts added that deleveraging is nonetheless unnerving for some banks, especially when global economic recovery has been slow, while the world’s two largest economies – China and the US – set to steer their monetary policies in opposite directions.

EMERGING MARKET (EM) DEBT: LIVE BY THE DOLLAR, DIE BY THE DOLLAR

Then there are also concerns of the rising dollar, which analysts say hinges on two factors: whether China transitions success-

fully into a consumption driven economy, which would make its economic downturn a “soft landing”, and how long it could take for the freefalling oil price to reach its equilibrium point. The current volatility seen in the market, they add, is but a reflection of the fact that these two factors have yet to find a balance point vis-a-vis the rising US dollar.

In other words, emerging market economies, particularly those that are strongly correlated with commodities, are set to feel the burn while trying to raise capital offshore. The multi-million issue is, therefore, are EM bonds worth the risk of rising yield spreads?

Will these emerging currency regimes eventually fail to provide the flexibility needed to survive further USD strengthening, which could result in another debt crisis? Or will foreign reserves be large enough to offset the damage? How far further would plunging oil price pushes down commodities prices? Even among private bankers, there has not been a consensus on how these may play out.

Cheng believes that “for issuers whose business revenues do not provide a natural hedge”, Asian emerging market firms will be particularly stung by the difficulties to raise funds offshore. Among which, Chi-

Ben Sy, managing director and head of fixed income, currencies and commodities at J.P. Morgan Private Bank

nese borrowers will instead turn “inward” to raise funds domestically after Beijing has allowed local borrowers to issue bonds in the local market.

Sy believes that the currency issue is still going to be the “biggest challenge” in Asia, as “highly commodities-correlated currencies will have a hard time” against the stronger dollar. They are also being “dragged down by weaker CNH”, for which J.P. Morgan has a forecast of 6.95 to the USD by end-2016.

asian private banker 9

Fixed Income desks-r2.indd 9

2/2/16 11:38 am

INCOME

He also holds little optimism in Asian bonds, saying that while these outperformed the global fixed income market in both 2014 and 2015 – in particular Asian high yield, which generated around 6% total returns – “at the moment, Asian bonds are not cheap.”

“As for now, we believe that there’s limited room for local governments to cut interest rates, unlike last year. This year, we will be seeing a lot of challenge from exchange rates against the US dollar as it’d erode a lot of the carry,” added Sy, less than convinced of the stability of currency regimes in Asia’s emerging market.

Li, however, says that strong performances from Asian emerging markets, plus the fact that most commodities-correlated sectors are fairly Ivy Li, head of investment consulting in fixed insulated from the economy, warrant income for North Asia, Julius Baer a “neutral” stance on Asia USD bonds – provided that they are priced at “current bonds… Emerging market high grade is the area that we like.” levels.”

“Although low oil prices may push infla“Asia outperformed most of the EMs in 2014 and 2015. Specifically the cumulative tion below zero again for some months, we return since Dec 2013 for Asia corporate believe the market is far too pessimistic as measured by CEMBI Asia was 11.1%, now about the longer-term inflation outagainst 7% in CEEMEA and -4.9% in LATAM,” she told Asian Private Banker.

“We are neutral on Asia USD bonds… largely due to Asia being higher rated with close to 40% rated single-A and above, and less exposed metals & mining, while oil & gas are dominated by SOEs (state-owned enterprises).”

Julius Baer remains “neutral” in emerging market hard currency bonds and “underweight” on local currency bonds.

Didier Duret, chief investment officer at ABN AMRO Private Banking, takes similar optimism: “In light of the strengthening dollar, we still see some value in EM debts, we have moved from underweight to neutral position.”

He added that “the spread widening offers opportunities in capturing Didier Duret, chief investment officer, substantial yields from government ABN AMRO Private Banking

look,” Duret said. That said, the actual positioning of ABN Amro in emerging market debt remains at 0%.

With OPEC and Russia due to cut oil production in an attempt to restore prices, it is unclear whether global inventory of crude oil, which is still at an elevated level, especially in the US, will shed enough to actually support prices back to even the level seen six months ago. Then, the West Texas Intermediate was at US$60; it has now halved to around US$30.

DEVELOPED WORLD CREDIT IS KEY

Meanwhile, the safe haven, if there is one this year, lies in developed world credits, in particular, high yield corporate bonds from selected sectors in the US, European and Japanese economies.

Duret sees high dividend stocks in Japan and Europe “a focus and an area of interest of clients”, and are set to have a prominent place in the ABN Amro portfolio, where he believes there is “high paying dividend and good growth story” from the pharmaceutical sectors. In addition to that, US high yield bonds ex-energy sector should also occupy a strategic position.

“If you exclude energy, US high yield bonds are still providing 4-5% higher yield than US treasury, so there’s still a big buffer against rate hikes... it’s still very profitable.” Duret pointed out.

