Issue 125 July 2019 Lite

www.asianprivatebanker.com www.asianprivatebanker.com

Issue Issue 125 125

ASIA PRIVATE B A N K I N G INDIA STALLS 20 1 8 AU M & AU M GROWTH R M HEA D CO U NT LEAGUE TA BL ES AUM on the ascent and RM headcount skyrockets for India’s Top 20 P 2 1

INSIDE INSIDE Industry Regulations Creditcan Suisse’s Cavallirely andon Banks no longer Monnet expect “my system saysnew so” leadership excuse structure to increase PB potency P8 P9

Investments PBs flock India’s WMtowards leaders bond talk ETFs despite concerns over alternatives cap-weighted construction P28 P39

Technology Technology At theTalk: vanguard: PB’s women Tech Eddy Tai, global in techoftalk head opsinclusivity and tech, and BoS innovation

P38 P45

Regulations Regulations China Regulatory MS PWM refines RMRound-up: requirements Rerforms impacttalent HNWpool client given shrinking product preference P44 P62

CONTENTS ISSUE 121 125

5

Letter from the Editor

7

Echo Chamber

CONTENTS Industry

CITIC Securities Brokerage (HK) launches new WM account for “sweet spot” clients

CEO Andrew Shale CEO Andrew Shale Editor Sebastian Enberg Editor Sebastian Enberg Editorial Richard Otsuki Editorial Benjamin Yang Benjamin Yang Charlene Cong Charlene Cong Alice So Alice So Tin Tin Sze Tin Tin Sze Rebecca Isjwara Rebecca Isjwara Tiffany Hopkins Tiffany Hopkins Gigi Lam Gigi Lam Managing Director Catherine Chen Paris Shepherd Managing Director Paris Shepherd Research Stratos Pourzitakis Research Lisa Cheng Lisa Cheng Shunta Kamba Shunta Kamba Business Business Development Development Sonia Lam Sonia Lam Sam Chan Sam Chan Olaide Ogungbesan Charis Tse Charis Tse

Digital Tristan Watkins Digital Alice Wong Alice Wong Sanya Amin Sanya Amin Marketing Design Yasna Mostofi Jacqueline Kwok Vivian Chong Jordan Yim Evy Cheung Events & Marketing Jacqueline Kwok Patricia Jover Events Finance & Koye Sun Operations Aleck Kwok Karman Wu Gerard Timbol Martina Ngai Yuki Chan Finance & Operations Xenia So Karman Wu Director Europe Martina Ngai Madhuri Chatterjee Sandy Lau (Actaea Consultants) Yuki Chan Production Xenia So DG3 Director Europe Madhuri Chatterjee (Actaea Consultants) Production DG3

Published by Key Positioning Limited Published

by Centre Key Positioning Limited 13 Greatmany 13 Greatmany Centre 111 Queen’s Road East 111 Queen’s RoadKong East Wanchai, Hong Wanchai, Hong Kong Tel: +852 2529 1777 Tel: +852 1777 Fax: +852 2529 3013 9984 Fax: +852 3013 9984 Email: info@asianprivatebanker.com Email: info@asianprivatebanker.com ISSN NO. 2076-5320 ISSN NO. 2076-5320

8 5

Regulations September Letter fromRegulatory the EditorRound-up: MAS lists enforcement priorities; PWMA suggests PWM codes for HK; online suitability a “huge challenge”

10 7

Investments Industry UBP profit fromBanking’s alternative fixed income Insidetakes HSBC Private silent renaissance

13 8

ESG Regulations ESG: Examining shallow growth — scrutinising sustainable investing at Banks can no banks longer rely on “my system says so” excuse Asia’s private

17 9

Hong Kong establishes Green Finance Association to engage private investments Events | 10th APB Summit 2019

18

High barriers to SI adoption despite keen interest: UBS GWM Investments DBS sees “encouraging” flows into SRI strategies PB consensus: No near-term recession but beware risk exposure Diversify within alternatives, favour private equity: Asia PBs Advertorial Sustainability to raise financial performance in the long run Deutsche Bankinvesting WM enters flat-fee advisory fray with dbXpert launch

20 12 13 21 14 15 24 16 25 18

26 19 21 28 31 28 29 32 30 33 31 32 34 38 33

Thematic investors gravitate towards “tangible” strategies: DWS ESG Half of IIFL-ONE clients discretionary Deutsche Bank WM eyes choose ESG DPM launch inmodel Asia Investments Events | 5th Discretionary Portfolio Management Leaders Conversation 2019 Julius Baer raises US$450 million in seven days for FMP solution in Asia and Middle East Investments 91% ofDPM wealth managers in Asia confident about fund flow Asian assets continue to grow following targeted KPIsrebound in next 12 months India Events2018 AUM & RM Headcount League Tables Funds Selection Nexus 2018 Investments Regulations Kotak Directaccredited participation opportunities blind poolinvestors funds MAS’s WM: new opt-in investor regime toover protect HNW In India, alt funds are gathering steam at an unprecedented rate CRS impact could be blunted by “broadly unorganised” data Edelweiss’s alts offering strikes a chord with clients DPM Nomura to buy 40% stake in Julius Baer’s Japan business, gain access to Industry DPM capabilities StanChart PB India looks to its corporate bank in client acquisition push Deutsche Bankramp WMup “will not chase growth” amid rising demand for quality Private banks equity DPM AUM product development in Asia advice in India Retromakes fee banIndia couldonshore prove double-edged sword for DPM LGT move via M&A

42

HSBC Private Banking’s Asia DPM inflows grew five-fold in 2017 Regulations UBS raises US$100m in Asia for new ‘fund selection’ discretionary mandatereform: India’s HNWIs gradually separate family, business wealth amid regulatory Cyril Amarchand Mangaldas EFG in two-pronged recurring revenue push

43 36

Regional| 5th DPM expansion in Officers the offingLeaders for CIMB Events Chief Operating Conversation 2019

44

Events Technology Asian Fixed Income Forum 75% of Asia PBs increase tech spending YoY, prioritise “still painful” KYC A case for strategic allocation to Asian LC bonds In-app advisor ratings drive client engagement: Edelweiss’s Kapoor Tech Talk: Eddy Tai, global head of operations and technology, Bank of Singapore Industry Lombard Odier: Strategic partnerships to relieve pressures of local banks

40 41 34

37 45 38 39 47 48 41 49 42 43 44 50 51 45 52 57

Industry DBS takes root to bank Indonesia’s rising affluence HSBC PB ups ante in UHNW market with platform revamp, new teams Technology Flat-fee Infinity platform to cut management fees by 25%: Edelweiss’s Kapoor APIs expose FIs to greater cybersecurity threats: MAS’s CSAP Bank of Singapore’s Malhotra eyes “massive” opportunities for UHNW NRI clients Morgan Stanley PWM refines RM requirements given evaporating talent pool Asia at the epicentre of Deutsche Bank WM’s tech ambitions HNWIs'Moves preference for instant messaging is "a pain point unique to Asia": FinChat People Movers & Shakers Industry All quiet on the Eastern front as private banking consolidation slows, but for how long?

People Moves Movers & Shakers

ADS

4

LETTER FROM THE EDITOR

W

elcome, dear readers. We are proud to present our India Private Banking and Wealth Management League Tables covering AUM and relationship manager headcount for the third year running.

What is clear is that this is an industry that continues to grow and mature at a clip not seen elsewhere.

That’s despite the fact that 2018 was not an easy year for the industry. And certainly, heading into 2019, India’s wealth managers were contending with a liquidity crisis in the fixed income space due to headline debt defaults and uncertainty around the general election (which has since been decided).

Accordingly, we turned our eyes to alternative investments and those firms that have seen some success in terms of delivering differentiated opportunities and attracting client assets. It is also worth mentioning that around the time we were compiling this table, investors were clamouring for a piece of the Blackstone-backed Embassy Office Parks REIT, which has not only delivered in terms of performance but has likely opened the floodgates for similar strategies going forward.

A warm “thank you” to all the firms that contributed to our data and content for this issue, and if you believe you should be featured in our rankings, please get in touch at editor@asianprivatebanker.com.

Sebastian Enberg Editor Asian Private Banker

5

ADS

6

INVESTMENTS

e ch o cham be r "Everybody would agree that China is a global engine of growth, but there is more than one way to capture Chinese wealth, and going onshore in the Australian market is one such way."

Albert Chiu, head of Asia Pacific, EFG International "We are not an AUM bank, and so a candidate’s ability to bring AUM to us on day one is less important than their ability to leverage on Morgan Stanley’s franchise and platform for clients. We have a three-year plan for candidates to anchor themselves here, to build a solid base of quality clients and immerse themselves in the firm’s culture of doing the right thing. If you get this right, the business will usually take care of itself."

Vivien Webb, head of sales, China and Hong Kong, Morgan Stanley PWM Asia "The regulators are now requiring banks to show that they are using the technology that is explainable and with the right data, and it is no longer sufficient for banks to say the compliance process is intact because ‘my system says it is’. " Neela Das, head of innovation, Accuity "If we want to innovate and be fast, we need to constantly adapt our client experience to not just their changing needs but also regulatory changes. Honestly, regulations change faster than client needs nowadays. A lot of change comes to us as a global bank because we have to keep up with all the regulators. We have to react fast."

Wiwi Gutmannsbauer, COO APAC, operating head WM APAC, and head WM omnichannel management, UBS "As [millennials] are savvier in utilising multiple channels to educate and seek advice, they are more attracted to advisors who can match this rather than having the patience to deal with the 'friction' of having to switch. The role of the wealth manager as wealth shifts will evolve to have more focus on the educational aspects, to help guide them, and to provide a reality check when necessary."

Rishabh Saksena, head investment specialists, Asia, Julius Baer

UBP takes profit from alternative fixed income

O

wing to heightened valuations, UBP has taken profit from alternative fixed income year-to-date, according to the bank’s Hong Kong head of DPM. The bank entered 2018 with “very low” credit exposure given tight overall bond spreads and low interest rates, Christine Ravioli, head of discretionary portfolio management, Hong Kong at UBP, told Asian Private Banker, adding that, as a result, the bank allocated a “much bigger” portion of its fixed income mandate to non-directional or alternative strategies, such as cat bonds and structured credit.

“Usually, the correlation between those nondirectional bonds and the overall fixed income market is much lower, and they’re less subject to interest rate or spread risks,” she said.

“Those instruments did help reduce risks in portfolios through diversification last year, especially when investors weren’t being paid for taking the extra risk in the traditional bond market.”

Indeed, in 2018, correlations between equities and bonds broke down, and traditional fixed income — previously a safe haven asset — disappointed investors as major markets recorded negative returns.

However, as fixed income risk-reward profiles changed, so did the bank’s strategy, and UBP has now rotated back to traditional bonds from alternative fixed income.

“Since early this year, we’ve actually started to take profits from cat bonds and reduce a lot of mortgage-backed securities and cash plus exposure,” Ravioli said, adding that the risk premium of alternative bonds is compressing while traditional fixed income is proving resilient.

“It doesn’t mean we don’t like it as an alternative way of investing in bonds.

Instead, we think that their risk-reward profile is getting less attractive within the fixed income space,” she explained.

Despite the about-turn, the bank still prefers shorter bond durations as the yield of longerdated credit is unlikely to adequately compensate investors for risk, according to Ravioli.

“We also have a focus on quality,” she said, highlighting the bank’s search for opportunities within investment grade fixed income.

Specifically, UBP favours short-duration US corporate debt but advises investors to beware of potential instability in highly leveraged sectors. Further, the bank believes emerging market debt will continue benefiting from the Fed’s dovish turn.

The bank has also made significant changes to its equity mandate over the past year.

Earlier in May, Asian Private Banker reported that UBP had replaced one-third of cash equity holdings in its DPM portfolios with structured products owing to a re-emergence of downside risk.

7

R E G U L AT I O N S

Banks can no longer rely on “my system says so” excuse

G

iven how much faith — and money — private banks in the region have placed in machine learning and AI, the Monetary Authority of Singapore (MAS) and the Securities and Futures Commission (SFC) are advising financial institutions to provide more clarity on how results are generated and reminding them that accountability relating to such technologies still rests with the banks.

Neela Das Accuity

“Artificial intelligence is a probability technology. It won’t suffice to just apply the tool without explanation as there are cases where the machine is making decisions based on irrelevant factors and this is not ideal,” Neela Das, head of innovation at Accuity, told Asian Private Banker.

“The regulators are now requiring banks to show that they are using the technology that is explainable and with the right data, and it is no longer sufficient for banks to say the compliance process is intact because ‘my system says it is’.”

Although some fintech providers might argue that this could result in them having to divulge their “secret recipe”, Bharath Vellore, managing director, APAC at Accuity, told Asian Private Banker that most services provided by fintechs are not particularly exclusive.

“The differentiator for fintechs is their business proposition in terms of segmentation of clients and how familiar they are with their clients.

It also depends on the speed and agility of solving clients’ problems in their specific contexts,” he said.

Vellore additionally shared that compliance awareness has increased amongst fintech firms. According to a poll recently conducted at an Accuity client summit, fintech firms are spending 15-20% of their total compliance costs on AML/KYC issues — a significant increase compared to previous years.

8

“From what we heard from our fintech clients, there is a common misconception from financial institutions that fintechs are subjected to less stringent regulations and therefore have a looser take on compliance issues,” he said.

“The fintech industry is now spending much more on its own compliance and is more willing to invest and seek external expertise in compliance issues like client onboarding and KYC screening.”

He added that the industry has responded well to regulators’ clearer guidance on fintech best practices and that fintech firms are eager to operate in a more compliant and regulated space, hoping to be recognised by banks as reliable partners.

Accuity’s sentiments echo those of David Bharath Vellore Hardoon, MAS’s chief data officer, who Accuity cautioned financial institutions during a speech in May, saying they ought to approach fintech with proper risk management, especially relating to cybersecurity, data privacy and protection, as well as unfair discrimination arising from probabilitybased AI solutions which lack the ability to make exceptional, “out of the box” decisions.

“Increasing use of artificial intelligence (AI) has given rise to the risk of ‘black boxes’ in decision-making. Regulators have started to detect cases where AI-based decision-making has led to systematic exclusion of certain demographics,” said Hardoon.

“When an AI tool finds an empirical basis for discriminating by a combination of variables such as gender, ethnicity, religion, and nationality, say for a loan or insurance decision, how much of that empiricism is grounded in reality and how much of it is due to unobserved biases in society that the AI is learning from? And even if such discrimination is backed by empirical unbiased data, is that a socially acceptable outcome?”

EVENTS

10th APB SUMMIT 2019 Bookended by panels of private banking luminaries, the 10th annual APB Summits were held in Hong Kong and Singapore in May to host debate and discussion around the previous — and next — ten years of private banking.

Thank you to our esteemed panellists, delegates, and partners for taking part in what has been the largest Asian Private Banker event to date. For more photos, please visit apb.events/apbs2019.

Alex Vaulkhard and Vincent So of BlackRock

Hong Kong CEO panellists share thoughts on a decade of private banking

Lydia So of Matthews Asia

Natasha Braginsky Mounier of Capital Group

Singapore investment panellists pose for a picture

9

EVENTS

Hamish Galpin of Hermes Investment Management

Vafa Ahmadi of CPR Asset Management

Hong Kong investment panellists discuss current market conditions

Delegates network during a coffee break

Uli Gerhard of BNY Mellon

Hong Kong audience reacts to comments made on stage

Stuart Rumble, Becky Qin, and George Efstathopoulos of Fidelity International

Benjamin Cavalli, head of private banking, South Asia, Credit Suisse

10

EVENTS

Glenda Hsia of Value Partners

Jim Veneau of AXA Investment Managers

Main stage of the Hong Kong APBS

Philip Li of Value Partners

Julien Lepine of Aberdeen Standard Investments

Geoffrey Lunt of HSBC Global Asset Management

Singapore CEO panellists share a laugh

11

INVESTMENTS

PB consensus: No near-term recession but beware risk exposure

W

hile there exists a strong consensus that a near-term recession is not on the cards, private banks in Asia are advising clients to trim exposure to risk assets given heightened valuations, according to the investment panel at Asian Private Banker’s 10th annual Summit.

“We’ve downgraded our view on equities from overweight to neutral. We’ve also lowered down our high yield bond exposure — specifically emerging markets high yield bond exposure — because of [stretched] valuations,” said one panellist. “However, the theme remains to be the search for yield.”

Increasing geopolitical tensions and slowing macro indicators amid a protracted late-market cycle have sparked fears of a recession. On 13 May, China threatened to raise tariffs on US$60 billion worth of US goods as of 1 June — immediately after the announcement, risk assets dropped significantly.

Indeed, on client appetite for managed solutions, the speakers agreed that fixed income has dominated flows year-to-date despite the noticeable equity rally.

However, according to one private banking investment head on the panel, geopolitical risks — such as the trade war and Brexit — are just “dark clouds in the sky” and investors can rest easy for at least another 12 months.

“We don’t think there’s an imminent recession in the next 12 months,” another panellist agreed. “But we do see the growth momentum has been slowing down.”

As a result, most of the private banks represented on the panel have recently downgraded equities and high yield bonds, shifting exposure to safer assets such as quality fixed income.

12

“The world is changing but investment strategy still remains the same,” one panellist said when asked about private banks’ fundraising for FMPs. Regarding advisory, the bankers said most Asian clients missed the rally despite the rebound in stocks over the past few months. Rather, client capital has flowed into income-oriented and capital protection strategies.

“What’s happening in the trading environment is the opposite of last year,” explained one speaker. “Compared to last year when everyone was buying on the rally, this year everyone is selling.”

INVESTMENTS

Diversify within alternatives, favour private equity: Asia PBs

D

espite the year-to-date rally, ongoing economic and geopolitical concerns have sent investors into the arms of uncorrelated assets, and now private banks in Asia are advising clients to diversify further within alternatives while favouring private equity and liquid alts, according to speakers and respondents at Asian Private Banker’s 10th annual Summit.

Within alternatives, more than one-third (37%) of survey respondents said investors should look to private equity over the coming six months, followed by liquid solutions (28%), and traditional hedge funds (18%).

Within alternatives, what is your most preferred segment for the coming six months?

Traditional hedge funds

18% 28%

Liquid alternatives

14%

Private debt

Others

In addition to offering uncorrelated returns, alternatives are increasingly being used by clients as a long-term core holding in anticipation of a downturn and potentially volatile times ahead, explained one speaker, adding that “ensuring clients stay invested is important”.

“We always send a message to clients to not sell. We always encourage clients to take the longest-term view that they are capable of taking,” another agreed.

“But if they feel like they have too much exposure in one aspect, such as equities, we will help them find ways to diversify, so we are pushing a lot of alternatives as solutions to diversify into.”

FMPs in hot demand 37%

Private equity

Meanwhile, another speaker highlighted that private debt — preferred by 14% of respondents — has performed well of late as clients are increasingly willing to sacrifice some liquidity to pursue an uptick in yield.

3%

During a discussion on the asset class, one panellist noted that 2018 “was a good year for these types of solutions”.

“We’ve seen a record inflow for liquid alternatives, particularly liquid hedge funds,” he said, adding that private equity and real estate have also witnessed record highs in terms of asset inflows at his bank.

Meanwhile, on the fixed income front, the spotlight was on fixed maturity products (FMPs), with recent fundraising developments working their way into panel discussions. These included Credit Suisse recently announcing it had raked in over US$1 billion for an FMP, Julius Baer raising US$450 million for a recently launched fixed maturity bond mandate, and HSBC Private Banking taking in around US$700 million for a floating rate fixed maturity bond fund.

“Surprisingly, FMPs sell well in Asia, unlike in Europe and in the US,” said one panellist. “Banks around the region are selling it not because it is a way to lock in clients, but because we are receiving massive demand from them.”

“FMPs are not a perfect investment, but it has a place in client portfolios,” added another panellist.

13

INVESTMENTS INVESTMENTS

Deutsche Bank WM enters flat-fee advisory fray with dbXpert launch

D

eutsche Bank Wealth Management has joined a rarefied group of private banks with an up-and-running digital flatfee advisory offering in Asia, launching its dbXpert service in Hong Kong and Singapore on 15 May. Developed over a tight three-month period, dbXpert is the result of a globally coordinated project with a centralised budget. However, it is in Asia where clients will get the first taste of the advisory service.

Wei Mei Tan Deutsche Bank WM

“We are adopting a phased approach where all booking centres will be covered and we will take a step-by-step approach to upgrading the platform,” Wei Mei Tan, the private bank’s head of advisory and investment solutions emerging markets, told Asian Private Banker.

“So what you see today is stage one of what we are putting in front of our clients, not only in the emerging markets but globally.”

Tan, who joined Deutsche Bank from Credit Suisse last year, said that similar to some competitors, the bank is positioning dbXpert as an intermediary step towards discretionary management that will improve the ideas clients act upon. The service is also likely to increase fund penetration at a bank whose traditional strengths lie in FX and structured products.

To this end, the dbXpert service includes a ‘report card’ feature that shows clients how the bank’s ‘top picks’ have performed over a quarter.

“We decided to include this function to ensure our clients know that our ideas are working out and to help them become more comfortable with what we are advocating,” Tan said.

However, unlike those banks that have adopted a ‘model portfolio’ approach in their advisory mandate services, Deutsche Bank WM has opted for a bottom-up ‘building blocks’ approach — a key point of differentiation, in the opinion of Tan, who pointed out that clients typically build portfolios based on countries, sectors, and investment themes.

According to Deutsche Bank WM, clients using dbXpert will have access to their relationship manager and investment manager for dedicated portfolio support.

14

Investment ‘top picks’ span equities, bonds and funds, and the client’s asset allocation is customisable based on his or her preference.

“What dbXpert also shows is that Deutsche Bank WM wants to be ahead of the curve and that we want our clients to be equipped with the service model that suits them best.”

Indeed, Deutsche Bank WM joins a select few banks with digital advisory services in Asia, including UBS and Credit Suisse, whose respective offerings have seen strong client uptake in recent years.

Most banks remain in the exploratory stage and point to muted client demand as an immediate hurdle, even as regulatory pressures render flat-fee advisory a near-term necessity in the region.

Users of Deutsche’s dbXpert service will be charged a recommended 1.2% per annum, with no tiering by AUM, risk profile, and no additional charges on cash holdings.

The private bank decided against a hybrid pricing option, largely because the demand for hybrid or advisory-lite in the Asia market is not only limited, but RMs often struggle to explain how hybrid pricing works and clients have difficulty understanding what they are in fact paying for, Tan explained.

“With an advisory mandate, a client should never be conscious of transaction fees when there is a switch idea and so we view hybrid pricing as a restraining factor,” she added.

Tan said the bank has not employed banker-level KPIs but rather has emphasised RM education in the lead-up to the launch.

“Momentum will take time. We’ve been running sessions for a number of weeks, including team meetings and training. And it is important to have ambassadors who can share their success stories. But most importantly, it is crucial that we show RMs how this will help them and their clients.”

“With dbXpert, we allow clients to directly and independently manage their portfolios while still leveraging our best thinking and systematic portfolio health checks approach,” Yim said.

INVESTMENTS

Thematic investors gravitate towards “tangible” strategies: DWS

A

lthough thematic funds — especially those backed by a secular growth story — are gaining traction amongst private banks in the region, investors must not only prioritise “investing in the future” but also the “tangibility” of such strategies, according to asset manager DWS. During a discussion with Asian Private Banker, Pascal Imhof, managing director, head of sales private banks EMEA & APAC and head of global client group Switzerland, cited China’s Belt and Road Initiative (BRI) as an example, explaining that as a government-led project, it has “a strong connection” to the real economy.

nations. For non-participating nations, there could be some negative impact if the BRI results in trade being diverted away from these countries,” the Swiss bank noted.

Imhof said, however, that despite these positive sentiments, there are only a few BRI-focused strategies on the market, most of which are bond funds.

In response to the demand-supply gap, DWS’s investment team recently launched a purely BRI-focused equity fund, including listed companies that build infrastructure for the initiative.