Sy added that “USD non-energy related high yield, at around 8.5%, is relatively attractive, with equities-like return”, with the“downside case scenario” at 4.5-5%, while the market has “priced in a 6-7% default rate.” Outside of the energy sector, Sy “does not see a recession coming.”

Julius Baer added some caution to the mix, with Li noting that while she sees “value in 10 year US Treasuries and Investment Grade credits”, with “valuation on the US high yield partly compelling”, volatility “might increase.”

The Swiss pure play is maintaining its neutral stance on US high yield.

10 asian private banker

Fixed Income desks-r2.indd 10

2/2/16 11:38 am

PEOPLE

Straight Talk:

Barend Janssens, head of wealth management, emerging markets, The Royal Bank of Canada (RBC) It is perhaps a reflection of how markets have gone that veteran private bankers like Janssens are more cautious when it comes to growth forecasts these days. Last month, we spoke to him about how RBC’s wealth management unit should grow in Asia while coping with a higher regulatory burden and China’s economic slowdown.

The markets have been looking soft and it’s only the start of the year.

Barend Janssens (BJ): We can safely conclude that volatility is here to stay in the financial market environment of Mainland China. It is a young market in a number of respects, and not yet professional investor driven. The float is low at 35% and you can see private individuals making herd decisions. The restrictions and circuit breakers unfortunately didn’t work as designed. Is this all surprising? Not really.

Looking for instance at the Shanghai market, it’s actually a correction of a bubble that was created during 2015. However, these volatile weeks at the start of 2016 unfortunately seem to have an overriding effect of fear on the rest of the world as well.

When there is such a wide bandwidth of volatility, it’s very difficult to call the market, and the only recommendation is to stay on the safe side. As a private investor you can get caught out by the volatility easily, so make sure to invest in a well diversified portfolio without large bets – whatever way – right now. A market environment like this is normally not very helpful for banks because when clients are keeping at low to no trading volumes, our financial performance suffers.

Your last five-year plan did not exactly go to plan. How do you see growth in the next five years panning out in terms of assets under management (AUM) and frontline staff?

BJ: We indicated then a target of US$20-25 billion in AUM in Asia; we are currently about US$13 billion. This is also a good reflection of the market circumstances we are dealing with currently in Asia.

When we put (that) plan in place, we felt there was a great opportunity in the markets; we thought interest rates would come back rather quickly, while consolidation and regulatory tightening in the wealth industry would not be as significant and quick as what we have seen.

All that has happened, and we now need to be realistic what this means for our growth plans.

RBC as a group is stable and conservative; it may not be at the forefront of all opportunities that the market provides us and that’s fine. We have made good progress in changing the mix and quality of our people and have grown to 65 frontline staff, relationship managers and brokers, from 52 in 2014. We will continue to grow in an organised and staged way.

The question for RBC is: in the next five years, are we going to be able to be at the US$30-50 billion level in AUM because clients realise

asian private banker 11

Straight Talk-r2.indd 11

2/2/16 11:38 am

PEOPLE

that we can make a difference among the three to four banks that they use for their key needs. If we manage to do so, we will need to make sure that the market recognises that we’re making a difference for our clients.

We indicated then a target of US$20-25 billion in AUM in Asia; we are currently about US$13 billion

Some have said that banks with AUMs of less than US$30 billion – or even US$50 billion – will find it hard to be profitable going forward, due to cost issues like heightened regulatory concerns as well as the economic slowdown.

With an AUM book of US$13 billion, how is RBC wealth management in Asia planning to grow in this environment? Will it consider an acquisition – given that globally, RBC is one of the biggest private wealth managers in terms of AUM – or might it be sold?

BJ: I don’t think it’s that high (that you need $30-$50 billion in AUM to survive in Asia). There are different models and there are banks that are successful but smaller and focused. The risk for small and focused banks lie in whether or not a bank’s current unique position is sustainable when the whole market starts to do what it does so well.

We find ourselves in a more difficult middle spot, not very small and not very big while being part of the 20 largest banks in the market in Asia. That gives us the opportunity to still drive our future; some of the larger banks are invested in such a way that they cannot get out of their investments very easily; their cost of capital has also become very high and their ability to correct their organisations within the new regulatory regime is going to be a costly exercise.

There’s always an option to sell out, and there’s always an option to buy someone else. Nobody will say they’re not looking at an acquisition and nobody will tell you what they’re looking at. What is certain is that there’s going to be huge interest from regional and regionally vested banks to acquire because they’ll want to make that step change; it makes a lot of sense for them to acquire to get there.

For RBC, we’re probably one of the best capitalised banks operating out here in Asia right now; return on equity for the group is 19% with C$10 billion (US$7 billion) in net profit and we just bought a commercial and wealth management focused bank for US$5 billion in the US. In Asia, we are focusing our efforts on getting the wealth business to a level of sustainable profitability. It’s good to be where we are currently, with the right kind of risk appetite and in an improved position to help our clients. If you are in a strong position like RBC

where globally there is high net profit generation and a very strong capital position, we have maybe a bit more time to get things right.

The perspective of the bank in this region is to make sure that it doesn’t bite off more than it can chew and make ourselves miserable in a couple of years. RBC sees Asia as a longer term play and it’s here to stay. The important thing is that we feel comfortable as a Canadian organisation in Asia, and that we are not only led by the market.

What are your key strategies for Asia in 2016?

BJ: As a private bank, you therefore need to make sure that you give added value. This is really only possible by guiding your client, based on solid understanding of his or her needs. For instance, making the client choose from three to five defined mandates on offer restricts the best possible fit with the client’s needs. Rather, there are 10-12 key questions that you need to ask – for instance related to risk profiling, expected performance and preferred industry sectors and currencies – that will allow you to tailor to a client’s individual needs.

We’re introducing this needs based, tailored approach in the coming months at RBC. It is an important part of what our direction is for the future in Asia; we will continue to serve our clients from a trading perspective, but want to embark on a route to a much more sophisticated advisory and discretionary discussion with our clients that is underpinned by a solid understanding of the client’s needs.

While advisory & discretionary mandates form a very big chunk of managed wealth in the developed markets, often up to 40% of total AUM managed by banks, wealth managers in Asia hold only 10% to 15% in these type of mandates and definitely would like to grow that portion of the business.

What is certain is that there’s going to be huge interest from regional and regionally vested banks to acquire because they’ll want to make that step change

Another important part of a needs based client strategy is wealth planning, as a large part of the private wealth clients in Asia are at an age point where they are looking to transfer their wealth. The need for trust planning, life insurance and philanthropy options is something that is really starting to pick up. Discussing the fact that we all have a finite life has become easier in Asia even compared to just five years ago. With volatility being a part of normal life now, transferring wealth to the next generation in a well structured way is starting to look more crucial than ever in Asia.

In the next couple of years, we will continue to see a revenue increase of up to 50% in this specific segment for wealth managers.

12 asian private banker

Straight Talk-r2.indd 12

2/2/16 11:38 am

PEOPLE

Fee models are shifting in Asia, with banks pushing for more advisory & discretionary fees, particularly in the current volatility.

Where does that leave transaction fees?

BJ: What we have seen in the wealth management market over the past five-six years – since the financial crisis worked its way through – is that trading activity has been commoditised. It has therefore become less rewarding for a HNWI to find the best possible trading opportunity among the banks he or she is dealing with.

Building and maintaining large trading platforms is a very expensive way of doing business for banks as well, and has partly been taken over by web-based trading platforms already. It’ll be increasingly difficult to compete against those for pure execution based trading business.

Transaction activities currently make up around 50-60% (of total income) for banks on average, about 10-15% is in advisory & discretionary mandates and the rest is in lending and wealth planning.

Some banks, like the bigger ones and the pure plays, will have a

Advisory & discretionary, and wealth planning revenue is set to grow in Asia simply because many of the region s W clients nd themselves at an age and situation where they require such advice, says Janssens. Here, he sets out a real life example.

“An entrepreneur is well in his 60s with only one child who has studied abroad in a field not related to the company; the child is not likely to return to Taiwan.

His company is an original equipment provider to the big names, but it’s struggling to keep its factories in China going, with the current labour and regulatory issues and tight margins driven by ever increasing requirements of the clients. The manager who was groomed to be the man-in-charge took a number of missteps and has been fired.

There is a huge requirement for the entrepreneur to be aware of all the new requirements coming to him and his business from a technical and managerial perspective, so he has decided to do an EMBA (Executive Masters in Business Administration).

The reality is therefore that this entrepreneur is an UHNW who should be enjoying his wealth, but needs to spend his extra time on an EMBA to keep up to date for his business!

How does he find the time to get a call from his banker every week on making investment decisions?

How is he going to be able to assess and take individual financial opportunities offered irregularly?

Or should he establish a high level of trust with one or

Transaction activities currently make up around 50-60% (of total income) for banks on average, about 10-15% is in advisory & discretionary mandates and the rest is in lending and wealth planning

higher portion of fee-based income from advisory & discretionary mandates at around 20-25%, while other banks are still predominantly trading based.

At RBC we are somewhere in the middle and, like most of banks, would want to increase our advisory & discretionary fees. Generally, banks will aim to have at least a quarter of financial performance coming from this segment.

two bankers and say ‘50% of what I have is going to be dealt with by the bank in a mandate’?

And how is he going to look at wealth transfer?

Does he want his one child to get all the wealth that he has built up, or does he want to give back to the community or a specific cause close to his heart? Is there going to be philanthropic opportunity? Who is he going to talk to about this? Mostly likely it’s one or two key bankers who have known the family for 15-20 years and have their confidence and trust. That’s a demographic perspective that we need to provide for right now in the wealth management industry.