“The Belt and Road Initiative so far has been mainly funded by governments, governmental organisations or public funds, such as the Asian Infrastructure Investment Bank and the Silk Road Fund,” Imhof said, adding that the firm first noticed private investors gravitating towards BRI-related strategies around a year ago, and that interest has been building as the initiative progresses and expands.

“The [investment] scope is unlimited,” Imhof said, adding that the strategy’s top holdings extend across industrial companies that build railways and highways, energy firms that provide turbines and improve the efficiency of energy transmission, as well as telecommunication businesses that work to integrate smart cities and smart supply chains or build out 5G networks.

“We see the tangibility and the impact on the real economy of a Belt and Road investment solution as the true attractiveness for the region’s private banking clients, opposed to other thematic funds, which sometimes are perceived only as a sales story,” he highlighted.

He added that amongst all investors, private banking clients have shown the keenest interest in BRI funds and that within private banks’ investment portfolios, the strategy can operate as a concentrated and high-conviction solution within emerging markets.

Indeed, HSBC Private Banking listed BRI as a key theme moving forward, according to a 2018 investment report.

“Institutional clients tend to be a bit more resistant to thematic funds. Categorisation remains a challenge for them, but they might be able to classify it as a real assets fund,” he said.

“The Belt and Road Initiative and a long list of foreign investments

by Chinese companies are being underpinned by a surge of middleclass consumerism across Asia,” the bank said. “We see the world order shifting to the East, reflecting the stronger structural growth in these emerging markets.”

UBS Global Wealth Management shares a similar view, having pointed out in an earlier note that China’s total outward-bound direct investments to BRI countries grew by 26% annually between 2013 and 2015, outpacing the 15% increase in non-BRI countries.

“If successfully implemented, we believe the BRI could usher in significant, long-term benefits for China and other participating

DWS is not alone in noting private investors’ healthy appetite for thematic funds.

In a recent interview with BNY Mellon Investment Management, Nicolas Kopitsis, head of Asia Pacific ex-Japan intermediary distribution, said demand for thematic funds was “second to none” and that the firm had seen a “clear trend” of fund flows shifting from the bond space to global thematic equities.

And in a recent survey conducted by Asian Private Banker, over a third of Asia’s discretionary managers deemed thematic investing as the strategy with the highest potential for development within DPM.

15

INVESTMENTS

Half of IIFL-ONE clients choose discretionary model

I

ndia’s IIFL Wealth Management has seen some 50% of its clients on its IIFL-ONE platform choose discretionary portfolio management since the platform’s launch in late 2018, according to Sandeep Jethwani, managing partner and head of advisory at group entity IIFL Investment Managers.

Sandeep Jethwani IIFL WM

“We are agnostic towards their choice between the advisory and discretionary models, but I’m seeing a rising preference for the latter,” Jethwani told Asian Private Banker, adding that, over the past few months, clients have committed to move some US$1.2 billion to US$1.3 billion in assets under management to the processbased IIFL-ONE platform.

Institutionalising a range of investment options for high net worth clients, the IIFL-ONE model seeks to obliterate the conflict of interest between the wealth manager and the client by offering a transparent ‘all-in’ fee structure, as opposed to the traditional commission-based transaction model.

“In India, most of the wealth management business is distributiondriven,” Jethwani said. “It is basically products being sold to clients, and essentially the wealth manager earns commission out of that. Most

16

of the product manufacturers did not have a zero-retrocession option available in which the advisor or broker did not earn commissions.”

According to Jethwani, this remains a “big challenge” in the country, given that the drawback of the distribution-driven model is that it can create conflicts of interest between a wealth manager and their clients.

“Our objective was to move as many clients as possible to a goal-based and process-oriented approach to the way we manage their money and really align the portfolio with what the clients’ expectations are, what the risk-return level is, what the tolerance to volatility is and so on,” he said.

For IIFL WM, the IIFL-ONE platform has opened an arena for its new technology initiatives in portfolio reporting and analytics but leaves it up to clients to decide on whether they wish to make the switch to the IIFL-ONE platform.

From the wealth manager’s perspective, Jethwani has seen a rise in the productivity of wealth advisors under the discretionary model, given that the portfolio analysis and construction is done by a “centralised team”.

“We are offering to clients two models,” Jethwani reiterated. “One is what you call a non-discretionary model where we set up an investment policy where essentially the client makes a go or no-go decision on every instrument. And the second was a distinct discretionary upgrade, which is where our team really decides on individual product ideas.”

ADS

17

EVENTS

5th DISCRETIONARY PORTFOLIO MANAGEMENT LEADERS CONVERSATION 2019 150 investment experts convened at Asian Private Banker’s 5th annual DPM Leaders Conversations in April for a morning of candid dialogue.

Thank you to all our panellists, attendees, and partners for your continued support of the region’s DPM community and for making these events such a remarkable success. For more photos of the event, visit apb.events/dpmlc2019.

18

INVESTMENTS

Asian DPM assets continue to grow following targeted KPIs

A

sia’s private banks recorded robust — if unremarkable — new asset inflows into discretionary mandates over the first quarter following a disastrous end to 2018 that saw a slump in asset value and widespread deleveraging in the region.

According to Asian Private Banker data, half of all private banks in the region saw a year-on-year increase in DPM assets during the year’s first quarter.

What has been the 1Q19 YoY change in DPM net inflows at your firm?

More than 20% increase

6% 14%

11-20% increase

30%

0-10% increase No change

20%

0-10% decrease

20% 7%

11-20% decrease More than 20% decrease

3%

This should come as welcome relief to Asia’s wealth managers, which not only suffered a slump in transactional business in 2018 but were forced to contend with negative market performance, deleveraging, and mandate closures which, in turn, hit net interest and recurring revenue streams.

In response, private banks have hit the ground running in terms of drumming up inflows into managed solutions generally.

More than 80% of private banks and wealth managers in the region told Asian Private Banker they have set KPI targets aimed at increasing DPM sales alone.

Does your firm have a KPI increasing DPM sales in Asia?

Yes - at individual level

15%

Yes - at team level

20%

Yes - at firm level No - we do not have any KPI in promoting DPM

46% 19%

These targets are at the team and individual level and are in line with a region-wide push on funds, advisory, and discretionary mandates.

But the cause took on new urgency in 2019 after a sharp drop in asset values, in particular, eroded revenues attributable to fixed fees.

Even so, clients across the board remain cautious and cash levels remain elevated. The general consensus is that investors have missed the equity rally, with recent shifts out of cash tending to favour fixed income.

This is especially evident in the slew of fixed maturity funds and mandates that have been launched since the beginning of the year. Raises have been healthy, although the positioning of such solutions — whether as yieldenhancers or cash management plays — is fuzzy.

By assets, what was the DPM penetration at your firm in 2018?

16%

20% or more

15-19%

10-14%

11% 20% 32%

6-9%

0-5%

21%

Still, leverage is down on average and, on the discretionary mandate side, positivity prevails. Most banks polled said they intend to increase DPM-specific headcounts in the coming year, and it is likely the average 9.6% penetration rate of assets in discretionary mandates will increase in the short term.

19

ADS

20

INDUSTRY

INDIA 2018 AUM & RM HEADCOUNT LEAGUE TABLES

AUM on the ascent at India’s Top 20

I

n a mercurial 2018 with challenging market conditions, asset gathering amongst India’s wealth managers continued relentlessly, albeit at a more tempered pace. Assets under management (AUM) at India’s Top 20 wealth managers rose 18.3% in 2018 to hit US$193 billion. By comparison, AUM at Asia’s private banks saw a 3.6% dip over the same period in the face of subdued client activity.

Surpassing the US$100 billion threshold, India’s Top 5 wealth managers now contribute to 56.5% of the Top 20’s AUM with US$109.1 billion.

While there has been a rejigging of places amongst them, four of the five remain domestic players. On the whole, domestic wealth managers are continuing to expand their reach, accounting for 77.5% of the Top 20’s AUM, up from 63.8% in 2015.

21

INDUSTRY

Top 20 AUM Total

+37.3%

Top 20 AUM Total

2018

+37.3%

billion 2018 $193.0 $193.0 billion 2017

$163.1 billion

2015

$74.6 billion

+18.3%

$163.12016 billion $108.6 billion

2017

2016

$108.6 billion

2015

$74.6 billion

+18.3% YoY change

2015-2018 CAGR

2015-2018 CAGR

YoY change

growth rate of 39.3% to rank in 13th place with US$3.9 billion, up six Kotak Wealth Management once again came out on top with a 13.6% places from the year prior. uptick in AUM to reach US$33.63 billion. Meanwhile, IIFL Wealth posted the highest AUM growth rate amongst the Top 5 at 20.8% to Havingmanagers dethroned Standard Chartered Private Bank in 2017, hit US$21.38 billion, due in part to a few acquisitions, coupled India’s Topwith 5 itswealth BNP Paribas Wealth Management retained its spot as India’s largest efforts in boosting its frontline numbers by over 40%. Across the Top hold foreign private bank with client assets notching up 11.2% to reach 20, Avendus Wealth Management achieved the most brow-raising AUM US$13.79 billion in 2018.

56.5%

($109.1 billion) of the Top 20’s AUM

India’s Top 5 wealth managers hold

56.5%

Top 20 AUM split ($109.1 billion) firms of the Top 20’sForeign AUM

Domestic firms

22

2018

77.5% ($149.66 billion) 22.5% ($43.37 billion)

2017

73.9% ($120.6 billion)

26.1% ($42.5 billion)

2016

71.7% ($77.9 billion)

28.3% ($30.7 billion)

2015

63.8% ($47.6 billion)

36.2% ($27.0 billion)

INDUSTRY

Top 20 AUM split Top 20 RM headcount total

Domestic firms

Foreign firms

2018

3,564

2018

77.5% ($149.66 billion) 22.5% ($43.37 billion)

2017

73.9% ($120.6 billion)

26.1% ($42.5 billion)

2016

71.7% ($77.9 billion)

28.3% ($30.7 billion)

2015

63.8% ($47.6 billion)

36.2% ($27.0 billion)

Top 20 RM headcount split

Meanwhile, Standard Chartered held on to its spot at seventh place despite a 9.3% dip in AUM to US$9.7 billion. Aman Rajoria, the British lender’s head of private bank, India told Asian Private Banker that the bank intended to onboard more of their corporate banking clients into the private bank as part of its ongoing client acquisition 2018 strategy (see page 33).

On the other end of the spectrum, Credit Suisse Private Banking has made its way back into the Top 20 by dint of a 2.6% uptick in AUM to reach US$2.77 billion, with the market representing a standout opportunity for the Swiss heavyweight. In February, Ben Cavalli, the private bank’s head of South Asia, revealed plans to embark on a rollout of a “completely revamped infrastructure” in Q3 or Q4 2019.

Domestic firms

Foreign firms

97.1% (3,459) 2.9% (105)

2017

94.9% (1,861)

5.1% (100)

2016

92.9% (1,572)

7.1% (120)

2015

85.6% (947)

14.4% (159)

AUM growth comparison Top 20 of:

YoY growth vs

2015-2018 CAGR

Asia

India

-3.6% +18.3% +10.2% +37.3%

on) 23

INDUSTRY

Top 20 private banks/wealth managers in India: AUM Rank Private bank/wealth manager

Type

2018 AUM (USD B)

YoY % change

2015-18 CAGR

AUM incl. loans?