You see a similar pattern in Indonesia as well, where the opportunities for entrepreneurs to sell their companies are often limited. They’ve made most of their wealth in the 1980s and 1990s when margins were high, and they have a very clear sense of responsibility to their existing employees and their clients. So they continue but there’s no real need for additional wealth build-up.

By comparison, a 60-year-old entrepreneur in the developed world would very often not have that strong a connection with the company.

And if he has been successful, he would likely have been pestered by private equity firms already multiple times to sell; would probably have better access to professional management that can run the business; would have a social network that is not so strongly connected to his business, has already helped him to think about matters like philanthropy and can step in to tell him what the next phase could be.”

asian private banker 13

Straight Talk-r2.indd 13

2/2/16 11:38 am

INCOME

Tech platforms: More bang for your bond?

Private banks in Asia are witnessing an evolution of the fixed income trading platforms that they are plugged into. However as Asian Private Banker finds out, distributors and technology platform providers remain divided on what the perfect platform should look like.

L

iquidity pools have been drying up. And voice and chat trading have become a relic of yesteryear. It has been the perfect situation for fixed income trading technology vendors as private banks in Asia plug into electronic trading platforms over the last two years, to gain access to a broader market of participants and a deeper pool of liquidity. A testament to the seismic shift that technology has created is that to date, 90% of high yield bonds are traded electronically at private banks, with 10% traded electronically for the entire Asia market.

But, with low interest rates, increased regulations and a growingly populated marketplace over the last year alone, the future of e-trading platforms for fixed income is reaching an inflection point that is reminiscent of the structured products world. Banks are redrawing the battle lines in fixed income trading and as industry experts take radically different views on the merits of both the single and multidealer platforms, the question begging to be asked is: which will survive?

SINGLE VS MULTI DEALER

Given the commoditised nature of fixed income products, an e-trading platform should go beyond its trading and execution capabilities to offer post trading processing, says Luke Waddington, head of e-business and markets, Asia Pacific, global markets at BNP Paribas.

He believes that single dealer platforms – a single branded platform that provides access to all of the institutions products and services under one umbrella – are still very relevant to private banks.

“Today, e-trading platforms are no longer for just trading and execution. They have evolved into the post-trading arena Luke Waddington, head of e-business and markets, and have incorporated Asia Pacific, global markets, BNP Paribas workflows that become

more relevant for the private bank,” he says, adding that these platforms also serve to reduce human error.

Simon Sywak, head of macro products, J.P. Morgan Markets, Asia and EMEA, agrees that “the range of services you can have from a single dealer platform” is attractive.

“It’s unlikely that the private bank clients just want to trade fixed income. Using a Simon Sywak, head of macro products, single dealer can pro- J.P. Morgan Markets, Asia and EMEA vide you with access to multiple markets and assets as well as additional tools through our multi-asset trading on execute – including market commentary, analytics, post trade services – that complement the trade offering,” he explains.

And perhaps a more salient point for private banks is that single dealer platforms are free-to-connect, which gives them the option to use other platforms that provide tailored functionalities to trading.

“Single dealer platforms allow free use for the buy-side, including private banks, and also segregate duties, for example the pre- and post-trading processes can be done on one or two platforms,” says Stamos Fakianos, global head of eBusiness at Credit Agricole CIB “This means that there is additional security of the integrity of the transaction through an independent process of dealing and confirming/settling.”

BNP Paribas, J.P. Morgan and Credit Agricole have rolled out single dealer platforms for fixed income trading, namely BNP Cortex and Smart Derivatives, J.P. Morgan Markets and Credit Agricole’s Catalyst and Jetstream.

A NATURAL EVOLUTION

Much like all asset classes that have undergone digital transformation, fixed income trading was also privy to the onset of multi dealer platforms. These platforms, automated fixed income distri-

14 asian private banker

Fixed income e-trading-r1.indd 14

2/2/16 11:39 am

INCOME

products in Asia, says Fakionas, referring to bution channels that connect more than one Project Neptune, the recent industry initiainvestment bank on the sell-side to possibly tive for fixed income trading in the UK that more than one private bank on the buy-side, was piloted last year. This involves putting have risen in numbers due to its ability to a consortium of 42 banks and asset managefficiently process high trading volumes and ers onto one platform, the aim of which is generate pricing quotes for private banks. to create an open standard network so that Indeed, the case for multi dealer platforms banks and investors can exchange controlled is even stronger given the rise in regulations and targeted real-time inventory while leavthat have pushed banks to audit contracts ing control mechanisms to data providers.

– something that is not yet standardised on Project Neptune participants include single dealer platforms.

Barclays, BNP Paribas, Credit Suisse, Gold“The increase in regulations has certainly man Sachs, JP Morgan, HSBC and Société made multi-dealer platforms a safer bet as Générale, together with asset managers like electronification of derivatives can be comAviva Investors, Axa Investment Manageplicated on single dealer platforms,” notes ment, Nordea Investment Management and Fakionas.

Standard Life Investments, among others, as In addition, multi dealer platforms can Stamos Fakianos, global head of eBusiness, Credit Agricole CIB well as technology partner EPAM Systems. create more sources of liquidity.

“I don’t see why something like Project “Trading via a multi dealer platform allows Neptune cannot be in principle extended to private banks,” Fakiclients to tap into the liquidity provided by a significantly broader onas notes, adding that he believes all products will eventually fall pool of participants compared to that of a single dealer platform,” under one umbrella for distribution, with the exception of credit says Duncan Klein, head of Asia sales at MarketAxess, a multi bonds. dealer platform that offers buy- and sell-side buyers in Asia, the “In the near term, electronic trading platforms for credit bonds, US and Europe. however, will stay the same because of its issue of liquidity and the He adds that the platform’s request-for-quote (RFQ) trading balance sheet issues that arise through the new regulation. Credit protocol replicates trading through phones, where an investor subwill need a structural reform in the markets before its distributing mits an inquiry electronically to multiple dealers and executes at platform can evolve.” the best price. This also allows traders to access liquidity provided Waddington meanwhile, believes that e-trading platforms for by both the buy and sell side participants in addition to traditional fixed income will add value in its ability to inform private banks access provided by broker dealers. with just the most relevant of data: “The future of electronic fixed “Technology has not only helped streamline the trading process income platforms will lie in its ability to harness big data and use but it has also helped firms source the best price in the market analytics that can identify behavioral trends.” from a high-quality group of liquidity providers,” he says.

In the more distant future, he adds, trading The number of multi dealer platforms displatforms will be fully automated and this is tributing fixed income to private banks in where the rise of robo advisors will come into Asia are multiplying with key players includplay. ing MarketAxess, Bloomberg ALLQ and Contrary to these predictions that veer toward Bloomberg EMSX, MTS BondVision and standardisation, Sywak believes that as client SunGard, as well as other structured product trading priorities differ, so will the focus of platdistribution providers that are expanding its form providers. product suite toward this area.

“It’s the individualisation of solutions that will be the trend in the future and this will be the DOWN THE LINE challenge for platform providers to meet,” he says, The arguments for single and multi dealer noting that even within just one private bank, platforms echo those of technological develtheir underlying clients will have a spectrum of opments involving other asset classes, most different tools trading fixed income products. recently structured products. However, However, most agree that if there is the one industry experts remain undecided on what certainty, it is that fragmentation will continue, the future of such a platform should look like. despite talks of consolidation, for as long as it It is only a matter of time before the private takes private banks to look for more bang for banking industry witnesses a consortium for Duncan Klein, head of Asia sales, MarketAxess their bond trades. fixed income, similar to those for structured

asian private banker 15

Fixed income e-trading-r1.indd 15

2/2/16 11:39 am

INDUSTRY

Eye on China Welcome to Asian Private Banker’s latest monthly feature, a segmental analysis of a particular private banking jurisdiction or theme. We kick it off this month with a look at what some of the region’s biggest private banks are doing in first-tier Chinese cities.

T

his month, Asian Private Banker takes its magnifying glass over China’s tier one cities: Beijing, Shanghai and Guangzhou. Despite the turbulent start to the year, China’s markets have proven promising with more than 2 million

Francois Monnet, head of Greater China, Credit Suisse Private Banking Asia Pacific

high net worth individuals in 2015, according to recent reports.

We ask experts from Credit Suisse Private Banking Asia Pacific, Goldman Sachs Private Wealth Management and UBS Wealth Management for their views on the growing market.

Nick Yim, head of Greater China market, Goldman Sachs Private Wealth Management

Francis Lui, regional market manager, Greater China, UHNW, UBS Wealth Management

Which products have been popular in mature Chinese cities like Beijing, Shanghai and Guangzhou and how do you see this changing in 2016?

Dim sum bonds One obvious asset class that was in high favour were the so-called “dim sum bonds”, which are bonds issued outside of China but denominated in Chinese renminbi, rather than the local currency. After a period of rapid growth, demand has slowed down considerably given the depreciation of the RMB which was a one-way street for a very long time.

So clients let their bonds mature and switch back to short-dated USD denominated bonds.

“Sunshine” funds We’ve noticed that the volatility in Chinese markets in recent months has tapered demand for products which were once popular in the onshore market. Chinese hedge funds or so-called “sunshine” funds, where managers use futures as a hedging tool and switch between cash and equities to generate absolute returns, have declined in popularity.

Fixed maturity bond fund To cater to this new demand, we will be launching a fixed maturity bond fund 2019, a portfolio resilient against rising interest rates.

Yield to maturity is around 4.50% with targeted quarterly pay-outs of 3% p.a. We will focus on a well diversified portfolio of bonds with strong credit quality. Our experienced Asia-based fixed

Trust products We’ve seen the same trend for trust products, which are backed by trust assets and claim to offer returns of 10-20% a year, as people started to question the viability of these products.