Fund penetration rate*

Minimum asset threshold**

1

Kotak Wealth Management

Domestic

33.63

+13.6%

+51.9%

N/A

-

No defined minimum

2

ICICI Bank Private Banking

Domestic

25.61

-

-

N/A

-

No defined minimum

3

IIFL Wealth & Asset Management ¹

Domestic

21.38

+20.8%

+35.5%

No

50%

INR 15 cr

4

Edelweiss Wealth Management ¹

Domestic

14.70

+10.5%

+68.0%

No

-

USD 1m

5

BNP Paribas Wealth Management

Foreign

13.79

+11.2%

+36.7%

No

-

USD 3m

6

Axis Bank Wealth Management ²

Domestic

12.78

+0.6%

-

Yes

-

INR 5 cr

7

Standard Chartered Private Bank

Foreign

9.70

-9.3%

+14.9%

No

41%

Domestic

9.10

+16.7%

+14.3%

N/A

61%

No defined minimum

Foreign

9.00

-1.1%

+14.5%

No

-

No defined minimum

No

-

INR 1 cr (account balance)

8

HDFC Private Bank

9

Julius Baer

10

JM Financial Wealth Management ¹

Domestic

6.14

+22.9%

+20.2%

Domestic

6.04

+0.7%

+88.6%

No

88%

Foreign

4.91

+9.1%

+5.3%

N/A

-

USD 1m (account balance) ³

11

ASK Asset & Wealth Management ¹

12

Barclays Private Clients, India

USD 5m

13

Avendus Wealth Management ¹

Domestic

3.90

+39.3%

+57.4%

No

71%

USD 5m

14

Centrum Wealth Management

Domestic

3.60

+20.0%

+33.9%

No

70%

USD 1m

No defined minimum

USD 1m (account balance) USD 5m (investable assets)

15

Client Associates ¹

Domestic

3.40

+6.2%

-

No

-

16

Karvy Private Wealth

Domestic

3.36

+15.9%

+17.9%

No

58%

INR 25 lakh (account balance) INR 5 cr

17

L&T Capital Markets Limited

Domestic

3.27

+21.1%

+36.0%

No

61%

18

Deutsche Bank Wealth Management

Foreign

3.20

+3.2%

+2.2%

N/A

-

19

Credit Suisse Private Banking

Foreign

2.77

+2.6%

+11.5%

N/A

59%

No defined minimum

20

Anand Rathi Private Wealth Management

Domestic

2.75

+3.3%

+28.4%

No

85%

INR 5 cr

193.03

+18.3%8

+37.38

Top 20

See footnote ⁴

21

Waterfield Advisors ¹

Domestic

2.20

0.0%

-

No

95%

USD 1m (account balance)

22

Motilal Oswal Private Wealth Management ¹

Domestic

2.11

-12.1%

+44.5%

No

68%

INR 2.5 cr

23

Sanctum Wealth Management ¹, ⁵

Domestic

1.15

+27.8%

-

No

30%

24

Credence Family Office ⁶

Domestic

0.62

+106.7%

-

No

-

USD 1m

25

Alpha Capital ¹

Domestic

0.57

+21.3%

+44.2%

No

87%

USD 1m

26

Reliance Wealth Management

Domestic

0.54

-36.5%

+18.7%

No

95%

INR 5 cr

27

Ambit Private Wealth

Domestic

0.48

-28.5%

+17.0%

No

59%

INR 25 lakh for PMS

28

WGC Wealth ⁷

Domestic

0.29

-

-

No

88%

USD 1m

USD 750K (account balance)

All figures are APB estimates unless otherwise stated. Some figures may not correspond exactly with calculated totals/rates due to rounding.

Mid-market spot rates used as at 31 December for their respective years for non-USD reporting. INRUSD for 2018: 0.01437.

'N/A' and '-': data unavailable * Percentage of AUM that falls within the funds category ** For reference only; Minimum represents investable assets per client unless otherwise stated; minimum may vary depending on location or account type Note: Citi Private Bank excluded at the request of the bank ¹ Data provided by the bank/wealth manager ² Axis Bank Wealth Management: AUM listed on table represents clients with AUM of more than INR 5 cr; Total AUM of Axis Bank Wealth Management is USD 18.63B as at 31 December 2018; Due to ongoing internal restructuring, RM headcount is unavailable for 2018 ³ Standard Chartered Private Bank: Clients have a minimum account balance of USD 1m or generate a minimum of USD 10K in revenue per year ⁴ Deutsche Bank Wealth Management: Minimum varies according to location and account type; Private Banking Select for Tier A cities: INR 30 lakh, Tier B cities: INR 10 lakh; Private Banking Infinity: INR 1 cr (all account balance) ⁵ Sanctum Wealth Management: Operations commenced in April 2016; AUM has grown from INR 3,750 cr (USD 0.5B) as of April 2016 to INR 8,000 cr (USD 1.15B) as of December 2018 ⁶ Credence Family Office: AUM excludes assets in depository accounts and real estate investments; Average assets per client are around USD 3m ⁷ WGC Wealth: WGC Wealth launched in mid-August 2018 — figures are reflective of only 4.5 months of operations ⁸ Calculation based on total estimated AUM of the Top 20 as at 31 December of their respective years; Constituents of the Top 20 vary from year to year

24

INDUSTRY

Top 20 RM headcount total 2018

3,564

RM headcount Top 20 RM headcount split skyrockets for India’s 20firms Domestic firmsTopForeign

T

Top 20 RM headcount total 2018

97.1% (3,459) 2.9% (105) 2018

he legions of RMs at India’s Top 20 wealth managers hit a combined total of 3,564 in 2018, registering an impressive 47.7% CAGR since 2015.

2017 2016

On the part of foreign players, performance was variegated on the

front, with Julius Baer taking top spot with a 21.2% increase 94.9% hiring (1,861) 5.1%the(100)

3,564

in frontline hiring. With 40 RMs, the Swiss pure play overtook 2017’s

92.9% (1,572) 7.1% (120) top foreign hirer, Standard Chartered Private Bank, which saw a 10.8%

Growing in fervour from the year prior, domestic players accounted 2015 85.6% for the top 16 positions on the table, each deploying different tactics in talent attraction and retention. IIFL Wealth told Asian Private Banker earlier this year that it sought to “attract existing competition by showing them a better platform and growth path, and ownership within the firm”. Edelweiss’s Anshu Kapoor, meanwhile, pointed to in-house training as a pivotal aspect of its growth strategy.

drop in RM numbers.

(947)

14.4% (159)

Nonetheless, Standard Chartered retained its position at number three in RM efficiency with US$293.9 million AUM per RM, while BNP Paribas Wealth Management continued to lead the pack with US$919.3 million per RM.

AUM growth comparison Top 20 of:

Asia

India

Top 20 RM headcount split

Foreign firms -3.6% +18.3% vs 2018 97.1% (3,459) 2.9% (105) 2015-2018 CAGR +10.2% +37.3% 2017 94.9% (1,861) 5.1% (100)

YoY growthDomestic firms

2016

92.9% (1,572)

7.1% (120)

2015

85.6% (947)

14.4% (159)

25

INDUSTRY

Top 20 private banks/wealth managers in India: RM Headcount Rank Private bank/wealth manager

Type

2018 RM headcount

YoY % change

2015-18 CAGR

1

ICICI Bank Private Banking

Domestic

1,250

-

-

2

IIFL Wealth & Asset Management ¹

Domestic

300

+33.3%

+14.5%

3

HDFC Private Bank

Domestic

287

+14.8%

+96.2%

4

Karvy Private Wealth

Domestic

267

+14.1%

-

5

Anand Rathi Private Wealth Management

Domestic

231

+28.3%

+50.3%

6

Edelweiss Wealth Management ¹

Domestic

194

+12.8%

+12.3%

7

Motilal Oswal Private Wealth Management ¹

Domestic

143

+34.9%

+35.9%

8

Centrum Wealth Management

Domestic

132

+32.0%

+23.5%

9

Kotak Wealth Management

Domestic

124

+12.7%

+6.7%

10

L&T Capital Markets Limited

Domestic

118

+24.2%

+3.0%

11

Reliance Wealth Management

Domestic

90

+200.0%

-

12

WGC Wealth ¹, ²

Domestic

88

-

-

13

JM Financial Wealth Management ¹

Domestic

52

-10.3%

+0.0%

14

ASK Asset & Wealth Management ¹

Domestic

52

+48.6%

+37.5%

15

Avendus Wealth Management ¹

Domestic

46

+119.0%

+66.3%

16

Client Associates ¹

Domestic

45

+15.4%

-

17

Julius Baer

Foreign

40

+21.2%

+4.6%

17

Sanctum Wealth Management ¹, ³

Domestic

40

-11.1%

-

19

Standard Chartered Private Bank

Foreign

33

-10.80%

-4.6%

20

Barclays Private Clients, India

Foreign

32

+6.7%

-4.7%

3,564

+81.7%4

+47.7%4

Domestic

27

+12.5%

+24.5%

Top 20 21

Ambit Private Wealth

22

Deutsche Bank Wealth Management

Foreign

21

+16.7%

+5.3%

23

Credit Suisse Private Banking

Foreign

18

-5.3%

+14.5%

23

Credence Family Office

Domestic

18

+12.5%

-

25

BNP Paribas Wealth Management

Foreign

15

+7.1%

-7.6%

25

Alpha Capital ¹

Domestic

15

+7.1%

+14.5%

27

Waterfield Advisors ¹

Domestic

7

0.0%

-

All figures are APB estimates unless otherwise stated. Some figures may not correspond exactly with calculated totals/rates due to rounding.

'N/A' and '-': data unavailable Notes: Axis Bank Wealth Management excluded as RM headcount for 2018 is unavailable due to ongoing internal restructuring; Citi Private Bank excluded at the request of the bank ¹ Data provided by the bank/wealth manager ² WGC Wealth: WGC Wealth launched in mid-August 2018 — figures are reflective of only 4.5 months of operations ³ Sanctum Wealth Management: Sanctum commenced operations in April 2016 4 Calculation based on total estimated RM headcount of the Top 20 as at 31 December of their respective years; Constituents of the Top 20 vary from year to year

26

INDUSTRY

Top 20 private banks/wealth managers in India: AUM per RM Rank Private bank/wealth manager

Type

2018 AUM per RM (USD m)

2017 AUM per RM (USD m)

YoY % change

Foreign

919.3

885.7

+3.8%

Domestic

314.3

314.3

0.0%

Foreign

293.9

289.2

+1.6%

Domestic

271.2

269.1

+0.8%

1

BNP Paribas Wealth Management

2

Waterfield Advisors

3

Standard Chartered Private Bank

4

Kotak Wealth Management

5

Julius Baer

Foreign

225.0

275.8

-18.4%

6

Credit Suisse Private Banking

Foreign

153.9

142.1

+8.3%

7

Barclays Private Clients, India

Foreign

153.4

150.0

+2.3%

8

Deutsche Bank Wealth Management

Foreign

152.4

172.2

-11.5%

9

JM Financial Wealth Management

Domestic

118.1

86.2

+37.0%

10

ASK Asset & Wealth Management

Domestic

116.2

171.4

-32.2%

11

Avendus Wealth Management

Domestic

84.8

133.3

-36.4%

12

Edelweiss Wealth Management

Domestic

75.8

77.3

-2.0%

13

Client Associates

Domestic

75.6

82.1

-7.9%

14

IIFL Wealth & Asset Management

Domestic

71.3

78.7

-9.4%

15

Alpha Capital

Domestic

38.0

33.6

+13.2%

16

Credence Family Office

Domestic

34.4

18.8

+83.7%

17

HDFC Private Bank

Domestic

31.7

31.2

+1.6%

18

Sanctum Wealth Management

Domestic

28.8

20.0

+43.8%

19

L&T Capital Markets Limited

Domestic

27.7

28.4

-2.5%

20

Centrum Wealth Management

Domestic

27.3

30.0

-9.1%

21

ICICI Bank Private Banking

Domestic

20.5

-

-

22

Ambit Private Wealth

Domestic

17.8

28.0

-36.4%

23

Motilal Oswal Private Wealth Management

Domestic

14.8

22.6

-34.8%

24

Karvy Private Wealth

Domestic

12.6

12.4

+1.5%

25

Anand Rathi Private Wealth Management

Domestic

11.9

14.8

-19.5%

26

Reliance Wealth Management

Domestic

6.0

28.3

-78.8%

27

WGC Wealth¹

Domestic

3.3

-

-

All figures are APB estimates unless otherwise stated. Some figures may not correspond exactly with calculated totals/rates due to rounding.

'N/A' and '-': data unavailable ¹ WGC Wealth: WGC Wealth launched in mid-August 2018 — figures are reflective of only 4.5 months of operations

27

INVESTMENTS

Kotak WM: Direct participation opportunities over blind pool funds

K

otak Wealth Management’s head of products, Srikanth Subramanian, has told Asian Private Banker that clients have responded “extremely positively” to investments delivered by the firm following its shift in focus towards providing direct participation opportunities in unlisted domestic companies, including startups and unicorns.