Europe and US equities Our Chinese clients’ portfolios are still very much home biased but we are definitely seeing an increasing trend of diversifying away from China to overseas markets, into Europe and the US equities market, or (for UHNWs and family office clients) through direct investments in real estate, healthcare, technology sectors in Europe and the US – primarily in sectors that are relevant to their business or that they are familiar with.

16 asian private banker

Eye on China-r2.indd 16

2/2/16 11:39 am

INDUSTRY

income investment management team has a strong track record with our flagship corporate bond fund which is ranked first by Citywire Global and was awarded five stars by MorningStar.

What will you be doing differently for this segment, given the expected economic slowdown in China?

Many clients were reluctant to roll out their investments in the beginning of the year but we see value emerging as we are approaching price-to-book levels for Asian markets close to levels seen during the global financial crisis. In emerging markets, we prefer economies that have a high correlation to US growth such as Japan, Taiwan and Korea. Sector-wise we prefer healthcare and technology. Given the highly volatile markets in Hong Kong/China, we will see clients diversifying away from their home market. Clients will focus on markets with unconventional monetary policies like the Eurozone when it comes to equity investments.

We also see pockets of value in HY Europe. We have also seen rising interest in alternative investments, mainly market neutral managers or long short managers. Last but not least: Clients get more and more willing to delegate the investment decision to professional asset managers and that is where Credit Suisse can offer both scalable solutions for entry level clients (starting from as little as US$250,000) to fully customised, high touch mandate solutions for very sophisticated UHNWI clients.

Our strategy will stay the course this year. We remain focused on offering Chinese clients access to our global platform, at a time when the high net worth in China are more open to wealth advisory and management.

We’ll continue to invest, doubling our headcount in total in China.

Slower growth at home has made more Chinese clients realise the need for strategic asset allocation.

We see opportunities to grow our fee-based business with Chinese clients this year.

China represents one of the most important sources of new business opportunities for UBS across its businesses anywhere in the world and the establishment of UBS Securities and UBS (China) Limited allow us to offer domestic wealth management through the most affluent cities including Beijing, Shanghai, Guangzhou and Shenzhen. We will continue our focus and investments in the China market.

On wealth creation - China GDP per capita is currently US$5,000.

Typically the growth won’t slow down till that reaches US$15,000 so it’s a long way to go.

As with all markets in Asia, we expect to have double digit growth in our business.

What growth do you see from China in 2016?

Credit Suisse’s Private Banking business in Greater China has been experiencing very significant growth in the past few years, and is a major contributor to our regional Private Banking franchise in both asset and profitability.

Credit Suisse takes a long term view of Greater China and it is a key focus area in the bank’s growth and investment strategy, as well as in our ambition to be the trusted entrepreneurs bank in Asia Pacific and a key destination for talent.

asian private banker 17

Eye on China-r2.indd 17

2/2/16 11:39 am

INCOME

Fixed income funds: More defensive than ever It has been a tough quarter indeed for the portfolio managers of Asia high yield bonds.

With the Asia outlook for this particular asset class as gloomy as it could for the last three months of 2015, asset managers believe that due to significant volatility in the market, the investment performance of their funds has increasingly been reliant on defensive calls in the market. Liquidity and credit selection are the two biggest concern, say portfolio managers from two top fund product providers to Asian high net worth investors.

ASSURING LIQUIDITY TO DAMPEN VOLATILITY

Jupiter Asset Management’s Ariel Bezalel, who manages the Jupiter Dynamic Fund, believes the US Federal Reserve’s rate hike late last year is by no means a guarantee of global recovery this year. In light of the uncertainties in the market, Bezalel allocated one-third of the fund’s US$ 5523 million exposure into government bonds, such as Australian government bonds and U.S. treasury bonds.

The move was certainly popular among private bankers.

“What we found attractive about the Jupiter Dynamic Bond, is that the liquidity is very well preserved”, said one gatekeeper, who added that the decision to keep Australian government bonds in high volume, has “paid off ”, with the Reserve Bank of Australia deciding against a rate hike on 1 February.

Explaining his decision to overweight on US treasury bonds, Bezalel noted that monetary policy operates “with a time lag”, and it will take “several months” before one may assess the impact of the interest rate hike on the US economy.

There is a possibility that the rate hike may have backfired, as a strengthening greenback gouges deeper into the already weak global growth, which could in turn weaken the US economy.

“There is mounting evidence that the slowdown in emerging markets is starting to affect the US economy,” said Bezalel.

“If this trend continues… (the Federal Reserve) may be forced to lower them again if the outlook deteriorates further.”

That said, Bezalel believes the current rate level is “far from being at the start of a great normalisation”, and in Jupiter’s view, “interest rates are set to stay low for a long time.”

The cautious sentiment is echoed by another manager active in the sphere.

“Given the volatile market conditions and changing outlook in China, Asia and emerging markets, I am closely monitoring market conditions and fund liquidity,” Bryan Collins, portfolio manager of the Fidelity Asian High Yield Fund, told Asian Private Banker.