Srikanth Subramanian Kotak Wealth Management

“This was a call we made — and the jury is still out — but we think we are seeing strong early signs that it was the right move to stay away from blind pool funds and, by leveraging on our large in-house investment bank, to give investors the chance to participate directly in some of these transactions,” explained Subramanian, who singled out the private market as a bright spot in India for the past couple of years.

He specified that over a seven-month span, Kotak Wealth Management had delivered ten investment opportunities to its clients with each trading anywhere between a 2x and 5x multiple.

“Instead of getting clients stuck in a six, seven, even eight-year blind pool structure, we have opted to bring them opportunities in proprietary transactions — and what we have found is this kind of model is gaining traction,” he continued.

“It’s low-fee, high on fiduciary, high on due diligence, and investors like the fact that a large institution is finally providing them differentiated ideas that have high conviction both from a wealth management and investment banking perspective.”

Broad-based growth in demand for private equity in India comes at a time when the country is producing unicorns at an unprecedented rate.

In 2018, India added eight new unicorns, having produced nine in the preceding six years, according to a recent BDO India report. The country currently ranks fourth globally behind the US, China, and the UK, based on data from CB Insights.

Meanwhile, the steady increase in exits in recent years is further buoying domestic investors’ sentiment towards the asset class.

India saw 265 exits in 2018 at a combined value of US$33 billion.

That total is anchored by Flipkart’s sale to Walmart for US$16 billion, although as a recent report by Bain & Company pointed out, even excluding that mammoth deal, 2018 will go down as one of the strongest years for exits in India in the last decade.

“It is certainly the case that when Indian investors see the proof in the pudding, see that exits are happening, and see that some of these companies are actually delivering returns that are commensurate to the risk investors would be taking on, this trend will continue,” said Subramanian, pointing to emerging opportunities in late-stage startup tech — a class he believes is “very potent” for wealthy Indian investors.

However, his enthusiasm does not yet extend to structured debt — even as a number of competitors continue to see success in the space in terms of raises.

By comparison, the fund route remains “unproven” in an Indian context, largely because returns have been underwhelming and the country’s tax and liquidity regimes load the asset class against investors, Subramanian added.

“Rules and regulations governing private investors to participate in some of these sophisticated distressed debt opportunities in India remain complicated, so while we are looking to further explore the structured debt space, our focus has been on the equity side for two reasons: debt is more tax-unfriendly and debt takes more time,” Subramanian explained.

“So even if a PE or pre-IPO fund generates a return of 25-26%, after taxes and fees the net return comes to around 14-15%, which is very similar to public market returns without having to lock in money,” he explained.

“That said, we believe that when people start to understand that some of these are high-risk, high-return transactions, the next level of differentiation we expect is on the structured debt side. But we believe right now, it is a nascent space.”

28

INVESTMENTS

In India, alt funds are gathering steam at an unprecedented rate

A

dramatic rise in demand from Indian high net worth individuals (HNIs) for alternative investment funds (AIFs) is part of a structural shift in how domestic investors approach diversification, according to Sandeep Das, Barclays’ head of private clients in India, who told Asian Private Banker a rapidly expanding product universe will further drum up tailwinds for the product class.

Sandeep Das Barclays Private Clients, India

More recently, bouts of volatility, due in part to a mammoth general election, earnings results, and global market movements would have increased investor interest in uncorrelated assets. NSE’s India VIX index, which tracks market expectations of nearterm volatility, spiked to 28.08 in late-May — its highest level since May 2014, and alpha was difficult to come by in the lead-up to the election.

However, Das said the rise in demand for alternatives speaks to a broader shift in how Indian investors — whose exposure is domestically skewed and limited to mainstream assets — approach diversification, both in terms of classes and geographies.

“From a demand perspective, we are seeing traditional asset classes give way somewhat to alternatives in the sense that long-short funds and structured debt funds are gathering a lot of AUM, although this isn’t an overnight phenomenon,” he said.

Ever since Indian regulators unveiled AIF regulations in May 2012, inflows have not only been robust, they have outpaced flows into mutual funds. In fact, AIF commitments raised have grown 7x in the past two years, according to Das. “To put that in perspective, AIF commitments raised were 3% of mutual funds AUM just three years ago, but now, the total commitments raised

by AIFs has crossed 10% of mutual fund AUM in India,” he said.

Indeed, recent data from Bain and Company shows that the number of AIFs registered in India jumped from 268 in 2016 to 518 as at February 2019, while funds raised by AIFs in 2018 are estimated to have reached US$7 billion — well up from approximately US$2.4 billion in 2016.

Of those alternative funds that have received the most attention, Das said real estate, private equity, and structured debt account for around 70% of commitments, with the balance including infrastructure, preIPO and special situation plays. He also sees emerging opportunities in venture debt and non-real estate structured debt.

“So while alternative investments represent a far newer category of investments and are accessed by a much smaller category of sophisticated investors, this structural shift has nevertheless occurred,” Das continued.

“And don’t forget, beyond their potential to deliver uncorrelated returns in alternative strategies, AIFs also have the benefit of being a more differentiated structure than mutual funds in the long-only space because more concentrated holdings are allowed, there is no restriction on new funds in similar strategy classes, no daily NAV pressures, no compulsion on disclosing underlying portfolio holdings, and reduced paperwork (compared to PMS) and target drawdowns.”

Meanwhile, in the public market AIF space, a few managers have taken the lead with long-short strategies and there has been an increase in new managers engaging in such strategies as long-short, long-biased, and systematic trading.

However, at this juncture, Indian investors are not exactly spoiled for choice when it comes to quality AIFs. For example, Barclays currently tracks around 15 onshore AIF managers in the hedge funds space and is unlikely to expand its recommendation base until the universe widens and deepens further, Das concluded.

29

INVESTMENTS

Edelweiss’s alts offering strikes a chord with clients

I

t hasn’t been an easy time for Indian investors and those who manage their assets. Notwithstanding the headline growth figures that continue to paint a picture of a wealth industry well and truly in full stride, a mammoth general election, global uncertainty and troubles in the country’s debt market have made for a challenging period during which investors exercised caution by taking to the sidelines.

Investor sentiment has since turned positive after the Bharatiya Janata Party’s landslide election victory earlier this year, but in broad terms, those firms that have had success at diverting client assets away from traditional classes and into alternative strategies have fared better, according to Ashish Kehair, deputy CEO for Global Wealth and Asset Management at Edelweiss — one of India’s largest and fastest-growing domestic wealth managers and a firm that has become synonymous with the rapid growth in alternatives investing, particularly in the private debt space.

“We’ve worked to build a strong alternatives offering, so when clients are sitting on the sidelines, we are able to offer them something that is non-correlated,” Kehair told Asian Private Banker, pointing to the strong traction of its flagship infrastructure and private debt strategies with clients.

Ashish Kehair Edelweiss

In January this year, Edelweiss Alternative Asset Advisors, a unit of Edelweiss Financial Services, raised a hefty Rs 9,200 crore — including from private clients — for its Edelweiss India Special Asset Fund-II, whose mandate centres around “making value investment in stressed assets with an aim to turn around viable non-performing assets”, the firm explained.

At the time, Edelweiss said the raise was the largest ever from India and potentially the largest ever in Asia under a private debt strategy over the past year.

“We view private debt as a large differentiator — and allocations are increasing,” said Kehair, who reckons that at an aggregate level, Edelweiss’s private clients currently allocate 6-8% to alternative assets overall compared with an industry average of around 5%.

“And these are strategies that have been created for global investors, where the quality of the product, fund management, and governance is world-class,” he continued.

30

“That’s because you have investors who typically are LPs with leading fund managers. Therefore we feel fortunate to be able to offer this quality of product to our domestic HNI clients, because other alternative products in the domestic market, particularly in private debt, have not provided a good experience to investors from a returns perspective.”

Nor has the experience been overly positive when it comes to public debt amid a wave of defaults headed by IL&FS Group which sucked liquidity out of the market and stoked concern about the health of India’s NBFC sector.

“This has been a learning [curve for] the industry, in that you cannot have an investment strategy where the underlying positions are not liquid whereas customers can redeem any time. It’s not a very healthy ALM position to be in especially in open-ended MFs,” said Kehair.

“So the right platform for such strategies is the alternative investment funds platform, in which case you have patient longer-term capital and investors that are aware of the fact that the money will remain invested for seven or eight years.”

Meanwhile, Edelweiss is closely monitoring demand for real estate investment funds (REITs) following the IPO of the Blackstone-cosponsored Embassy Office Parks REIT that raised some Rs 4,750 crore, including from foreign private investors in Hong Kong and Singapore.

The REIT debuted on 1 April 2019, almost five years after the Securities and Exchange Board of India (SEBI) first unveiled regulations for the structure — regulations that have since been revised on multiple occasions. Now, the sense is that floodgates are starting to open.

“You will see a lot of these [REITs] hitting the market because the first one has seen success and it gives clients access to a piece of commercial property without the hassles of physical ownership,” said Kehair, who acknowledged that Edelweiss, too, is keen to get in on the act — especially after its subsidiary, Edelweiss Alternative Asset Advisors, acquired two funds and a team from Mumbai-based Milestone Capital Advisors late last year. Both funds invest in commercial real estate in India.

“Like infrastructure, a commercial real estate fund is something we may look at in the future. We have the team, we have the platform, and we have the know-how. Now we are working on the product,” said Kehair.

DM UE SN TR I N V EI N ST TY S

StanChart PB India looks to its corporate bank in client acquisition push

A

s the race to bank India’s burgeoning wealth intensifies amongst domestic and foreign players alike, Standard Chartered Private Bank is looking to acquire clients from the existing pool of HNWIs already banking with the British lender’s corporate and investment banking division, according to Aman Rajoria, managing director and head of private bank, India at Standard Chartered.

needs, they get referred to one of our global private banking hubs. The idea is to leverage the capabilities of our global footprint.”

“Apart from acquiring new clients, our client acquisition strategy involves working very closely with our corporate bank, which India’s promoters bank with most often,” Rajoria told Asian Private Banker. “We’re looking at onboarding more of these corporate banking clients into the private bank.”

“We offer an online mutual funds platform on which clients can get advice from the relationship manager and the investment specialist,” he added, explaining that for execution, clients can log on to the online banking platform and buy and sell mutual funds registered in India.

Aman Rajoria Standard Chartered Private Bank

Seeing a trend amongst India’s entrepreneurs towards the monetisation of their businesses, the bank is looking to attract and retain clients through a ‘one bank’ proposition of managing their businesses via corporate banking and their personal wealth through private banking.

“For (ultra) high net worth entrepreneurs in India, their strongest connectivity to a bank often stems from their business needs,” Rajoria said, adding that the bank seeks to cater to a wide range of its HNW clients’ funding requirements both domestically and across its other global hubs outside of India — the UK, Jersey, Singapore, Hong Kong, and the UAE. “To achieve this, we need to ensure that bankers on both sides are collaborating and referring clients to one another, and we closely monitor this,” he revealed. “If a client has offshore private banking

To set itself apart from the competition, Standard Chartered sees its global banking platform — which is supported by its equities booking firm and NBFC — as its “key differentiator”, according to Rajoria.

“We also work with many portfolio management service providers and offer discretionary portfolio management services as well as nondiscretionary portfolio management services.”

In the relentless quest for growth in a market that has seen furious talent wars amongst rivals, Rajoria was quick to point out that he was loath to boost AUM growth through aggressive hiring.

“Industry consolidation is likely to continue in private banking, which is likely to lead to further movement amongst talent,” he said. “We are looking at hiring as and when we see a need, but our primary operating model is to make our corporate bank and global platform work for us, rather than beefing up AUM via hiring.”

To drive AUM and revenue growth, Rajoria asserted that his focus is on “acquiring the right set of clients”, adding that the lender banks almost 35% of India’s top hundred on Forbes’ rich list.

“Leveraging our existing network and acquiring new clients is going to be the biggest driver of growth for us,” he concluded.

31

INVESTMENTS

Deutsche Bank WM “will not chase AUM growth” amid rising demand for quality advice in India

G

iven a growing base of discerning onshore clients looking for quality advice with a long-term horizon in India, Deutsche Bank Wealth Management is looking to cater to clients’ evolving needs by honing relationship manager efficiency while expanding its offerings, according to Atinkumar Saha, head wealth management coverage, India at Deutsche Bank.

“We currently rank amongst the most productive on the metric of AUM per RM,” Saha told Asian Private Banker, adding that the German lender is a “niche player” in India and does not have large numbers of RMs like some of the local players.

Atinkumar Saha Deutsche Bank WM

“With planned investments, the intent is to continue to maintain our high ranking on this metric. We will not chase AUM growth without top-line growth.”

According to Saha, new entrants and regulatory changes over the past few years have exerted pricing and margin pressure on the market, resulting in lower fees and commissions as India’s changing market landscape shifts away from distribution-earned revenues towards investment advisory models.

“We, however, do expect this to correct a bit with time as the market consolidates and with clients veering towards quality advice after having seen the impact of mis-selling in their portfolios,” Saha said.

Having already won “a few substantial mandates”, the German lender is seeing increased interest in investment advisory mandates from

32

larger clients, for whom it has developed a targeted offering as it remains “product agnostic and not a product pusher”.

“We have a very robust investment solutions platform and an extremely sticky portfolio of clients,” Saha said, emphasising product suitability, for which “well-entrenched” checks and balances ensure clients’ interests are at the forefront.

Articulating intentions to add more AIFs and similar asset class products, Saha nonetheless pointed out that clients still predominantly invest through mutual funds.

“We are cautious around this space as many offerings do not make a compelling case and do not offer corresponding rewards to investors for getting into locked structures — particularly AIFs focused on listed equity with a lock-in structure,” he explained. “We are working with our partners on building our AIF offering with due focus on client needs with matched rewards.”

In the credit solutions space, Deutsche Bank WM is also looking to add relevant products to reinforce its position vis-à-vis its peers.

“With our clear commitment to grow the India franchise, we have decided to double our RM headcount over the next four years,” Saha said, on the back of the lender’s plans to further leverage its position as an early entrant in the India market and its global ‘one bank’ strengths both onshore and offshore to grow the business.

According to Asian Private Banker’s India 2018 AUM & RM Headcount League Tables, Deutsche Bank Wealth Management had US$3.2 billion in AUM and 21 RMs, each managing an average of US$152.4 million in AUM as at end-2018.

INDUSTRY

LGT makes India onshore move via M&A

L

GT acquired a substantial majority stake in Validus Wealth — an Indian wealth management firm hitherto known as WGC Wealth — on 27 June, clearly signalling its intentions for an India onshore play amid a wider Asia expansion.

Validus Wealth will continue to be led by Atul Singh, its founder and CEO. The domestic player is present in nine cities within India and employs some 150 staff.

“Our accelerated growth is a clear reflection of the opportunities in India for home-grown wealth management firms such as ours to leverage,” Singh said, identifying potential synergies in the tie-up’s combination of global expertise and local knowledge.

“Validus Wealth represents an excellent opportunity for us to gain a foothold in the highly promising Indian market and work together over the coming years to expand the business, which is still very much in its infancy,” said H.S.H. Prince Max von und zu Liechtenstein, CEO of LGT. He added that following LGT’s commencement of operations in Thailand in February, the transaction would complement the firm’s existing Asian activities well and that it represents an important step in its long-term international growth strategy.

Atul Singh Validus Wealth

“LGT’s comprehensive capabilities will further propel our ambitious agenda and contribute to our efforts in enhancing robust offerings.”

Subject to regulatory approvals, the majority stake transaction is expected to conclude within the next two-to-three months. The remaining shares will continue to be held by Validus Wealth’s current management team, which opted for an employee buyout recently.

In an exclusive interview with Asian Private Banker in January, Singh articulated aspirations to get into the top five wealth managers in India in five years, with a target to hit Rs 4,000 crores of assets under management by December 2019 on the strength of its headcount at the time.

Through the transaction, Validus Wealth plans to develop a full service next-generation private client platform that serves HNW and UHNW families in India. The platform will initially offer investment advisory, portfolio management, research, and wealth planning services, and will eventually include financing.

According to Asian Private Banker’s India 2018 AUM League Table, assets under management (AUM) at India’s Top 20 wealth managers rose 18.3% in 2018 to hit US$193 billion. On the whole, domestic wealth managers are continuing to expand their reach, accounting for 77.5% of the Top 20’s AUM, up from 63.8% in 2015.

33

R E G U L AT I O N S

India’s HNWIs gradually separate family, business wealth amid regulatory reform: Cyril Amarchand Mangaldas

W

ith much of the country’s private wealth being created in lockstep with the growth of family-owned businesses, India is seeing its high net worth families become increasingly conscious of family businesses governance, according to Rishabh Shroff, partner at Cyril Amarchand Mangaldas.

“The focus amongst well-run listed family businesses is to unlock the governance premium,” Shroff told Asian Private Banker.

Attributing this trend to the uptake of various Kotak Committee reforms by the Securities and Exchange Board of India (SEBI) in April, Shroff pointed out that the reforms have “forced” listed companies to think about succession at the board level.

for India’s promoters, with most of them having given extensive personal guarantees to their businesses. As such, their personal wealth is deeply intertwined with the family business.

“In light of the new Insolvency Code, and aggressive actions finally being taken by lenders, the fear of losing their personal wealth is causing many families to explore trust and other structures,” Shroff said. “The industry will slowly see the separation of personal and business wealth.”

With respect to the amended significant beneficial ownership rules vis-à-vis trusts in the country, Shroff acknowledged that the rules have complicated a nascent industry with “structuring complications”.

As both family and business succession become top of mind amongst India’s wealthiest, Shroff has seen families look increasingly at new investment avenues, often led by the next generation.

“But notwithstanding these changes, we do not foresee any reduced demand from promoters to use discretionary trusts to safeguard wealth,” he said.

“Family offices have become the vehicle for them to explore new horizons,” he explained. “Many new ideas and businesses are being incubated within, outside the complexities of the main family business.

Many are exploring angel or VC funding as asset diversification strategies.”

As industry players jostle to cater to the evolving needs of India’s HNW families, Shroff has seen domestic wealth managers and multi-family offices getting traction, compared to international wealth managers which generally only play a larger role when NRIs are involved.

Identifying the establishment of bespoke family offices as a major trend that will shape the wealth management industry, Shroff explained that the family office setup offers “maximum flexibility” in allowing private families to pursue their own objectives outside commercial structures.

The growing willingness towards the structuring of family wealth, according to Shroff, stems from asset protection being a major concern

34

“[The former’s] deeper understanding and comfort with Indian promoters and the underlying business helps them take more practical calls on doing business here,” he pointed out. “India’s largest wealth management players will always be Indian.”

According to Asian Private Banker’s India 2018 AUM League Table, assets under management (AUM) at India’s Top 20 wealth managers rose 18.3% in 2018 to hit US$193 billion.

R E G U L AT I O N S

ADS

35

EVENTS

EVENTS

5th CHIEF OPERATING OFFICERS LEADERS CONVERSATION 2019 40 private banking heads of operations, technology, and digital gathered at Asian Private Banker’s 5th annual Chief Operating Officers Leaders Conversation in Singapore in May. Thank you to all the conversation catalysts, partners, and delegates for contributing to the day’s discussions around the evolving role of the COO, the best solutions for tackling regulatory complexity, and the tech-driven future of private banking. For more photos of the event, please visit apb.events/coolc2019.

36

PAGE 37 What is the YoY change of your firm’s Asia technology budget?

More than 20%

31% What is the YoYincrease change of your firm’s Asia technology T E C Hbudget?

NOLOGY 11-20% increase 25% More than 20% 31% increase 0-10% increase 19% 11-20% increase 25% No change 19% 0-10% increase 19% 0-10% decrease 0% No change 19% 11-20% decrease 0% 0-10% decrease 0% More than 20% 6% decrease 11-20% decrease 0%

75% of Asia PBs increase tech spending YoY, prioritise “still painful” KYC More than 20% decrease

T

hree-quarters of private banks in Asia have increased their technology budgets year-on-year, with a particular focus on improving “still painful” client onboarding and streamlining RM-client communications, according to a survey conducted at Asian Private Banker’s 5th annual COO Leaders Conversation, held in Singapore.

Almost one-third (31%) of respondents indicated that their technology budgets have increased by more than 20% compared to last year, followed by 44% who noted an increase of up to 20%. Meanwhile, only PAGE 37institutions planned to spend less on 6% of those surveyed said their technology YoY. What is the YoY change of your firm’s Asia technology budget?

More than 20% increase

31% 25%

11-20% increase 0-10% increase

19%

No change

19%

0-10% decrease

0%

11-20% decrease

0%

More than 20% decrease

KYC / Client onboarding process Communication with clients Regulatory reporting

44% 6%

KYC / Client Portfolio management onboarding process services Regulatory reporting Product distribution platform Portfolio management services Others Product distribution platform Others

19% 44%

12% 6% 6%

13% 12%

PAGE 13%19

6%

in-app messaging tools. Examples of such partnerships include DBS launching its instant messaging service on WhatsApp and WeChat in What has been the 1Q19 YoY change September 2018, and Credit in Suisse a communication channel DPM opening net inflows at your firm? on Apple Business Chat in October 2018.

As a percentage, how are digital capabilities developed at your firm?

More than 20% increase Incubation/accelerator programmes 11-20% increase

6%

Fully developed in-house

20%

17%

0-10% decrease Third-party solutions are sourced 11-20% decrease 17% Development sourced More than 20% to external vendors decrease

6%

21%

44%

Fellow speakers agreed Regulatory reportingthat 6%they intend to assuage such regulationinduced pain points using technology in the next three-to-five years.

Portfolio management 12% services

Product distribution platform

13% “We are pushing for innovation in our business and compliance,” highlighted one COO.Others 6%

These sentiments were in keeping with the attendee survey, in which respondents said the top priorities for private banks’ digital agendas in Asia are KYC and client onboarding processes (44%), followed by client communication channels (19%).

As a percentage, how are digital capabilities developed at your firm?

“Chat isIncubation/accelerator one of our top three priorities for the next 12 months,” stated programmes one speaker.

11% Fully developed

sourced in-house On thearecommunications front, a number of panellists suggested that 17% 51% partnering with third-party messaging apps is preferable to developing

Development sourced to external vendors

Communication 19% development at your firm?

Which areas with are clients prioritised for digital

0-10% increase Incubation/accelerator Third-party solutions programmes are sourced 11% No change

Which areas are prioritised for digital development at your firm?

Another added that his bank had “spent a significant amount of time” scrutinising onboarding processes which he said are “still so painful” Communication 19% with clients owing to the amount of client information banks are required to request.

Third-party solutions

Which areas are prioritised for digital development at your firm?

14% As a11% percentage, how are digital capabilities developed at your firm?

“We have put a lot of focus on front channels and client channels in the past few years,” said one panellist.

KYC / Client onboarding process

6%

30%

51%

20% Fully developed in-house

7%

51%

3%

Development sourced to external vendors

21%

Does your firm have a KPI increasing DPM sales in Asia?

One panellist noted, however, that banks are forced to assume more Yes - at responsibility for individual regulatory than third-party vendors. level violations 15% - at 20% “Vendors never have team toYes stand when there is misconduct,” level up to regulators the speaker said. “If regulators detect any misconduct, the banks are Yes - at always the ones that get in trouble.”

46% firm level No - we do not

Some panellists pointed out have any KPI in that such issues 19%of misconduct are, in fact, promoting DPM often caused by a lack of communication between vendors and their respective authorities, adding that although the Monetary Authority of Singapore (MAS) and the Securities and Futures Commission (SFC) have set up regulatory sandboxes, controlled environments often lack the complexities present in real-life transactions.

By assets, what was the DPM penetration at your firm in 2018?

“Often when regtech solution providers say they have spoken to regulators, they only 20% speak or more to the fintech side 16% of MAS or the fintech side of HKMA,” said one speaker. “But when the supervisory side asks 15-19% 11% them to explain why they flag certain transactions as fraudulent, only a handful of regtechs around the globe can explain why.”

10-14%

20%

32%

6-9%

21% 0-5%

21%

37

INDUSTRY

In-app advisor ratings drive client engagement: Edelweiss’s Kapoor

E

delweiss Private Wealth Management has deployed a mobile app to tackle both client engagement and staff performance, according to Anshu Kapoor, Edelweiss’s head of private wealth management.

To help raise the efficiency and efficacy of client-advisor interactions, the app gives financial advisors access to individual client profiles, which contain information on portfolio holdings and performance by product class, as well as links to media coverage of high-profile clients.

“With the mobile app we have built for clients and for our team, we can access information on the business, at any place and time,” Kapoor told Asian Private Banker, adding that this year Edelweiss will be the first wealth manager in India to be “completely on cloud”.

The platform also puts a resource library — including product information and investment strategies — at the fingertips of financial advisors so they can improve the standard of their client interactions.

According to Kapoor, the app enables the wealth manager to elicit higher client engagement by dint of several standout features, including a function that allows clients to rate their business on a scale of one to ten, with the option of inputting qualitative feedback on areas for improvement.

With a view towards gauging and addressing customer satisfaction in a systematic and scalable manner, client accounts are flagged for management attention when financial advisors receive a rating of seven or below and issues remain open or unresolved after five days.

“With one click, we can list clients who have portfolio reviews coming up or clients who haven’t been met in a month or quarter,” Kapoor elaborated.

Further, call recordings between clients and financial advisors are accessible via the app, enabling the instantaneous review and assessment of client-advisor interaction.

“A lot of digital tools — from real-time portfolio analytics and dashboards to real-time monitors of client satisfaction — have gone live on our systems, so tech has been a big journey for us,” Kapoor said.

38

On the performance management front, the app tracks client interaction and engagement as well as assets under advice per advisor and client.

“Each financial advisor has their individual dashboard,” said Kapoor.

“This dashboard provides them with insights on their practice — clients, assets under advice, portfolio analytics, upcoming product action, events, and team performance.”

With a 40-strong in-house tech team, Edelweiss is looking to continue forging ahead of the competition via proprietary digital developments.

“We’re working on enhancing our core platform, our financial advisor workstation, and client tools, which largely encompass data analytics and reporting,” Kapoor revealed.

“This allows us to use client data to make sense of what clients are saying and doing with us, enabling us to make the right decisions for our clients. Every day, clients trade between US$750 million to US$1 billion on markets with us, so that gives us a huge volume of client data.”

TECHNOLOGY

Tech Talk: Eddy Tai, global head of operations and technology, Bank of Singapore Founded just one decade ago, Bank of Singapore is less weighed down by legacy systems than its peers, allowing it to be relatively nimble and flexible as it establishes and develops its technological capabilities. Asian Private Banker sits down with Eddy Tai, global head of operations and technology at Bank of Singapore, to discuss the firm’s Group Wealth Platform, other tech projects in the pipeline, as well as the importance of agility and creating a supportive environment for tech talent.

Eddy, Bank of Singapore is relatively young and thus ‘free’ from cumbersome legacy systems that tend to weigh down older financial institutions.

How has this contributed to the bank’s digital journey thus far?

Bank of Singapore inherited the core platform from ING Asia Private Bank when OCBC Bank acquired it in 2010. We took a different approach to enhancing the core system. In 2015, we started the development of our digital channels in tandem with upgrades to our core banking system to prevent any delays in pushing forward with our digital journey.

We benefitted from this approach as it gave us a head start in our digital transformation, to build up our in-house development capability and implement an agile way of working faster. When the core banking system became more mature as an integrated product in 2017, we then embarked on a major programme to rebuild our digital core based on the latest standards. This time around, the rebuild was not only for the private banking business of Bank of Singapore but also for the growing wealth management business across the OCBC Group. Looking back, this approach allowed us a faster time to market for clients as well as a cost-efficient rebuild of our digital core.

From our understanding, OCBC Group is in the midst of a project that will streamline the bank’s wealth management platform.

Yes, we are currently working on a major programme called the Group Wealth Platform, which began with Bank of Singapore. It will later be extended to support OCBC’s growth for its premier client business.

We are working towards having the Group Wealth Platform ready for Bank of Singapore by the end of this year.

We are currently working on a major programme called the Group Wealth Platform, which began with Bank of Singapore.

What benefits does the bank hope to gain from the new system?

We are not replacing our core banking system, but are instead doing a major upgrade — or, more accurately, a ‘rebuild’ from the ground up — for a robust, multi-company digital core. When we do open up in other geographies, we can simply set up and have it up and running within three-to-six months. All core functionalities such as booking and settlements will still be done in Singapore.

For locations that have a unique local reporting requirement, such as Luxembourg, we leverage local partners who are experts at compliance and integrate their reporting solutions with our core system.

39

TECHNOLOGY

Last November, Thomas Cherian, head of digital channels, global operations and technology, said Bank of Singapore is pumping S$200 million into tech. Where specifically is this injection going?

Our main project is to establish the Group Wealth Platform, which involves seven projects — including major improvements to our digital channels, new RM front-end tools, online trading, improvements in product execution and STP, and the rebuild of our digital core. We also have another tranche of BoS-specific projects which predominantly cover risk and regulatory-related projects, such as MAS 610.

Another interesting area we’re looking at is regtech. We deal with a lot of transactions, and AI and technology help us screen large amounts of data and identify if there are any potential fraud incidents or patterns that are out of the ordinary.

We also kicked off a strategic initiative which we call ‘Bank 4.0’. We envision a future where our system will be extended to our partners to enable a new platform business model to integrate into a wider ecosystem. Our architecture will be able to extensively adopt APIs, open APIs, and migrate to a micro-service architecture for scalability and agility. We have also established a multi-cloud strategy to deploy all our new applications to the cloud. Existing applications will also be migrated progressively in phases. We can also offer software as a service (SaaS) to our key partners.

Last but definitely not least, we are looking at setting up projects to continuously strengthen our cyber defence capabilities.

and wealth management where we can make a difference. We leverage on the OCBC Group for enterprise-wide applications and benefit from the scale of the Group in running our underlying technology infrastructure. When it comes to new technologies, we actively engage fintech companies to give us a head start in specific areas.

How is the digital team arranged and supported in order to promote agility?

We started our agile journey two years ago with the setting up of six scrum teams when we began developing our digital channel applications. Each team has between eight-to-ten staff and follows the two-pizza approach, which relies on smaller teams of competent staff working closely together and efficiently.

We also identified and established the important roles of product owners in developing a vision for the product, roadmap, and backlog requirements. They work closely with clients to get their feedback and input which is translated into direct input for our development teams. Through this agile transformation, we are now able to manage a new product release every two weeks, compared to every three-to-six months previously. We are extending our success in the agile method of working to other areas such as our new advisory process.

One key enabler in our agile method of working has been the implementation of our DevOps setup. It is not just about implementing tools to automate our development process for continuous integration and continuous delivery but changes how development and IT operations collaborate with one another. We now have DevOps setups in place in both our front and back offices, from channel applications to our core banking system. The capability to do daily builds, deploy and test automation is critical to our agile way of working.

We also kicked off a strategic initiative which we call ‘Bank 4.0’.

We envision a future where our system will be extended to our partners to enable a new platform business model to integrate into a wider ecosystem.

Much of the bank’s digital success relies on those behind the tech. How do you go about recruiting the right people for the job?

How is Bank of Singapore’s tech department able to maintain efficiency and work productively across a number of projects?

We strive to create an environment for talent to do their best — we do not want to have a bureaucratic environment where they cannot utilise their talents optimally. We also want talent that is interested in doing meaningful and exciting work for the bank. We don’t want to bring in people who think that their job will just involve getting external vendors to do things.

Being agile and nimble is important to us. We run a lean organisation and are very focused. The IT organisation in BoS focuses on change and transformation, and only for domains specific to private banking

40

One of the things we have learned as we grow bigger is we cannot just count on hiring very experienced professionals in the market. We can develop our internal staff, and we also bring in fresh graduates to train and develop them early. This is why we started our Technology Associate programme this year.

Many talented tech people want to make an impact and given that Bank of Singapore is a young, fast-growing company, there are many challenges that come with the business. This is how I approach attracting talent: through pitching to them opportunities to contribute, learn, and make a difference.

INDUSTRY

HSBC PB ups ante in UHNW market with platform revamp, new teams

H

SBC Private Banking is throwing down the gauntlet to rivals competing for Asia’s coveted UHNW segment by revamping its platform and processes to increase scalability and expedite bespoke execution.

Last October, HSBC created an UHNW solutions team which functions similarly to a sell-side structuring team and, more recently, it added what it calls an investment ‘lab’ team, which is akin to a buy-side structuring or quant team.

The upgrades, which are ongoing, reflect the bank’s ambition to become the “solutions provider” of choice for its multi-banked clients, according to Abdel Ben Tkhayet and Jackie Mau, HSBC Private Banking’s co-heads of investment products and solutions group, APAC.

“These additions reinforce our revamp of, and commitment to, the UHNW segment, and with our dedicated ICs and product specialists for the segment, we can source from a whole spectrum of assets to tailor-make customised solutions to meet sophisticated clients’ needs,” said Jackie Mau.

They also speak to a prevailing view that HSBC should be punching harder in Asia’s ultra space given its deep client book that includes a large number of entrepreneurs and corporate owners with private wealth needs.

Accordingly, the private bank has spent the better part of a year pursuing greater scale in its flow business and faster time-to-market for bespoke investment solutions.

“When it comes to [flow-side] scale, it’s all about achieving efficiencies, and we’ve been very successful with how we’ve put in place the right platform to achieve this,” Tkhayet told Asian Private Banker.

Abdel Ben Tkhayet HSBC Private Banking

In the past 12 months, the bank has made significant upgrades to its fixed connectivity price discovery system it launched in 2011 — an industry first at the time.

The result is that almost every flow equity structured product is now supported by the platform, which is, in turn, connected to a large number of the private bank’s trading partners, Tkhayet pointed out.

By comparison, the non-flow side of the business presents an altogether different set of challenges, especially because it has traditionally been underpinned by manual processes.

“We’ve spent a lot of energy and effort on changing this and we now have the right platform to book bespoke solutions which are system-supported,” Tkhayet added.

The upgrades are part of a wider digital agenda at the private bank, anchored by a US$100 million investment in digital and technology in the region that spans the core banking platform, front-end system, and digital advisory.

They also come at a time when the private bank is flexing its muscles in the region’s talent pool, having set itself the target of adding a staggering 700 new full-time staff to the division by 2022.

That number includes ultra-focused investment counsellors and product specialists after the bank pivoted towards the so-called ‘IC Model’ in 2017 under the leadership of Siew Meng Tan, HSBC’s APAC head of global private banking. Moreover, the bank has installed two new ultra-focused teams in the region during the past six months.

Jackie Mau HSBC Private Banking

Meanwhile, Mau pointed to the private bank’s robust net new money inflows in the first quarter.

In early May, HSBC said it gathered some US$6.4 billion in new assets in the region, accounting for the bulk of the global total of US$10.2 billion.

That’s despite the fact that cash-heavy investors in the region have exercised caution since a disastrous fourth quarter in 2018, during which risk assets fell sharply. Many missed the subsequent rally, and flows out of cash have tended to favour fixed income.

Mau added that clients have generally heeded the bank’s advice to remain short duration with an emphasis on EM hard currency fixed income.

“We’ve seen substantial flows in line with this call, including some single transactions in excess of US$200 million, for single-line bond portfolios, fixed income discretionary mandates and even long-only funds,” he added.

The private bank recently raised around US$700 million from Asia clients for a floating rate fixed maturity bond fund in a five-week period, underlining broader investor demand for a yield pickup that has prompted a number of lenders in the region to launch their own FMPs. It is also currently marketing a PE fund of funds strategy with a relatively low minimum ticket size that features some well-known names and invests across primary funds, secondary funds as well as co-investment opportunities.

Tkhayet said the solution is relatively unique, insofar as it gives clients access to best-in-class managers and the opportunity to invest quickly in the secondary market with a faster capital return, leveraging HSBC’s expertise in alternatives, due diligence, and investment management capabilities.

“Clients have been asking us to offer something where the complexity remains at our end and where they pay a management fee,” he said.

“Plus, this solution offers very nice diversification because clients will hold multiple investments for a minimum ticket size of US$250,000. Imagine if you had to do this yourself for this price. That would be a challenge.”

41

INDUSTRY

Edelweiss’s flat-fee Infinity platform to cut management fees by 25%

E

delweiss Private Wealth Management is looking to democratise high-quality advice as it unveils Infinity, its new digital flat-fee advisory solution and platform, according to Anshu Kapoor, Edelweiss’s head of private wealth management.

“Not accounting for any teams they may have internally to run their portfolios, on a like-to-like basis, Infinity immediately allows for a 25% drop on their portfolio management fees,” Kapoor told Asian Private Banker as Infinity launched at the end of May following a six-month product development period.

Designed with fee transparency and cost efficiency in mind, Infinity does not charge for transactions. Rather, clients pay a flat fee, allowing them to hold their entire portfolio on a single investment platform, across all asset classes, investment strategies, solutions, and products.

“Costs matter,” Kapoor said of Infinity, which was co-created with external vendors. “This is truly a first-of-its-kind subscription-lite model in India, where all of this happens at a fraction of the cost clients would have otherwise incurred in portfolio management.”

Infinity promises to assuage the pain point of potential individual biases by having a combination of Edelweiss’s systems, a global investment advisory committee, a portfolio management team, and the financial advisor — as opposed to only an individual financial advisor — manage a client’s investment strategy and portfolio.

“The financial advisor would be the core medium through which we understand what the client wants, and through which the client extracts investment policy statements,” Kapoor said, adding that the advisor’s role is expected to shift from a focus on engaging with products to engaging with the portfolio, as well as the overall risk-return objectives of the client’s investments.

“Financial advisors can do a lot more as they no longer have to focus on how each product is doing in their client portfolios, so their work efficiency should go up.”

The move towards greater alignment with clients’ investment objectives or strategies may be particularly pertinent in India, where investors’ wealth management needs tend to be addressed through product sales,

42

resulting in a heavier emphasis on transaction-based models which can sometimes see costs “go out of hand” when private investors engage in buying and selling products themselves.

“There are two versions of the Infinity offering — one is a standard pure discretionary offering, the other is a non-discretionary option in which we allow a great degree of customisation by the client or the client’s family counsellors,” Kapoor revealed, adding that the rigour of such customisation accounts for important issues like taxation for different asset classes and entity types, as well as the cost impact for clients.

Through active monitoring and management, the Infinity platform runs filters and responds to both risks and opportunities by flagging potential opportunities and breaches based on the investment parameters of a client’s portfolio, enabling proactive management of risks relating to unfolding market events.

“To monitor and track their portfolios, clients have access to a mobile application which gives them the same view as that of their financial advisors, 24/7,” said Kapoor.

Infinity’s current rollout is geared towards Edelweiss’s high net worth customers, after which the wealth manager will consider expanding the offering to other customer segments.

“Onboarding a customer requires no more than seven signatures from the client,” Kapoor said. “We are able to onboard a client within 4872 hours. Clients can move their existing portfolios to us and there is no limitation on the number of clients we can onboard. It’s a fairly scalable model.”

With the launch of Infinity, Edelweiss joins the echelons of Asian private wealth managers offering up-and-running digital flat-fee advisory solutions, including UBS, Credit Suisse, and most recently, Deutsche Bank Wealth Management with its rollout of dbXpert (see page 14).

“What we are trying to create is a platform that offers consistent advice, active monitoring and timely action on the portfolios, at reduced prices and fees,” Kapoor said. “The genesis of Infinity, as the name suggests, is to create unlimited opportunities for our clients.”

INDUSTRY

Bank of Singapore’s Malhotra eyes “massive” opportunities for UHNW NRI clients Bank of Singapore is looking to cater to the rising interest amongst ultra high net worth non-resident Indians for both global and onshore India opportunities, according to Vikram Malhotra, global market head, South Asia and Middle East at Bank of Singapore.

“Being a standalone private bank enables us to be nimble and to react fast to market conditions,” Malhotra said. “At the same time, the strong parentage we have from OCBC allows us to leverage the group’s wide array of capabilities concomitant with being a full-fledged universal bank.”

“60-70% of our NRI clients are ultra high net worth individuals,” Malhotra told Asian Private Banker. “They make up the bulk of our NRI assets under management, which is steadily growing year-on-year as their wealth continues to grow.”

Using a “three-hub strategy” to cover the NRI segment, the private bank currently has more than 80 relationship managers based in Singapore, Hong Kong, and Dubai addressing NRI clientele across all of Asia and the Middle East as a single unified Global South Asia and Middle East team.

According to Malhotra, NRI clients are taking a heightening interest in India onshore investment opportunities as their wealth burgeons.

“The opening of our London branch earlier this year is [also] giving us access to a large part of the Indian diaspora, which represents another strong opportunity for our NRI proposition,” Malhotra said, referring to the official opening of the Luxembourg-headquartered BOS Wealth Management Europe (BOSWM).

“India is the top recipient of inbound remittances globally at about US$80 billion in 2018,” he pointed out. “NRIs have about US$126 billion invested in NRI deposit schemes, which is only a small and partial measure of their engagement with India opportunities.”

For the Singaporean lender, this represents a “massive and sustained” business opportunity — which Malhotra calls the “India Corridor” — to capture the investment and wealth management needs of India’s wealthiest, both inbound and outbound.

“Increasingly, our NRI clients are embracing discretionary portfolio management capabilities or advisory portfolio management capabilities,” Malhotra said. “A lot of clients take up a combination of the two. We’re seeing greater money flow and performance has been good as well.”

To sustain and sharpen its proposition for the ultra high net worth, Bank of Singapore has turned its attention to the growing linkages between India’s private investors and global markets, as well as the needs of and penchant amongst UHNW NRIs for institutional-quality product and service offerings that match those in corporate and investment banking.

While Bank of Singapore has yet to show its hand when it comes to its intentions towards onshore play, it dipped a toe in the water earlier this year by entering into a strategic partnership with Edelweiss. With an aim to address NRI clientele’s intensifying interest in onshore India opportunities, the partnership offers clients of both entities access to their respective product platforms.

“Regarding our MoU with Edelweiss — they are one of the largest and most successful wealth managers in India,” Malhotra said. “Their ability to offer truly differentiated offerings in the onshore Indian market enables us to position ourselves to capture large and attractive opportunities in the ‘India Corridor’ space.”

Bank of Singapore’s assets under management have notched up to US$108 billion (S$146 billion) as at 31 March 2019, according to OCBC Group’s 1Q19 financial results.

43

INDUSTRY

Morgan Stanley PWM refines RM requirements given evaporating talent pool

A

lthough a relatively tempestuous 2018 resulted in lower frontline bonuses, private banks are still on the hunt for talent, especially as competition for pieces of the Greater China pie heats up. Yet, in order to expand while maintaining tighter control of the purse strings, banks should revise and fine-tune their hiring strategies, according to Morgan Stanley Private Wealth Management Asia’s head of sales, China and Hong Kong.

Vivien Webb Morgan Stanley PWM

“Obviously the relationship manager talent pool in Asia is in rather short supply to satisfy the ever-increasing demand and the growth of existing and new wealth management firms, in particular for the Greater China markets,” Vivien Webb, head of sales, China and Hong Kong at Morgan Stanley PWM Asia, told Asian Private Banker.

“The city-state has constructive immigration, infrastructure and tax policies attracting UHNWs, particularly those who want to set up family offices,” explained Webb. “These clients tend to require more wealth planning, trust and asset management services. Our Singapore office is accelerating its expansion across Greater China and product coverage to service these clients.”

To narrow the growing gap between talent supply and demand, some private banks are offering as much as 30-45% for competitors’ talent, and, according to Webb, “young talent has to come up the learning curve really fast”, particularly bankers capable of serving the growing number of HNW Chinese clients.

“We are in the market with the most significant transactions in Asia, in particular, Greater China,” she said, adding that cross-selling is a core competency amongst Morgan Stanley bankers.

“We have seen the rapid emergence of family offices and the mushrooming of external asset managers (EAMs) in the last few years pulling a lot of experienced talent out of mainstream private banks.”

Rather than target only relationship managers with large books, the wealth manager is also more partial to “proactive bankers” who are “at a juncture where they want to take control of their own portfolio of clients”.

In a bid to improve its workforce in spite of an evaporating talent pool, Morgan Stanley PWM is approaching hiring with a region-specific lens while keeping in mind each jurisdiction’s place in the Greater China expansion narrative.

“We are not an AUM bank, and so a candidate’s ability to bring AUM to us on day one is less important than their ability to leverage on Morgan Stanley’s franchise and platform for clients,” Webb said.

“Hong Kong is the key centre within Greater China for most of the main private banks with offshore models, and is usually the first landing pad for UHNWs from China given the dominance of the capital market in the city,” said Webb, adding that, accordingly, successful relationship managers in Hong Kong are “more entrepreneurial and experienced in capital market-related activity”.

Meanwhile, business in Singapore is also benefitting from growing Mainland wealth seeking offshore hubs with favourable regulations and high-quality UHNW services.

44

“We have a three-year plan for candidates to anchor themselves here, to build a solid base of quality clients and immerse themselves in the firm’s culture of doing the right thing. If you get this right, the business will usually take care of itself.”

According to Asian Private Banker’s 2018 RM Headcount League Table, Morgan Stanley PWM increased frontline numbers by almost 6% yearon-year, to total 315 as at end-2018. And nearing the end of last year, Vincent Chui, the bank’s Asia International chief executive, told Asian Private Banker that Morgan Stanley will accelerate hiring in 2019 and has budgeted a 50% increase for frontline hiring over three years.

PEOPLE MOVES

Movers & Shakers Asian Private Banker maps recent industry moves.

For the bigger picture, click on People Moves at www.asianprivatebanker.com

F

ollowing a relatively stagnant hiring market in previous months, a further slowdown was seen in May with some headhunters observing that fewer banks were hiring while others warned that RMs need to “beware of salary bump offers”.

“A lot of the banks are slowing down their hiring and, in some cases, there have been hiring freezes. Further consolidation within the banks has also led to a reduction of the number of banks involved in hiring,” said Amod Jain, senior consultant & regional lead, private banking at Morgan McKinley.

“Recently we have witnessed a number of senior ED/MD level bankers being asked to leave for performance issues. Banks seem to be more willing to let the under-performers go these days. As a result, there are a lot more qualified senior candidates on the market than we have seen in recent years.”

Beware of salary bumps Meanwhile, Pierre Pineau, associate director of private banking at Kerry Consulting, told Asian Private Banker that RMs need to carefully consider whether they should change banks when a significant pay rise is offered, highlighting that an exaggerated rise in remuneration often results in a commensurate rise in expectations.

“Relationship managers should beware of salary bump offers. This can make the runway very short. There is no point putting yourself under pressure of having to deliver within six-to-seven months to justify your pay,” Pineau warned.

He elaborated that a 10-15% salary increment is in line with the current market and that banks will rarely offer more than a 20% increment for new hires.

Since loyalty is a key element in client-banker relationships, he additionally noted that RMs who switch banks every three-to-four years might be “putting themselves at risk” due to the difficulty involved in moving client portfolios.

“Clients do not appreciate being pawns of bankers who move every three-to-four years. It is too much of a hassle for them and they realise that the relationship manager’s interests are not aligned with theirs after a couple of moves.”

Slowing but still going Although the region’s hiring market has generally slowed down, given Asia’s rapid wealth growth, star performers or bankers in specific geographies are still in hot demand, according to Regina Lee, executive headhunter, PWM at Selby Jennings.

“Despite recent macroeconomic events, private banks are always looking to grow,” Lee said. “Private bankers, as the revenue generators, will still be the hiring focus in the coming months and we have seen a hiring uptick in emerging Asia with LGT recently opening a private bank in Thailand and many banks looking to gain exposure in frontier markets.”

45

ADS

47