“Over the fourth quarter of 2015, I increased cash holdings and reduced risk by lowering the exposure to weaker credit.”

So far, both products seems to be fairly stable with risk-adjusted returns,

with Jupiter Dynamic Bond having a better Sharpe ratio at 1.3% and Fidelity Asian High Yield Fund at 0.47%, mostly due to the distinction between global and regional allocation of these two funds.

QUALITY OF CREDIT KEY TO PERFORMANCE

With uncertainties in the air, both portfolio managers focused their products on sound credit with longer duration.

Collins, whose portfolio contains more than 90% of its holdings in Asia, has a decent 6.4% annualised returns despite presented with perhaps the most volatility, stressed specifically at looking into the corporate fundamentals.

“I expect to see further divergence between sectors and greater issuer differentiation within segments, which our strong bottom up credit selection capability can benefit from,” he noted, adding that he expects to continue to see “accommodative fiscal and monetary policies from global central banks”, including the People’s Bank of China.

“Continued reforms in Asia addressing structural challenges, efficiencies, and leverage, while positive in the longer-term, could also create market

18 asian private banker

Fixed income funds-r3.indd 18

2/2/16 11:39 am

INCOME

SELECT HNW FUNDS 3-Year

Annual Management Fee

Fund Size

Top 3 Sectors Allocation (%)

2.0%

16.8%

up to 1.25% (5% initial charge)

US$5.5 billion

High Yield - 48.8% Sovereign (long) - 31.1% Investment Grade - 14.1%

1.4%

8.4%

1.75%

US$2.9 billion

Property - 23.14% Consumer Cyclical - 12.89% Banks & Brokers - 11.43%

Fund Name

Year to December, 2015

1-Year

Jupiter Dynamic Bond

-0.8%

Fidelity Funds Asian High Yield Fund

1.5%

uncertainty with potential policy missteps and unintended consequences… however, we see this as a gradual process,” Collins said. Active credit selection shall have an even bigger role in the long term, he added.

While having global access gives Bezalel the advantage of allocating to safer European high yield bonds, he noted too the significant headwind faced by the developed world.

Fixed income funds-r3.indd 19

“In the longer term, we are of the view that high debt levels and ageing populations in much of the developed world will continue to act as significant headwinds… In challenging conditions, we have adopted a cautious stance by maintaining an above-consensus portfolio duration of over five years while reducing the fund’s high yield exposure,” he said.

“With growth set to remain weak, governments with sound

finances which are in control of their printing press… bright spots such as India, top-tier Russian corporates and special situations like Cypriot government debt continue to provide opportunities for attractive returns”.

The Jupiter Dynamic Bond has an annualised return of 7% since its launch in May 2012, against its peer group average of 2.8%.

2/2/16 11:39 am

TECHNOLOGY

Driving Digital Transformation among FSIs in Asia Pacific There is no denying that the financial services industry (FSI) is at a critical crossroad today, with digitalisation acting as a major driver in its transformation. Guest columnist Connie Leung, who is also Microsoft Asia’s senior financial services industry director, tells us what this means for wealth managers today.

T

his change comes at a significant time when the Asian financial sector represents 37% of total world banking and insurance market capitalisation, up from 16% in 2003 and 28% in 2007 (based on the report Asia Finance 2020 from management consultants Oliver Wyman and Hong Kong-based independent think-tank Fung Global Institute). In Asia itself the number of potential digital-banking consumers could rise to approximately 1.7 billion by 2020, notes McKinsey.

Given this huge potential, there are certain key push factors churning this transformation speedily, like the rise of fintech companies – which are poised to disrupt conventional banking methodologies in a big way, and also the next generation of Asian customers who are much more mobile, social and connected and literally demand state-of-the-art digital services.

THE DIGITAL TRANSFORMATION JOURNEY

Shifts in customer expectations, strict regulatory environments and overall macroeconomic conditions are compelling financial services organisations to reassess their traditional tried-and-tested strategies and approaches.

There is a sense of urgency among the FSI players to address their digitalisation processes due to the changing habits of customers and the new competitive environment. As such, established players from the financial services sector are striving to ensure their services are as seamless as possible for customers and deliver personalised experience across various channels including mobile and social engagements. Taking into consideration these factors, digital transformation is broadly happening in the areas of Productivity, Customer Engagement, People Productivity, Compliance and Data Analytics and CRM. However, for financial services organisations to benefit effectively from their digital transformation endeavours, the foundation needs to be solid and built upon three key pillars: 1. Digital Experience – This involves providing enhanced cross omni-channel customer experience anytime, anywhere and on any devices.

2. Digital Workforce – This involves being social and mobile, creating a collaborative environment, breaking down organisational silos through digital solutions to support virtual

teams and knowledge sharing and enabling a truly mobile workforce across the entire network. A digital workforce can work anywhere on any devices with effective communication tools. By empowering the digital workforce with CRM tools and advanced analytics, it can provide enhanced Connie Leung, senior financial services industry director, Microsoft Asia customer experience with tailored products and service offerings.

3. Digital Business – Leveraging technologies to transform the organisation towards digital. Allowing more agility and innovation across business areas by evolving the organisation into a digital business.

RELEVANCE TO ASIA PACIFIC

With the Asia Pacific region home to 60% of the world’s population, the digital transformation relevance is greater in the region in terms of the growth potential. Notably, the region has become instrumental in driving the mobile sector globally, already accounting for nearly 55% of the global mobile phone ownership total, which translates into a staggering figure of around 2.5 billion users.

In 2016, the Asia Pacific region is predicted to make up 57.7% of the world’s mobile phone users, and as much as 40% of global mobile data traffic by 2015. In fact, APAC boasts five of the top 15 countries with the highest smartphone penetration rates, based on IDGConnect research. Furthermore, with internet penetration at close to 50%, nearly half of the world’s internet users live in the APAC region.

As a catalyst, the potential of cloud computing to enable mobility, nurture innovations and enhance productivity is now

20 asian private banker

Technology-r2.indd 20

2/2/16 11:39 am

TECHNOLOGY

understood by both IT vendors and clients and it is estimated that by 2019, total public cloud services spending in the mature APAC region will rise to $12.9 billion, Gartner research shows.

ROLE OF THE CLOUD IN APAC’S DIGITAL TRANSFORMATION

Over two years ago, the cloud was largely shunned as a technology platform for FSI players as many did not believe that it was robust enough to fit the needs of the industry.

Yet, the current disruptive factors in the industry have altered the dynamics of traditional FSI players bringing to fore the urgency to be more agile and innovative. The cloud is now seen as an enabler for the three pillars to an organisation’s journey to digital transformation.

In the last 12 to 18 months, conversations with FSI customers have become increasingly nuanced on how they can take advantage of cloud solutions in a way that meets their high internal compliance, security and risk standards. However, there are still nagging concerns on the security and compliance aspects, as there exists a gap in understanding how the technology melds with internal compliance needs.

Contrary to common misconceptions, government, banking financial services and insurance regulators across APAC do not prohibit the use of cloud services per se. On the contrary, they recognise this as an increasingly important option for their technical infrastructure and budget management.

Asian regulators are increasingly warming up to the cloud by embracing such technologies with new sets of guidelines and principles. Regulators have already opened up to cloud technologies with research showing that customers from Hong Kong, Singapore, Malaysia, Thailand and Australia are increasingly rolling out cloud-based services.

Given the rapidly evolving digital transformation scenario across APAC, FSI players need to consider kicking off with one of the three abovementioned pillars for their digital transformation. To fully optimise such opportunities, it would be prudent to consider the following points: 1. Think hybrid: The FSI industry, being highly regulated, requires specific cloud services that meet strict compliance requirements. Areas around privacy and data protection are particularly important when choosing the right cloud services. With a hybrid cloud facility, customers can move workloads from data centers to a public cloud platform with ease, while still maintaining a high level of compliance standards of the infrastructure.

2. Think collaboration: Productivity and social collaboration are usually the first channels that FSIs start off with foremost for the cloud. With the proper tools, teams can collaborate across devices and platforms, while having enterprise class security. With collaboration comes greater efficiency and exchange of ideas, and consequently a a faster time to market – this will help FSIs innovate at a faster pace and stay relevant in the digital era.

3. Think security and compliance: Choose a provider that will have the most robust of frameworks and features in place.

Cloud service providers have a role to educate from a technology standpoint – choose a vendor that offers solutions which comply with existing regulations and have enterprise offerings that meet compliance standards. These services providers should be certified, with terms and conditions in place to protect customer data and privacy, and help customers ensure that their cloud infrastructures are compliant.

BUT WHAT CAN THE CLOUD DO FOR FSIS?

Agility is key here, coupled with the fact that it costs less to develop while requiring a shorter time to market new products and services.

Key FSI players that have successfully embarked on digital transformations on the back of cloud capabilities include Westpac, KBZ Bank, TMB Bank, AIA, Metro Bank, Société Générale, KBC Bank, UBS and MUFG.

asian private banker 21

Technology-r2.indd 21

2/2/16 11:40 am

PE O PL E MO V ES

MOVERS & SHAKERS

Movers & Shakers is a monthly compilation of the private banking industry’s key talent moves.

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

asian private banker

pp 24 APB Mandate FP Ad (1).pdf

1

29/6/15

4:46 PM

EVERY FLOW HAS A STORY

C

M

Y

CM

MY

CY

CMY

K

FOLLOW IT FROM CALL TO TRADE

Truly understanding the architecture of a private bank or an asset manager can be as difficult as winning an allocation from Asia’s demanding HNWIs. Join APB Mandate as we take you on a journey featuring the entire value chain of managed solutions, from the communication of a private bank’s house view, all the way to when a trade is executed (or not). Sign up now on www.apbmandate.com

LAUNCH PARTNERS: