Issue 112 June 2017 Lite

www.asianprivatebanker.com

JUNE 2017

Issue 112

ASIAN PRIVATE BANKER Independent, Authoritative, Indispensable

I N D I A’ S T O P 2 0 W E A LT H M A N A G E R S

BY AUM

I NSI DE

Regulations: New suitability requirements enforced with questions unanswered

Industry: Indian wealth firms sceptical about foreign rivals’ ‘global Indian’ strategies

Industry: India 2016 RM Headcount League Table

Industry: Credit Suisse PB’s new digital advisory platform a “stepping stone” to DPM

P6

P14

P17

P18

CONTENTS 4

Letter from the Editor

5

Echo Chamber

ISSUE 112

June 2017

Industry Major management shuffle at Bank of Singapore

6 Regulations New suitability requirements enforced with questions unanswered, say lawyers 7 Industry Indosuez WM confirms it is in “exclusive discussions” to buy CIC’s PB activities in Asia, transaction to be finalised by year’s end 8 Industry Straight Talk: Anshu Kapoor, head of global wealth management, Edelweiss 10 Standard Chartered Private Bank India: “We are more local than other international players” CEO Andrew Shale Editor Sebastian Enberg Editorial Richard Otsuki Priyanka Boghani Nick Hedley Charlene Cong Alice So Deena Yao Gigi Lam Managing Director Paris Shepherd Business Development Madhuri Chatterjee Sonia Lam Sam Chan Joanne Tse Stacey Wong Kale Law Olaide Ogungbesan Eldar Gainutdinov

Digital Tristan Watkins Yiyang Zhou Cécile de Buor Wilfred Lam Evy Cheung Alice Wong Samuel Chen Events Koye Sun Finance & Operations Karman Wu Jessie Cheng Martina Ngai Production DG3

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

12 APB Mandate Ashmore raises US$400 million for fixed maturity EM bond strategy from PBs 14 Industry India’s domestic wealth managers sceptical about foreign rivals’ ‘global Indian’ strategies 16

India 2016 AUM League Table

17

India 2016 RM Headcount League Table

18 Industry Credit Suisse PB’s new digital advisory platform a “stepping stone from transactional to DPM” 19 Industry Citi Private Bank’s Roger Bacon: “Business as usual” in Asia 20 Industry LGT’s Henri Leimer: “I was in favour of the acquisition” 22 Technology Smaller private banks can “rent a platform” to stay in business, says UBS’ Kathryn Shih 23 Industry CMBC to grow its private banking unit in Hong Kong with launch of new centre 24 Technology Avaloq’s founder & CEO: Warburg Pincus deal means access to top private banking management in Asia 26

People Moves Movers & Shakers

LETTER FROM THE EDITOR

F

ew will have been taken by surprise by CIC’s decision to offload its private banking business in Asia, especially as we had been hinting at a potential exit since the end of last year. Of greater interest is the fact that Indosuez is the acquirer (forget any talk about “exclusive discussions”, I hear this is effectively a done deal barring regulatory approval). After all, CredAg’s private banking arm in Asia has flown under the radar in recent years, barely breaching US$11 billion in AUM as of end2016, raising questions about economies of scale. While this deal is likely to net Indosuez around US$5 billion in client assets, it is perhaps more significant for the message that it sends to the market. That message, from my reading, is one of renewed conviction. Factor in around 9 net new RMs since the beginning of the year, the hire of Arjan de Boer and greater media visibility, and it seems that Indosuez is not heading for the exit anytime soon.

It bears worth mentioning, also, that CIC’s divestment (and broader consolidation activity) coincides with the opening of a number of offshore Asia branches for Chinese private banks. CMB, CCB and Minsheng have all planted their flags in Hong Kong, Singapore and/or beyond in recent times and all seem fairly determined to build scale – and quickly (in Hong Kong alone, CMB group clients – including the Hong Kong branch, CMBI and Wing Lung – with a minimum of RMB 10 million in investible assets account for US$30 billion in AUM, while Minsheng says that it aims to be “a top five among [its] Chinese peers in Hong Kong”).

And unlike some international houses, these Chinese banks have the pockets and patience to grind out a business in offshore Asia. One GM for a Chinese institution recently told me that the private bank had a C/I ratio of around 30% and was, in this sense, obligated to invest.

But I digress. This mag issue is notable for the release of the most comprehensive India AUM and RM league tables ever assembled. I’ll say no more.

Cheers,

Sebastian Enberg Editor Asian Private Banker

4

ASIAN PRIVATE BANKER

e ch o cham be r “Let’s face it, the regulatory complexities in India are insurmountable and with a remittance cap, Indian HNWIs will not need global banks for their overseas investments.”

A seasoned Singapore-based NRI banker

INDUSTRY

Major management shuffle at Bank of Singapore

“Underneath all this, I was very clear when I took over in January 2016 that I want to be known as the best risk-managed wealth manager that generates incremental profit consistently.”

Edmund Koh, head of wealth management APAC, UBS “The newly introduced policy is unlikely to have a significant impact on the market as demand remains high and we expect Hong Kong residential property prices will maintain gradual growth, ranging from 5% to 10% in 2017.”

David Ji, director and head of research and consultancy services for Greater China at Knight Frank, on Hong Kong’s stamp duty policy

Shaari, in his memo, credited Kwan for his “stellar work” in his capacity as global market head, adding that Kwan will focus on “further strengthening [the bank’s] corporate governance, operations and infrastructure efficiencies”.

“Singapore and Hong Kong probably have enough space to support 20 to 30 private banks, and at last count there are over 100.”

Toby Pittaway, partner at Oliver Wyman “We’ve turned the corner. Deutsche Bank Wealth Management managed to have one of the best quarters we have had in revenue and asset growth.”

Lok Yim, head of wealth management APAC, Deutsche Bank “It is not just lower wealth tiers that will benefit from the automation and digitisation of private banks. Today, our Global Family Office and our UHNW clients want access to information 24/7.

Even with UBS Advice, we see a wide range of our clients assessing it. This is because digital advice is very much about the content.”

Kathryn Shih, Asia Pacific president, UBS “We see CS Invest as an intermediate stepping stone from transactional to discretionary portfolio management.”

Francesco de Ferrari, head of private banking APAC and CEO of Southeast Asia at Credit Suisse, on the bank’s new digital advisory platform

Sermon Kwan, head of Greater China and chief executive of the Hong Kong branch, Bank of Singapore

B

ank of Singapore will implement a number of organisational changes that impact its global market heads, including the appointment of a new global market head for Greater China.

According to a memo seen by Asian Private Banker and penned by Bahren Shaari, Bank of Singapore’s CEO, Derrick Tan, currently global market head for Malaysia, Brunei, Japan, Sub-Continent and Middle East, will take over from Sermon Kwan as global market head for Greater China.

Kwan, who was part of the original team to form Bank of Singapore following OCBC’s purchase of ING Asia Private Bank, will continue in his capacity as chief executive of the Hong Kong branch.

Further, Olivier Denis, currently global market head for Singapore and International, will take over from Tan responsibility for the Malaysia market, while Robin Heng, global market head for Indonesia and Philippines, will take on the Thai and Indochina markets.

Vikram Malhotra, also a global market head, will be responsible for accelerating growth in the Sub-Continent, Middle East and North Africa, based in Singapore and Dubai.

Shaari added that Bank of Singapore’s scale makes it necessary to “implement organisational changes to keep [the bank] agile and relevant to grow in [its] core markets”.

The changes are effective from January 2018.

A spokesperson for the bank confirmed the changes.

Bank of Singapore’s AUM grew by US$6 billion QoQ, or 7%, to US$85 billion in the first quarter through March.

ASIAN PRIVATE BANKER

5

R E G U L AT I O N S

New suitability requirements enforced with questions unanswered, say lawyers

T

he Securities and Futures Commission’s (SFC) new client suitability clause came into effect on 9 June, despite lingering uncertainties relating to the definition of ‘solicitation’ and how the rules apply to ‘execution-only’ accounts at private banks, lawyers tell Asian Private Banker.

After 18 months of preparations, legal experts believe that all the repapering and training needed for the smooth implementation of the client suitability clause is in place.

“Friday [9 June] is a transition point, but all the changes should be already in place,” says Stephen Birkett, senior consultant at Morrison & Foerster.

The SFC first introduced the client suitability clause in late 2015, when it said all licensed financial intermediaries in Hong Kong would have to include the clause in client agreements to ensure that if an institution “solicits the sale of or recommends any financial product” to a client, “the financial product must be reasonably suitable… having regard to your financial situation, investment experience and investment objectives”.

Confusion about ‘solicitation’ However, lawyers note that private banks are not entirely sure about what constitutes ‘solicitation or recommendation’ – upon which the application of suitability checks hinges.

“I’d say it’s generally clear but there are grey areas in more complex chains of communication,” says Birkett, a former SFC senior director.

An advertisement published to the broad market, for instance, would not constitute solicitation on its own, but may form “part of a pattern or a chain of communication” that could be considered solicitation.

Karen Man, partner at Baker McKenzie, adds that “there is no precise definition of ‘solicitation’”.

“The SFC’s view is that because the suitability clause is derived from the regulatory requirement, which has been in place for years, intermediaries should be fully aware of their compliance obligations under it,“ says Man. Man refers to FAQs published by the SFC in December, which list three non-exhaustive factors to consider when deciding whether an RMclient conversation is a solicitation or a recommendation: the content and context of the communication; whether the communication is delivered to targeted clients; and the totality of the actions undertaken by the intermediary.

6

ASIAN PRIVATE BANKER

More attention on record-keeping necessary Lawyers who have spoken to Asian Private Banker on the matter agree that relationship managers will need to pay more attention to record-keeping.

“The risk of being sued is focusing the mind,” says Paul Li, partner and head of Asia at Simmons & Simmons.

“There has always been training for relationship managers in relation to suitability. The training is the same in substance but there is likely to be more attention paid to record-keeping to demonstrate the steps taken in determining whether or not a certain investment is suitable for a particular client,” says Li. Birkett agrees that while the regulatory responsibilities for relationship managers do not change, the “renewed focus” on record-keeping relating to “why proposals made are suitable” means bankers will have more duties to perform.

‘Execution-only’ accounts will be most affected Experts believe that one of the most significant implications of the new rules for private banks relates to how they apply suitability checks on ‘execution-only’ accounts.

“Following the implementation of the changes, it is likely to be somewhat difficult for private banks to demonstrate that they are in fact acting on an ‘execution-only’ basis,” says Clifford Chance consultant Helen Fok. “Client agreements must reflect the true nature of the service being provided to these clients and so private banks will be unable to rely on such forms of ‘non-reliance’ clauses as a defence in ‘mis-selling’ claims.”

Man adds that “the suitability clause imposes contractual obligations on banks on the suitability of investment recommendations and solicitations. If the bank is, in fact, providing execution-only services, the suitability clause will be redundant in practise as no recommendation or solicitation of a financial product will have taken place.”

However, Man says the clause will require relationship managers to assess clients’ suitability, even for execution-only accounts.

“The intention is that even if a bank included execution-only language in the client agreement to describe the services, it should not be able to rely on this to avoid conducting a suitability assessment if the transaction had in fact involved a solicitation or recommendation.”

INDUSTRY

Indosuez WM confirms it is in “exclusive discussions” to buy CIC’s PB activities in Asia, transaction to be finalised by year’s end

Pierre Masclet, CEO, Indosuez Wealth Management Asia

Following Asian Private Banker’s breaking news that Indosuez Wealth Management (WM) has agreed to purchase Crédit Industriel et Commercial’s private banking activities in Hong Kong and Singapore, Indosuez confirmed via a media release that it is in “exclusive discussions for the acquisition”, and that it expects the transaction to be finalised by the end of the year.

While the exact details of the acquisition have yet to fully emerge, sources indicate that the purchase may be more than just an asset deal.

In February this year, Asian Private Banker revealed that CIC was considering exiting its private banking business in Asia, with VP Bank emerging as the frontrunner to acquire the franchise amid reports that a number of CIC bankers had been offered contracts with VP Bank.

At the same time, Indosuez has been in growth mode in Asia. Pierre Masclet, CEO for Indosuez Wealth Management Asia, told Asian Private Banker in March that he intends to boost the bank’s frontline in the region by 20% over the next couple of years.

As of May, the private bank had added eight relationship managers net in the region, bringing its frontline total to approximately 80. It also made a key hire in Arjan de Boer – formerly head of North Asia for ANZ Private Banking and, before that, head of private banking in North Asia for ABN AMRO – who joined the French wealth manager as head of markets and investment solutions for Hong Kong and Singapore in February.

Sources indicate that Indosuez has been on the lookout for ‘bitesized’ opportunities in the sub-US$5 billion range to boost its scale in

the region, and CIC’s Asian private banking franchise roughly fits this profile.

Masclet was coy on Indosuez’s acquisition appetite when interviewed earlier this year, simply noting that “[s]ome competitors have divested, some have exited the market due to cost cutting and geographical repositioning”, while adding that the bank has traditionally relied on three pillars: an international bank with financing capacities, personalised investment advice capacities, and wealth structuring capabilities.

The announcement of the takeover confirms that Indosuez, which has flown under the radar in Asia for a number of years, is serious about its proposition in the region.

In a media release, Paul de Leusse, Indosuez Wealth Management’s CEO, said the acquisition “will strengthen [the bank’s] geographical footprint and [its] commercial offering whilst maintaining the highest compliance standards”.

The release added that the purchase is in line with the bank’s “Shaping Indosuez 2020” corporate project, and its strategic ambition to “accelerate growth in key markets”.

Similarly, Masclet said that the acquisition “would be a new chapter for Indosuez’s Asia presence and demonstrates [its] clear commitment and ambition to accelerate … development in the region”.

The transaction is projected to be finalised by the end of 2017, subject to regulatory approvals and to customary employee consultation procedures in France.

Arjan de Boer, Indosuez Wealth Management’s recently appointed head of markets and investment solutions for Asia, told Asian Private Banker in early June that the French private bank is positioning itself as “a bank for entrepreneurial relationship managers”, adding that “we are committed to pursue our growth in Asia”.

“This time next year, we aim to be on Asian Private Banker’s AUM League Table as a top 20 player in the region,” de Boer added.

ASIAN PRIVATE BANKER

7

S T R A I G H T TA L K

Straight Talk: Anshu Kapoor Head of global wealth management, Edelweiss Asian Private Banker sits down with Anshu Kapoor, Edelweiss’ head of global wealth management, to discuss the firm’s rapid growth last year, its approach to hiring and training, competition amongst local and foreign players, and the wealth manager’s plans for the future.

By end-2016, Edelweiss was the fifth largest private bank in India’s onshore market, according to Asian Private Banker’s India 2016 AUM League Table, rising from 10th place a year before. share of wallet and 50% is from new customers. Referrals is a big source of client acquisition for us.

APB: Was there a particular growth strategy that you adopted?

AK: There was no new strategy. We simply reached the tipping point in terms of the number of clients we housed. Unlike traditional wealth managers in India, we continue to service our clients along three segments where the needs are very different: family offices, next generation entrepreneurs, and the high level corporate executives (CXOs) with employee stock option plans (ESOPs). For each segment, we have built specialist teams of ex-currency traders, fixed income traders and product specialists, as well as teams that work exclusively with CXOs with ESOPs. As a result, we cover 40-50% of the market share of ESOPs.

“We now have 155 private bankers and about 40% of them came from non-wealth management backgrounds.”

Asian Private Banker (APB): In 2016, Edelweiss Wealth Management more than doubled its client assets to US$7.4 billion. What was the main driver of this growth?

Anshu Kapoor (AK): We are a young business. Edelweiss Wealth Management launched in 2010, and in 2011, we had just US$100 million in AUM. We have now built out our proposition and have earned the trust of 400 clients to date. Of the US$4.3 billion in assets that we added last year, 50% of this is from deepening existing clients’

8

ASIAN PRIVATE BANKER

APB: India has a shallow pool of experienced private bankers. Where do you find talent?

AK: We now have 155 private bankers and about 40% of them came from non-wealth management backgrounds. It is important to pick bankers that have investment banking as well as private banking experience, particularly as servicing all three of our client segments involves stitching together solutions around their business needs that involve complex products.

S T R A I G H T TA L K

“The wealth management industry [in India] has not even made a dent.

It is a very unpenetrated market and there is room for more.”

We feel a key ingredient to our success has been engaging with employees and customers. Our employee engagement score has gone up to 83% from 78% and our customer engagement score stood at 90% over the last three years in surveys conducted by independent agencies.

APB: Do you provide any additional training to your private bankers?

AK: Yes we organise employee coaching sessions and have a programme called “global leaders” that teaches financial advisors best practices for advising their clients. We also think it is important to carry out domain exams, analytical tests and psychometric exams.

Indeed, multiple assessments are carried out to assess our employees’ ‘A-rated’ traits: client orientation, passion, intelligence and knowledge.

We do not just use book sizes as the only measure of success.

Similarly, we also set targets to incentivise our RMs based on their vintage.

APB: The domestic wealth management market is becoming increasingly crowded, with a number of boutique wealth managers in the US$1-3 billion space. How do you compete with these firms in particular?

AK: I do not think there is enough competition. This is because if you look at the ultra high net worth market – we define this as clients with over US$5 million in investable assets – there are 140,000 households in India. These households have a combined wealth of around US$2 trillion. At the moment, the top ten wealth managers in India do not even have 5% of the market share. In this sense, the wealth management industry has not even made a dent. It is a very unpenetrated market and there is room for more. By 2025, we estimate that the number of UHNWIs will go up to around 500,000 with total wealth of US$5 trillion.

APB: The universal banks have a significant presence in this part of the market too. What is your strategy when it comes to competing with the likes of ICICI Private Bank and HDFC Private Bank?

AK: Their model is largely a distribution play. Their platform is very strong but their focus is on the mass affluent market. Therefore, we do not operate in the same space. The only commercial or universal bank we do track is Kotak Wealth Management. It is, however, important to note that they have been in business for 70 or so years.

APB: A number of boutique firms are tying up with universal banks to leverage their client bases and build scale quickly. Do you think this strategy will succeed?

AK: Yes, it’s an interesting strategy. However, I do see some conflicts in terms of reluctance from RMs at commercial banks to share their best customers with boutique banks. The reward and incentive structures have not been aligned.

APB: What is your view on foreign private banks in India?

AK: The challenge for them is that many have operated with a stopand-start approach. This does not work. The cost of running a business in India is also high for foreign private banks as they are earning in rupees but are spending in dollars or foreign currency. In India, to succeed, you need to be localised to appeal to the larger client segment.

Foreign players are just banking old or legacy money.

There has also been a change in mindset among clients. There is no longer a propensity to bank for the foreign brand name.

“Wealth managers need to find a differentiation and compelling value proposition to win market share.”

APB: In Hong Kong and Singapore, industry experts believe that private banks need at least US$25 - 30 billion to survive. What is the minimum threshold in India, in your opinion?

AK: Today, there are few players in India’s wealth management industry who have AUM of more than US$5 billion. The market is large enough to offer opportunities to new players and existing players. However, wealth managers need to find a differentiation and compelling value proposition to win market share.

APB: What’s in the pipeline for Edelweiss’ private wealth management business in 2017 and 2018?

AK: We plan to add 40 financial advisors by the end of this year. We also plan to roll out our training and development programme, called “the private banking programme”, in which we will enroll 30-40 nonwealth management professionals.

And lastly, a long-term goal for us is to open up an independent asset manager or independent financial advisor (IFA) desk for resident independent advisors (RRIs) in India. We plan to go to 10-15 locations and use a hybrid model that combines financial advisor teams with digital platforms, and open up our product platform and sales practices to the country’s RRIs and IFAs. Right now we are in a proofof-concept phase but over the next 18 months, we will have more to share with you.

ASIAN PRIVATE BANKER

9

ADVERTORIAL

Standard Chartered Private Bank India: “We are more local than other international players” Testament to the bank’s success is its ability to score highly on a number of metrics, Das explains. Standard Chartered Private Bank India, which climbed up the rankings of the top 20 private banks and wealth managers in India by AUM in 2016, to secure fourth spot, has been on a growth trajectory, outranking a number of domestic players and all of its foreign rivals.

Leveraging the “one bank approach” Das says Standard Chartered Private Bank benefits from its “one bank approach” – wherein it is able to tap into multi-generational relationships. This has given the private bank access to clients who have grown their wealth in India and are seeking more sophisticated services, creating opportunities for the British lender to deepen its share of wallet and to introduce existing customers to a new suite of services, he says.

Private banking clients in India are largely focused on seeking lending capabilities, Das says. Standard Chartered Private Bank in India delivers solutions to clients “seamlessly across the bank”, through reputed securities/ brokerage entities and the non-banking finance company (NBFC).

“We deliver solutions to clients leveraging our international network across Asia, Africa and Middle East as well as through the segments of retail bank products, commercial and corporate bank,” says Das.

Sandeep Das, managing director, head, private banking, India, Standard Chartered

H

aving established its roots in India close to 160 years ago, Standard Chartered Private Bank has the advantage of “being more local than other international players and more global than local competitors”, says Sandeep Das, the lender’s private banking head for India.

Indeed, India onshore has been dominated by domestic players with a number of foreign players exiting due to regulatory complexities and high costs. However, Standard Chartered Private Bank continues to forge ahead, according to Das, delivering private banking services across Mumbai, Delhi, Bangalore, Kolkata, and Chennai, with plans to further expand to Pune.

In addition to being one of the largest and oldest foreign banks in India, Standard Chartered was also the first international player to be listed on the Bombay Stock Exchange.

10

ASIAN PRIVATE BANKER

As a result of the coordinated collaboration with the commercial and corporate bank, roughly 40% of Standard Chartered’s private banking clients in India are now common clients and are able to benefit from services supporting the growth of both their personal and business wealth.

Attracting top talent While a shortage of talent remains a key concern for the private banking industry, particularly in onshore markets like India, Standard Chartered Private Bank globally houses an army of over 350 relationship managers across its six booking centres.

The bank has implemented a robust framework for its advisory process, which sees its investment advisors work closely with experienced bankers. This is an important part of the team’s collaboration as it helps the bank gain a holistic understanding of its clients during the risk and suitability profiling process, says Das. To ensure consistency, on a monthly basis, the global investment council (GIC), which is made up of a team of investment advisors from across the bank, meets to discuss the bank’s macro views and asset allocation strategies, he adds. Indeed, instead of using historical reference to build asset allocations, the GIC analyses the potential of various asset classes

ADVERTORIAL

on a “forward-looking” basis, using inputs from the bank’s in-house global research team and third-party research.

Bank has been delivered a string of philanthropic opportunities to its clients over the past eight years, Das explains.

Upgrading and upskilling talent is an important strategy for the British lender, according to Das, who adds that this is a key method for addressing India’s relatively shallow talent pool. He says it is for this reason that the bank hosts a series of training sessions on markets, investments, economics and lifestyle for its bankers. Furthermore, the bank is launching a new employee-onboarding guide and an initiative that allows it to gather feedback and regular updates from its frontline staff.

In 2009, for example, the private bank globally launched a philanthropy programme called “Investing for a better future” to provide clients with guidance, structuring and information on their strategic philanthropic endeavours.

Standard Chartered also recently launched its private banking academy with Fitch Learning and INSEAD to create a bespoke training programme for its global frontline staff that will enable them to deliver a higher level of service and advice to private banking clients, Das notes.

The academy aims to deliver a “forward-thinking” curriculum that will equip RMs to offer “excellent service and relevant wealth management advice” to clients in an ever-changing market environment.

Banking the next generation In anticipation of a seismic shift in generational wealth, a part of Standard Chartered Private Bank’s proposition, which sets it apart from its competitors in India, is its ability to court the next generation, Das says.

The bank runs a unique Future Global Leaders’ Programme that contributes to the development of influential families across Asia, Africa, the Middle East and Europe. “As the world we operate in becomes increasingly complex, we believe that it is no longer sufficient for business leaders to possess mere industry knowledge and business acumen,” Das adds.

“Leadership, sustainability, entrepreneurial skills, philanthropy, communications and emerging technologies are key areas for the next generation of business leaders, and they therefore form the cornerstone of our Future Global Leaders’ Programme.”

In addition to its flagship programme run with Cambridge in London, the lender hosts the Regional Future Global Leaders’ Programme in a number of key hubs, including New Delhi. The last event was held at the British High Commissioner’s residence in Delhi. Graduates of the programme go on to be a part of the bank’s bespoke Private Bank alumni programme, which provides exclusive connectivity for the next generation of leading families across the world, as well as exposure to a number of distinguished global influencers. The most recent next generation alumni programme was held in Seattle, where participants were hosted by a range of global philanthropists and business leaders from some of the biggest enterprises in the world.

Deepening the shelf of philanthropic solutions Given the uptick in the number of wealthy clients seeking guidance on ways to deploy their charitable dollars, Standard Chartered Private

The bank has chosen to focus on improving eye-care across its philanthropic initiatives.

Under the hallmark “Seeing is Believing” initiative, the bank partnered with the International Agency for the Prevention of Blindness, with the aim of raising US$100 million in funds by 2020.

And, the bank recently reached 100% of its target to raise US$1 million for its “Seeing is Believing” eye-care project in Kolkata. The project enabled 8,592 cataract surgeries, delivered 4,950 free spectacles and screened 122,790 people.

Standard Chartered Private Bank was also the first to pioneer an online art auction which roped in a range of artists and their work, raising US$250,000 for the Seeing is Believing programme in India in the process.

In addition to providing access to such initiatives, Standard Chartered Private Bank also prides itself on customising bespoke solutions to cater to individual clients, Das adds. For example, the bank partnered with a client to launch an eye-care project in Vrindavan, Mathura, in 2014 that aims to deliver over 30,000 sight-restoring surgeries in the first five years.

The US$250 million technology investment Das says that Standard Chartered Private Bank’s India unit benefitted from the group’s decision to invest US$250 million to revamp its core banking platform, for its global wealth management and private banking operations. The bank selected Temenos, a leading software provider among private banks in the region, to build a streamlined platform.

Indeed, the project marks a major milestone for the bank, he explains, as it aims to improve sales productivity, improve efficiencies with increased automation of back-office activities, and lower operational risk.

The move to revamp and streamline back-end platforms at the private bank dovetails with a trend currently sweeping through the industry, wherein many private banks have realised the need to have compliancerelated infrastructures in place in light of the evolving regulatory landscape in Asia.

Ultimately, Das believes that Standard Chartered Private Bank’s ability to position itself as a global private bank with strong and deep roots in India has enabled it to grant its clients access to products and specialists across the bank, as well as unique onshore solutions in India’s competitive wealth management industry.

ASIAN PRIVATE BANKER

11

A P B M A N DAT E

Ashmore raises US$400 million for fixed maturity EM bond strategy from PBs Further, the US dollar, which tends to have a profound impact on EM debt, is expected provide a boost for EM bonds going forward.

The US dollar has been retreating since the DXY reached a record high in late 2016. The index fell to 96.9 on 13 June, a 6% decline from 103 on 23 December 2016.

“It is our view that the USD is expensive and should further decline, which is positive for EM,” Winter says.

“Some EM currencies have already moved from severely undervalued towards fairer valuations,” Winter points out. However, he adds that some currencies remain significantly undervalued, and the investment manager sees a number of opportunities for strong returns.

Fixed maturity structure still in vogue?

I

nvestment manager Ashmore raised more than US$400 million for its emerging market (EM) fixed maturity bond (FMB) strategy from HNWIs in Asia earlier this year, in what is the latest example of Asian private banking clients’ seemingly insatiable demand for FMB funds.

The strategy, named Ashmore SICAV 2 Emerging Markets Debt Fixed Maturity Fund, closed for new subscriptions at the end of March. It targets a gross portfolio yield of about 6.39% and invests mainly in USD-denominated EM sovereign (65%) and corporate (35%) debt instruments with an average credit rating of BBB and modified duration of 2.43%.

When contacted, Michael Winter, head of business pan-Asia at Ashmore, confirmed the subscription volumes.

Fixed maturity strategies shift from developed markets to EMs According to Winter, the “first wave” of fixed maturity bond funds focused mostly on developed market bonds. However, he notes that a trend of greater granularity began to emerge in issuances that followed.

“We later saw various launches for [fixed maturity bond funds] which invested in certain regions (i.e. Asia) or certain sectors (i.e. loans) only.”

After underperforming for several years from 2011 due to declining commodity prices and decelerating economic growth, EM bonds have recovered significantly over the past year, outperforming their developed market counterparts.

12

APB MANDATE

When investing in fixed income, Asia’s HNWIs tend to prefer holding bonds to maturity. However, amid concerns about rising rates, inflation and other risks, investors in the region have been shifting from holding single bonds only, to delegating to active managers, who can offer improved, diversified security selection. This plays into the hands of FMB funds, which provide investors with predictable income streams and fixed duration risk.

APB Mandate recently reported that Bank of Singapore raised more than US$1 billion from its clients for a strategy specifically focused on senior loans. Similarly, Credit Suisse delivered US$1.2 billion worth of fixed maturity senior loan funds to its private banking clients in the region in January this year.

However, Winter tells APB Mandate that “we feel that the fixed maturity ‘hype’ has somewhat eased over the past few months”.

Ashmore’s fund is underweight Asia Winters says Ashmore’s fund invests with a “top down, credit focus, value driven, active management and liquidity obsessed” approach.

The fund has an overweight position in Latin America and an underweight position in Asia.

“Latin America was hit harder by external shocks in the past few years than other EM regions but Latin America’s economic and institutional buffers protected the basic economic and political fabric,” Winter says.

“Additionally, the policy environment is improving in a number of highly influential countries in the region,” Winter adds, noting that the Asian market is generally expensive and hence offers little investment value at this point in time.

INDUSTRY

India’s domestic wealth managers sceptical about foreign rivals’ ‘global Indian’ strategies

A

global private banking strategy aimed at capturing both outbound and inbound wealth in India has met criticism from a number of domestic wealth managers, who say that while conceptually appealing, the approach fails to factor in the nuances of onshore regulations and investor behaviour.

The ‘global Indian’ concept – effectively a clubbing together of private banks’ India onshore and non-resident Indian (NRI) operations – has come to the fore in recent years, with three of the seven foreign private banks that have onshore operations in India adopting this strategy in the past two years alone. The rationale is that this is an effective way to service both those NRI clients who are inclined to invest in India, and wealthy Indian residents with families abroad.

Restructures to reporting lines BNP Paribas Wealth Management implemented this strategy in April 2015 when it pulled Samir Bimal, the bank’s then global head of the India onshore business, out of India and appointed him as head of Indian markets – including the NRI business – based in Hong Kong.

Last September, Julius Baer decided to build an NRI team in Hong Kong, populated with a number of former BSI Hong Kong bankers, as part of the Swiss pure play’s plans to leverage its NRI businesses in Singapore, Dubai and Hong Kong, according to Asia CEO Jimmy Lee. And in February this year, Credit Suisse Private Banking announced that Balakrishnan Kunnambath would oversee the Swiss lender’s Indian private banking business while retaining his role as market group head for the NRI business in APAC and the Indian subcontinent, based in Singapore.

Banking onshore HNIs with global portfolios The strategy, however, is not aligned with the investment appetite of India-domiciled clients looking for global exposure, says Amit Shah, co-founder of IIFL Wealth & Asset Management.

“From an investment perspective and particularly for Indians in India, money that leaves the country is usually for security purposes, typically for children’s education or buying real estate in London, New York, Dubai or Singapore,” Shah explains, adding that total overseas investments are usually “miniscule”.

Furthermore, Indian HNIs with both onshore and offshore assets need to be very careful to keep their two accounts “at an arm’s length – particularly with the tax environment in India”, a Mumbai-based director at a boutique bank says, choosing to remain anonymous.

14

ASIAN PRIVATE BANKER

“It can be a good hook to get clients who are thinking about wealth transfers and legacy planning for their next generation. But that is all.”

On top of this, residents looking to leverage global private banks for investment opportunities outside of alternative assets must contend with capital controls and caps on offshore allowances.

Two years ago, the Reserve Bank of India (RBI) announced that the cap on individuals’ offshore investments would be raised to US$250,000 per person each financial year, under the Liberalised Remittance Scheme. It is important to note that over the past thirteen years, the RBI has raised the ceiling for offshore investments at a CAGR of 22.6%.

But while these regulations have become more accommodative, the director notes that the cap nevertheless prevents Indian HNIs from curating large capital market portfolios offshore. “Even if such HNIs are a family of four, that is still a US$1 million cap which does not create a sizeable portfolio to work with.”

Access to “uber deals” Foreign private banks that have adopted the strategy say they are able to offer “exotic” products or “uber deals”, including opportunities in private equity and bespoke impact investing funds. “UHNW clients are also very keen investors in the domestic private equity space as well as in structured real estate transactions,” says Credit Suisse’s Kunnambath.

Similarly, BNP Paribas Wealth Management prides itself on its ability to provide those families with US$5 million to US$50 million in assets with institutional-like offerings, such as collateralised debt investments and REITs, rather than standard deposits.

Domestic players, meanwhile, say that promising an endless supply of unique deals is an unsustainable proposition, pointing out that foreign private banks have tried and tested this approach in the past without success. “While it was exciting at first, the banks could not offer their resident clients access to deals all the time,” says the director. She says that such strategies are too dependent on high volumes and that they are only lucrative on a deal-by-deal basis.

INDUSTRY

Anshu Kapoor, head of global wealth management at Edelweiss, agrees.

“Unless you are able to build an excellent pipeline for the top 100 clients with over US$100 million, cross-border costs and lack of volumes prevent you from carrying out this strategy successfully,” he says.

Shah adds that while it has some merits, using the global Indian strategy onshore is in fact “impractical”.

“It can be a good hook to get clients who are thinking about wealth transfers and legacy planning for their next generation. But that is all.”

Global Indians approach more of an NRI-only strategy?

Ultimately, the global Indian approach is an NRI play that is partly driven by home bias tendencies and relaxed regulations, domestic wealth managers believe.

Foreign private banks can tap into the pool of offshore NRI clients who tend to invest with a strong home bias, allocating 10-15% of their portfolios to Indian markets, says Rakesh Rawal, CEO of Anand Rathi Wealth Management.

Rawal says the concept “aligns the objectives of the NRI client better”.

For instance, private banks already build teams and desks that target different nationalities in order to capitalise on home bias inclinations.

And since many NRI clients have increased their India allocations, Shah believes that the “one-RM-one-portfolio” concept makes sense for NRIs. “A significant portion of India allocations for NRI clients is invested in real estate which has increased in value multi-fold in the last two decades,” he explains. “Thus, what used to be an insignificant allocation of portfolio two decades back is now a significant holding in NRI portfolios.”

In addition, foreign direct investment (FDI) regulations have loosened over the years, making onshore capital markets directly accessible to individual foreign investors, Kunnambath notes. Previously, India’s capital markets were restricted to public market investments via the Foreign Institutional Investors (FII) framework – popular among mutual funds, insurance companies and pension funds who have the ability to make large-scale investments. However in 2014, the Securities and Exchange Board of India (SEBI) introduced a new class of foreign investors – Foreign Portfolio Investors (FPIs). This granted NRIs with direct access to Indian securities, including shares, government bonds, corporate bonds, convertible securities and infrastructure securities.

“Foreign direct investment regulations have liberalised and foreign investors can now participate in almost all sectors of the economy, including, as an example of FDI liberalisation, the insurance sector or defence industry, albeit with certain caps,” Kunnambath says.

Shallow pool of NRI clients Yet, industry insiders say the global Indian strategy, as it applies to NRIs, has limited scope in terms of the target population.

“In reality, the pool of pure NRI clients is very shallow in Hong Kong,” says a Hong Kong-based NRI banker with five years of experience servicing the diaspora.

“The value proposition of the global Indian approach will weaken as these clients do not have a strong bias towards India.”

“Today, less than 50% of the NRI clients we approach are second or third generation Indians that do not even hold an Indian passport,” another Singapore-based NRI banker adds. “The value proposition of the global Indian approach will weaken as these clients do not have a strong bias towards India.”

A foreign struggle?

The India onshore market will likely continue to both lure and repel foreign private banks, who for the most part have had a difficult time establishing a meaningful presence in the country’s onshore private wealth market in recent years. This is partly due to regulatory hurdles and talent shortages. As a result, there have been a number of notable exits over the past two years, including UBS Wealth Management, HSBC Private Bank and Morgan Stanley.

However, all but one of the foreign private banks that have remained committed to the market have grown their assets at a healthy clip.

BNP Paribas Wealth Management grew its client assets the fastest in 2016, with the French lender’s AUM surging 35.2% YoY to US$7.3 billion, ranking the bank sixth in Asian Private Banker’s India 2016 AUM League Table. Standard Chartered Private Bank had the largest book of the foreign players, with US$7.8 billion in AUM, after adding 21.9% through the year.

Deutsche Bank Wealth Management, meanwhile, was the only foreign player to see a decline in client assets in 2016, with the bank’s AUM halving to US$1.5 billion at the end of 2016.

Still, industry experts in India predict that – given renewed optimism since the Modi administration came into power, and the launch of a number of landmark initiatives aimed at creating a common market in India, such as the Aadhaar universal ID project and the GST regime – foreign private banks will not be put off by the challenges they face when targeting Indian clients, and they will experiment with different strategies until they crack the “right one”.

ASIAN PRIVATE BANKER

15

INDUSTRY

India 2016 AUM League Table Rank (by AUM 2016)

Wealth Manager

AUM 2016 (US$bn)

AUM 2015 (US$bn)

AUM YoY change

1

Kotak Wealth Management

15.3

9.6

59.3%

2

IIFL Wealth & Asset Management

14.8

8.6

72.1%

3

ICICI Private Bank

8.5

7.6

11.8%

4

Standard Chartered Private Bank

7.8

6.4

21.9%

5

Edelweiss Wealth Management

7.4

3.1

138.7%

6

BNP Paribas Wealth Management

7.3

5.4

35.2%

7

Julius Baer

7.0

6.0

16.7%

8

Citi Private Bank

7.0

6.0

16.7%

9

HDFC Private Bank

6.5

6.1

6.6%

10

Barclays Wealth

4.3

4.2

2.4%

11

Sanctum Wealth Management

3.0

2.5

20.0%

12

Deutsche Bank Wealth Management*

2.3

3.0

-23.3%

13

ASK Wealth Advisors

2.1

0.9

133.3%

16

Credit Suisse Private Banking

2.0

2.0

0.0%

14

L&T Finance Wealth Management*

1.9

1.3

46.2%

15

Centrum Wealth Management

1.8

1.5

20.0%

17

Avendus Wealth Management

1.7

1.0

70.0%

18

Anand Rathi Wealth Management

1.6

1.3

23.1%

19

Motilal Oswal

1.0

0.7

42.6%

20

Ambit Private Wealth

0.4

0.3

36.7%

103.7

77.5

33.8%

Total All figures are APB estimates, and are reported in US dollars *Figures represent bank’s/wealth manager’s estimates

India’s 20 largest wealth managers grow their AUM by 33% in 2016 India’s private banking industry grew at a healthy pace in 2016, with the 20 largest private banks and wealth managers in the country growing their client assets by a combined 33.8% YoY to US$103.7 billion, according to Asian Private Banker’s India AUM and RM Headcount League Tables for 2016.

Two private banks more than doubled their books, while 14 registered double-digit growth and only one registered a decline in client assets. Buoyant economic growth, low interest rates and declining inflation all contributed to the sector’s strong gains.

Kotak Wealth Management tops the AUM table Perched at the top of the table is the private banking arm of Kotak Bank, Kotak Wealth Management, which had US$15.3 billion in

16

ASIAN PRIVATE BANKER

AUM at the end of the year. The domestic lender saw its AUM swell by 59.3% in 2016.

IIFL Wealth Management was half a billion shy of the top spot, with its US$14.8 billion in AUM placing the wealth manager second. Last year, the firm restructured its business lines, folding its asset management unit into its wealth management arm to create IIFL Wealth and Asset Management.

Universal bank ICICI came in third with its private bank having US$8.5 billion in client assets, a 11.8% YoY increase.

Edelweiss Wealth Management, meanwhile, saw the largest jump in its book, which rose 138.7% and lifted the firm’s ranking from 10th in 2015 to fifth by the end of last year.

INDUSTRY

India 2016 RM Headcount League Table Rank (by RM Wealth Manager headcount 2016)

RM headcount 2016

RM Headcount 2015

RM Headcount YoY change

1

IIFL Wealth & Asset Management

218

200

9.0%

2

Edelweiss Wealth Management

155

137

13.1%

3

Anand Rathi Wealth Management

128

68

88.2%

4

Kotak Wealth Management

110

102

7.8%

5

Motilal Oswal

83

57

45.6%

6

Centrum Wealth Management

80

70

14.3%

7

L&T Finance Wealth Management*

78

108

-27.8%

8

ICICI Private Bank

65

61

6.6%

9

HDFC Private Bank

40

38

5.3%

10

Standard Chartered Private Bank

40

38

5.3%

11

Julius Baer

35

35

0.0%

12

Avendus Wealth Management

35

30

16.7%

13

Sanctum Wealth Management

34

30

13.3%

14

ASK Wealth Advisors

33

20

65.0%

15

Barclays Wealth

28

37

-24.3%

16

Citi Private Bank

25

20

25.0%

17

BNP Paribas Wealth Management

17

19

-10.5%

18

Deutsche Bank Wealth Management*

16

18

-11.1%

19

Ambit Private Wealth

14

14

0.0%

20

Credit Suisse Private Banking

12

12

0.0%

1,246

1,114

11.8%

Total All figures are APB estimates *Figures represent bank’s/wealth manager’s estimates

On the other hand, Deutsche Bank Wealth Management’s AUM slipped by 22%, resulting in the German lender sliding from 11th to 12th in the rankings.

Army of 132 RMs added across the board Despite a perceived shortage of talent in the country, India’s 20 largest private banks by frontline headcounts added a combined 132 RMs net, marking a 11.8% increase and bringing the total to 1,246 RMs. IIFL Wealth Management retained its leading position after growing its RM headcount by 18 to 218 at the end of 2016.

Anand Rathi Wealth Management’s aggressive hiring strategy saw the boutique wealth manager nearly doubling its headcount to 128 RMs – the biggest gain among the top 20.

Barclays Wealth, Deutsche Bank Wealth Management and BNP Paribas Wealth Management were the foreign players to see their RM headcounts fall in 2016. L&T Wealth Management was the only domestic player to see its RM headcount fall by 27.8% to 78 in 2016.

Domestic wealth managers dominate India onshore The dominance of domestic wealth managers in the onshore market continues, with the 13 domestic players on the AUM league table having a combined US$66 billion in client assets, representing nearly two-thirds (64%) of the total assets held by the top 20. While they have mostly registered double-digit growth, the seven foreign players account for 36% of the market.

ASIAN PRIVATE BANKER

17

INDUSTRY

Credit Suisse PB’s new digital advisory platform a “stepping stone from transactional to DPM” Francesco de Ferrari

C

redit Suisse Private Banking plans to use its new digital advisory platform, CS Invest, to “tackle” the non-discretionary business in Asia, Francesco de Ferrari, the firm’s head of private banking APAC and CEO of Southeast Asia, tells Asian Private Banker.

“In Asia, the structure of the market is such that for DPM [discretionary portfolio management], the penetration is still in the high single-digit to low double-digit range,” de Ferrari says, adding that on average, 90% of assets in Asia sit in non-discretionary mandates. “We see CS Invest as an intermediate stepping stone from transactional to DPM.” According to APB Mandate data, DPM penetration rates averaged about 8% in 2016.

Credit Suisse’s digital advisory platform, which was rolled out in Asia in May, delivers investment ideas and strategies consistent with the bank’s CIO house view, as well as portfolio quality reports and access to retrocession-free share classes. The advice is client-directed – users can access CS Invest directly on the lender’s digital private banking app.

The platform targets clients across two different wealth tiers: CS Invest Partner caters to those with minimum investment amounts of US$1 million, while CS Invest Expert is for clients who invest US$10 million or more. Those using Expert have dedicated investment consultants who operate like “mini CIOs”, in addition to relationship managers (RMs) who schedule strategic reviews and outlook meetings up to four times a year. The Partner version includes an RM, bi-annual meetings, and access to a portfolio solutions specialist team, de Ferrari says.

CS Invest was first launched in Switzerland and other parts of Europe in 2015. Clients on the bank’s Swiss book invest CHF 45 billion via the platform. Over the past two years, Credit Suisse has been “fine-tuning” CS Invest for Asia, de Ferrari says, adding that the main difference between the two versions is that in Asia, the advisory portfolio and advice is curated and distributed to clients via an app.

While de Ferrari says the platform “is very much available to our UHNWs [as well as HNWIs]”, he is realistic about the initial investor reception, acknowledging that “no client will be one-size-fits-all”. As such, he hopes to slot all clients into one of the bank’s three service offerings – transactional, advisory and discretionary. “Ideally, I would love for a client to receive all three levels of service from us: a part of the portfolio that they can play with, a part where they can delegate and the core of the portfolio we manage with CS Invest.”

Tan Wei Mei, Credit Suisse Private Banking’s APAC head of portfolio

18

ASIAN PRIVATE BANKER

solutions, notes that CS Invest is not a robo advisor as the advice is not templated and the role of the RM is core to the offering.

Hybrid pricing model Tan explains that the platform uses a hybrid flat-fee pricing model, based on tiered investment values. For example, clients with less than US$5 million invested are charged 1% a year, while clients with more than US$30 million are charged 0.4% per year.

Amid the industry-wide pursuit of long-term recurring income streams, Tan says she is encouraged by the performance of the bank’s discretionary and advisory units, noting that the two business lines have been growing at a 50% CAGR over the past three years. “But in the intermediate stage, we need something to address the gap,” she says. “The hybrid pricing structure helps us do this.”

No regulatory hurdles Due to the non-transactional nature of the platform, CS Invest was not subject to the regulatory hurdles facing robo advisors, according to the bank. However, in light of greater regulatory scrutiny of client risk profiling in the region, the bank developed a set of rules to underpin the platform’s suitability checks in Asia.

“From a suitability standpoint and regulatory requirements around knowledge and experience, our infrastructure has built in a series of rules that enable us to check for clients’ certain circumstances, risk profiles, whether they are suitable to take part in a particular product, while also taking into consideration cross-border requirements as we have clients with assets booked in Hong Kong or Singapore but domiciled across the region,” says Tan.

Competitors in the region UBS Wealth Management is another major private bank with a digital advisory platform in the region, having launched UBS Advice in Hong Kong and Singapore in March 2014. Within three months, UBS Advice had close to US$500 million invested.

Asian Private Banker understands that the main difference between the two banks’ platforms is that Credit Suisse’s will deliver advice directly to clients through its app, while advice from UBS’ platform first reaches the bank’s RMs, who then use their discretion in order to meet client needs. While de Ferrari says he is optimistic about CS Invest’s success in Asia, he declines to set AUM targets. “We do not have an AUM target at this point. It is an education process and it’s about changing people’s behaviour. We will judge the success in two years.”

INDUSTRY

Citi Private Bank’s Roger Bacon: “Business as usual” in Asia

F

ollowing his recent appointment as Citi Private Bank’s new Asia head of investments, Roger Bacon says he has no plans to rock the boat in his expanded role, and the industry veteran says he will continue building on the foundation set by his predecessor.

“I would say that largely speaking, it will be business as usual at Citi Private Bank in Asia,” Bacon says.

Bacon was appointed to the role in mid-April, succeeding So-Yon Sohn, who has moved on to Citi’s global markets and investor sales business. Adam Proctor, who was previously a senior private banker for the global client business, takes over Bacon’s prior post of regional head of managed investments.

“My predecessor put in place a lot of structural changes that enhanced our ability to better meet client needs, so I certainly see no need to be re-engineering things just to put my stamp of approval – I don’t work like that. Rather, I will be seeking to further enhance some of the initiatives that my predecessor had already started,” Bacon says.

Bacon refers to the bank’s efforts to optimally deploy resources for a coverage model that takes into account varying levels of client sophistication and size, as well as bettering the alignment between clients and banker teams, and improving accountability by using more performance metrics – such as client satisfaction – to create a feedback loop.

With regards to coverage models, Bacon notes that in his expanded role he takes over the function of connecting the investment bank with the private bank in order to cover UHNW clients, and, where appropriate, flagging territorial risks.

“Connecting the private bank and investment bank is a critical part of my job,” he shares. “Some of our clients are becoming increasingly sophisticated and require a very high-end institutional approach.

“Our role is to match the right service from the entire global group to meet these specific needs. We have to work hard to ensure that everyone is aligned and to put forth a formalised framework to make sure any element of territoriality is kept to an absolute minimum. We have to make sure nothing falls between the gaps.”

Aiming for further managed investments growth “Between my predecessor and I, the slight philosophical difference is that she was from the trading side of the business, whereas I came from a portfolio management environment,” Bacon says.

“I’ve been at Citi Private Bank for six and a half years now, trying to increase the penetration of managed investments and despite the progress, I am not complacent.”

Bacon highlights the ongoing growth of discretionary portfolio management (DPM) at Citi Private Bank in Asia.

Whilst the bank’s regional DPM penetration rate has reached slightly under 10% – above the 8% average in Asia, according to APB Mandate data – he intends to grow this business further.

“We are not focused on total assets alone,” he explains. “Our key objective is to have most of our bankers become users or advocates of our DPM capabilities. In the past 3-4 years, we have been rapidly hiring portfolio managers in Hong Kong [nine in total], which we’ve found to be much more effective than having them based in foreign headquarters.”

In addition, Bacon hopes that lessons will be learned from the bank’s “episodic offerings” – timely non-flow investment opportunities – and that the bank will replicate these successes in other asset classes.

But despite his affinity to managed investments – Bacon’s 20-plus years in the financial services industry includes experience in managed investments at both private banks and family offices – he maintains that keeping the right balance is key to running a successful private bank in Asia.

“And where does that balance sit? There is no one right answer,” he says. “Currently, the business is broadly balanced between capital markets and managed investments, with a slight bias for trading activities, and we feel we have the right [mix].”

ASIAN PRIVATE BANKER

19

INDUSTRY

LGT’s Henri Leimer: “I was in favour of the acquisition” LGT managed to tick off a lot of boxes in just five months, including the speedy acquisition and data migration of ABN AMRO’s private banking businesses in Hong Kong, Singapore, and the Middle East, and the rollout of a client-facing app. In an exclusive interview with Asian Private Banker, Asia CEO Henri Leimer discusses the lead-up to the ABN AMRO deal, organisational restructuring, AUM targets and digital innovation.

LGT does not have to contend with shareholder pressure, and was already growing at a comfortable clip in Asia.

Why did you feel you needed to make an acquisition?

Indeed you are right, it was less of a need for LGT. However, it is in our DNA to look for opportunities, given our history Henri Leimer of successful acquisitions internationally.

Hence, we saw a good opportunity for us when the sale of ABN AMRO’s private banking business in Asia and the Middle East came along.

On a personal level, did you feel the acquisition was needed?

Certainly, I was in favour of the acquisition. We are privately owned and we work very closely with H.S.H. Prince Max von und zu Liechtenstein, Group CEO. My team and I in Asia were very involved in the due diligence and decision from the beginning.

What did the ABN AMRO platform add that perhaps LGT was lacking?

LGT’s private banking platform is comparable if not better than that of ABN AMRO’s in almost every aspect. Therefore this made it easier for the former ABN AMRO bankers to move across to LGT. There are, however, certain mortgage-specific products that ABN AMRO did offer that we had not, for example, commercial mortgages in Hong Kong, which are now included in our mortgage offering suite.

Is it fair to say that 100 RMs from ABN AMRO were added in Hong Kong and Singapore on 1 May, effectively more than doubling the number of RMs in Asia at LGT? Yes, post acquisition our RM headcount has more than doubled in Asia.

“LGT’s private banking platform is comparable if not better than that of ABN AMRO’s in almost every aspect.”

20

ASIAN PRIVATE BANKER

What was the retention strategy during the acquisition? Did ABN AMRO bankers get the same remuneration package as existing LGT partners?

I am not able to comment on the remuneration package but what I would like to emphasise is that we treat everyone at LGT equally – whether they are existing or new employees. To date, feedback and the response from our new employees [formerly ABN AMRO] that have come on board has been positive.

You are known to be very hands-on with all your bankers, often leaving your door open and ensuring that you meet each and every one. Will this still be the case given your growing team of bankers?

Absolutely. We will continue our open-door policy including regular conversations with every banker – new and old. I want to be directly in touch with the bankers – this is the only way to know and understand what their needs are.

LGT has built a sizeable discretionary business in Asia. How does LGT plan to continue this push with the new ABN AMRO bankers?

We do not subscribe to product pushing and we have set no targets or penetration rates. We will never ask our new colleagues to move clients to discretionary portfolio mandates (DPM) unless it is in line with their clients’ needs. If their clients prefer our trading and advisory services, we already have established capabilities to fully support this.

At the same time, we are training and sharing our DPM capabilities with all our new joiners. Of course, we understand it will take some time to gain traction with new clients.

How will the ABN AMRO private bankers fit into LGT’s flat hierarchy structure? For example, at ABN AMRO Private Banking, teams are structured with market heads and have investment counsellors (ICs).

Will you retain this structure?

Our goal is to provide and create the appropriate infrastructure around the bankers. For example, should they want to work as standalone bankers, they can. Should they wish to continue to operate in their teams, they can do that as well. However we are careful not to segment our bankers and mandate them to service only certain client segments.

Ultimately, we want them to perform and be successful. We will leverage the appropriate structure to help them do this.

INDUSTRY

“We want to grow to over US$50 billion in Asia by the end of the year.”

What is LGT’s Asia AUM post the ABN AMRO acquisition?

We are around US$47 billion in AUM in Hong Kong and Singapore. We want to grow to over US$50 billion in Asia by the end of the year.

In LGT, we have always had investment advisors. We have a sizeable investment team which is at all our bankers’ disposal. Certain bankers with sizeable books will have their own investment advisors.

Some of the senior managers at ABN AMRO Private Banking, including the product teams, did not join LGT. Why is that?

At LGT, we have similar and established functions in place and therefore it is logical that these functions will continue to be managed by LGT. We did however take the opportunity to enhance all the support functions and front office through the ABN AMRO acquisition.

You recently rejigged the management structure so that LGT now has a private banking head in Singapore and Hong Kong as well as a CEO in both locations. What was the reason behind this?

We have strengthened and realigned the management team’s roles in Hong Kong and Singapore but I would not say this is a structural change.

It’s adding more people resources to support the existing management functions rather than creating new ones. The core management team is still the same. We appointed Silvan Colani as head of private banking Singapore and Karl-Heinz Klaus as head of private banking Hong Kong.

Both have been with LGT for over a decade. We have also established a new role for Hanspeter Oes as COO, Asia, in order to streamline business support functions, compliance, legal and IT operations.

Why did you appoint Silvan Colani as both Hong Kong CEO and head of private banking for Singapore?

I had this responsibility before him, that’s all. As mentioned earlier, we now need to strengthen our management capacity to enhance our oversight of the enlarged business with people who know LGT in and out. And Silvan Colani meets these criteria; he has been with us for over 20 years in different functions. Also, it is not about two different jurisdictions, as from a private banking service offering, we operate across jurisdictions as “one” LGT in Asia.

In terms of AUM, did you see much outflow from the US$20 billion in assets transferred from ABN AMRO? Very minimal in Hong Kong and Singapore – less than 1%. However, that is normal and has nothing to do with the actual acquisition itself.

It’s a part and parcel of the private banking business; for example, clients wishing to redeem their loans elsewhere.

Given increasing regulatory burdens and the costs that are usually associated with an acquisition, how is LGT keeping its cost/income ratio in check while remaining profitable in Asia?

It’s hard to pinpoint cost/income ratios until we have fully settled down post acquisition. We are still in the first stage of getting to know the new bankers, understanding what works for us and what does not. It’s still too early for me to comment on this.

LGT just rolled out its SmartBanking app alongside the closing of the acquisition. What was the rationale behind this?

Actually, the SmartBanking app was something we had been working on for more than a year, long before we made the decision to acquire ABN’s Asia and Middle East business. The timing coincided well with the close of the deal and this helped us to onboard our new clients on the app after their assets were transferred.

“For banks like ours, the digitalisation of advice should not be overemphasised.”

What else is in the pipeline for LGT’s digital capabilities?

The biggest objective for us is to create an ‘RM cockpit’ that allows them to provide advice to their clients efficiently. We are still evaluating the best way to go about this with different providers in the industry and it is a work in progress that we have set no timeline for. For banks like ours, the digitalisation of advice should not be overemphasised. Our clients are happy that they can still talk to humans. The digitalisation story is very much for retail banking, rather than true private banking.

Does LGT plan to venture onshore in Asia?

LGT is certainly looking at additional markets in Asia to expand in, particularly those that have been underserviced and conducive to our business. I am not able to comment on the names of those markets yet.

Any further plans to acquire?

Should an opportunity arise, we will certainly have a look. However if we do, the opportunity needs to be sizeable and in the AUM threshold of US$10 billion to US$15 billion at least. But at this point, I do not see many true opportunities in this range in the market.

ASIAN PRIVATE BANKER

21

TECHNOLOGY

Smaller private banks can “rent a platform” to stay in business, says UBS’ Kathryn Shih

S

maller private banks – which may otherwise struggle to stay afloat amid a rising regulatory burden and hefty upfront costs when installing front-to-back platforms – should consider outsourcing parts of their businesses to larger rivals, including UBS, the Swiss lender’s APAC president, Kathryn Shih, tells Asian Private Banker.

Kathryn Shih

“A possible alternative for smaller private banks to ride the tech wave is to rent a [technology] platform from bigger players,” Shih says.

Relinquish or rent Indeed, Shih believes that high tech costs are driving smaller private banks – typically those with less than US$20 billion in AUM – to exit the industry.

“The upfront costs for tech investments are high,” she says. “That is why you are seeing the smaller private banks who are unable to afford such systems selling their businesses. How many private banks in Asia have the scale and ability to fund a robust technology platform? Not many.”

UBS Wealth Management has invested heavily in global tech projects, having poured “billions of Swiss francs” into such schemes, according to Shih.

These investments will allow the bank to move its Hong Kong and Singaporean operations onto the platform it uses in Switzerland – the One Wealth Management Platform – later this year, she says, adding that “robust platforms” are essential for private banks as they facilitate processes such as anti-money laundering (AML) and suitability checks.

The Swiss major aims to complete its global tech revamp by 2018, with the objective of streamlining UBS Wealth Management’s internal IT operations onto a single platform across multiple jurisdictions, while also merging parts of the bank’s back and middle office functions in order to cut back on costs.

The scheme is expected to have a significant impact on UBS Wealth Management’s business in Asia, the private bank’s global president Juerg Zeltner told Asian Private Banker last year. Asia accounts for the “largest chunk of the change-the-bank IT budget”, he said.

22

ASIAN PRIVATE BANKER

While Shih says UBS is open to servicing smaller players through a BPO [business process outsourcing] model, Asian Private Banker understands that at least one other large private bank in the region has similar intentions.

Viability in question However, the rent-a-platform approach has been met with some scepticism in the industry.

Avaloq’s CEO and founder, Francisco Fernandez, told Asian Private Banker recently that he does not think this is a sustainable solution, due to the lack of independence and expertise that banks are able to offer. Fernandez added that this model has been trialed in Europe with little success.

Avaloq set up a BPO centre in Singapore in 2015, with the aim of capitalising on the consolidation sweeping through the region’s private banking industry. To date, Deutsche Bank Wealth Management is the only client of Avaloq’s BPO centre in the city-state.

When asked whether a bank outsourcing to another bank would give rise to a conflict of interest, Shih says that this service is merely an adaptation of the model that private banks already use to service financial intermediaries, such as independent asset managers, which own their own relationships but use private banks for custodial services.

“The third party banks would still own relationships with their clients and disseminate their banks’ CIO views but leverage off larger players like UBS for automating certain processes,” Shih says.

An IT head at a private bank recently suggested that large private banks looking to roll out this service should consider creating a separate, independent entity to avoid conflicts of interest.

Indosuez Wealth Management, the private banking arm of Credit Agricole, offers a BPO service to other banks, called S2i, which manages CHF120 billion in client assets. According to the bank’s website, S2i is used by 28 banks globally, including UBP in Asia.

Meanwhile, Shih adds that outsourcing is not restricted to technologydriven processes.

“The alternative for smaller players of outsourcing to a bank like us is really not just a matter of technology but also content.”

INDUSTRY

CMBC to grow its private banking unit in Hong Kong with launch of new centre “In the coming three years, we will focus on building up our scale from the current HK$10 billion in AUM, to become a top five among our Chinese peers in Hong Kong.”

The group has nearly 16,000 private banking clients in China, each with minimum assets of CNY 8 million, says Ho.

C

hina Minsheng Banking Corporation’s (CMBC) Hong Kong unit opened a new private banking centre in late June, as part of the Beijing-based lender’s plans to become one of the five largest Chinese private banks in Hong Kong.

The “private bank and wealth management centre” takes up a quarter of a floor at Two IFC, says Peter Hu, MD and head of wealth management at CMBC’s Hong Kong branch, who adds that this marks “a good start” to CMBC’s three-year plan for its private bank in the city.

“In the coming three years, we will focus on building up our scale from the current HK$10 billion in assets under management, to become a top five among our Chinese peers in Hong Kong,” Hu tells Asian Private Banker, adding that the lender aims to have 50 bankers within its private banking division in Hong Kong, from 14 currently.

The bank will take a gradual approach to hiring, with four new relationship managers in the pipeline at present, says Sunny Ho, CMBC’s private banking head in Hong Kong.

The lender’s private banking team in Hong Kong has been sharing office space with its retail and corporate banking divisions. The new centre – located one floor above these offices in Two IFC – is a dedicated private banking space.

CMBC sources most of its high net worth clients from the bank’s onshore operations in Mainland China, according to Ho.

Hu adds that unlike some Chinese state-owned banks in Hong Kong, CMBC does not have an existing local client base in the city. “An existing local client base here could be a legacy, while sometimes, a burden,” he says.

“Minsheng has its own path in terms of products, given the huge difference of onshore clients’ demands.”

Organic growth preferred Meanwhile, the private banking unit has no plans for acquisitive growth at this stage, according to Ho. “Minsheng has its own path in terms of products, given the huge difference of onshore clients’ demands,” Ho says.

He adds that products that offer capital protection, which are hotly sought after among Chinese clients, are scarce in Hong Kong. As such, the bank will look for partnerships with Chinese asset managers and insurance providers over the next three years.

Hu says the private bank will offer more international solutions when “customer satisfaction” has been well established.

CMBC International, a wholly-owned subsidiary of CMBC, took a stake in multi-family office Carret Private Investments last year.

CMBC’s onshore private bank managed CNY 296.7 billion at the end of last year, up around 9% from 2015, according to the bank’s 2016 annual report.

ASIAN PRIVATE BANKER

23

TECHNOLOGY

Avaloq’s founder & CEO: Warburg Pincus deal means access to top private banking management in Asia

I

n March, private banking software giant Avaloq agreed to sell 35% of its business to private equity firm Warburg Pincus, in a deal valued at over CHF 1 billion. In addition to providing the tech firm with capital for its next growth phase, how will the transaction affect Avaloq’s private banking solutions business in Asia?

Asian Private Banker speaks to Avaloq founder and CEO Francisco Fernandez – who will retain his 28% stake in the company and will assume the additional role of chairman – about how he plans to accelerate Avaloq’s growth in Asia following the deal. Fernandez also discusses how the deal will impact the way Avaloq services its existing private banking clients, including Deutsche Bank Wealth Management and China CITIC Bank International.

Asian Private Banker (APB): How will the transaction impact Avaloq’s business in Asia, where much of the focus has been on providing core banking software to private banks?

24

ASIAN PRIVATE BANKER

Francisco Fernandez (FF): Our commitment to the Asia market will remain strong. Where we think the deal can help us in the region is leveraging Warburg Pincus’ fantastic network as this will give us an entry at the CEO level, which is very important given the transformative nature of the services that we provide. Rather than coming through the back door, if we are able to pitch to the top levels, the commitment to invest is greater.

APB: Has it been difficult to access private banking CEOs in Asia in the past?

FF: It was easier for us to get an entry to the senior level management at European private banks that are based in Asia, for example Coutts and Barclays. They are already aware of our footprint in Switzerland and Europe. Where we need a boost is targeting the top Chinese banks.

Warburg Pincus’ network in Beijing and Shanghai will be extremely useful here.

TECHNOLOGY

APB: How do you plan to target Chinese private banks onshore?

FF: At the moment, we are planning a prudent, risk-mitigated entry into Mainland China. We are starting with our current offshore private banking clients in Hong Kong, such as CITIC and Agricultural Bank of China, and adopting a “follow-your-customer” approach into China. We plan to be quite selective in our China expansion. We are not planning to make a sizeable pre-investment and open up a subsidiary onshore.

APB: Is it possible for China-based private banks to operate on the same platform in China and offshore?

FF: Yes it is possible but it would depend on the jurisdictions, as there are regulations regarding where the data must sit. We try to provide a platform that consolidates the data, but are also cognisant of the fact that in some locations, such as Switzerland and Singapore, there is more scrutiny surrounding where the data must reside. For these circumstances, we have developed a special software that separates operations and customer data from an architectural perspective.

APB: Is this strategy of targeting private banks in both their onshore and offshore centres a growing trend?

FF: Yes, it’s a trend we are seeing pick up more and more as Chinese private banks set up centres offshore in locations such as Singapore. In fact, in Europe, many Chinese banks are setting up shop, presenting a big opportunity for us. As a result, we have adopted what we call an ‘internationalisation strategy’ where we provide a local offering and subsequently follow the customer, globally.

APB: Over a year ago, Avaloq launched its BPO [business process outsourcing] centre in Singapore. What effect will the Warburg Pincus deal have on the firm’s BPO business in Asia?

FF: The deal will also help us accelerate this business. Having the operating centre in Singapore has allowed us to provide a high degree of automation and STP [straight-through processing] despite high labour costs. Still, the decision-making and sales cycles at private banks looking to change their business models and outsource to a BPO centre like ours is relatively long. It takes roughly 12 to 18 months.

APB: To date, Deutsche Bank Wealth Management is the only private bank in Asia using the BPO centre. How has that project gone and are there more private banks in the pipeline?

FF: Deutsche Bank Wealth Management is very happy. Indeed, they plan to adopt the same strategy in Europe as well. Yes, there are more in the pipeline but I am unable to reveal the names at this point.

FF: Definitely easier! For the smaller private banks with AUM of roughly US$2 billion, the BPO strategy is a survival one as these are banks that are coping with high regulatory and compliance costs while trying to keep pace with demanding and digital-savvy clients.

For the bigger players, it is still an economically good business case.

We also have a special price for ‘start-up banks’.

APB: Industry experts have suggested that one possible strategy for private banks with less than US$20 billion in AUM could be to outsource their back-office functions to larger private banks, through the construction of independent entities. Do you think this could work?

FF: I do not think this is a sustainable idea. Banks do not like to outsource to banks. We have seen this attempt done in Europe but to little success. It makes more sense for banks to outsource to completely independent institutions like us. Very often, large tech vendors do not have in-depth domain expertise, while banks do not have the expertise and do not want to collaborate with competitors.

Independent vendors like us are also able to operate in a more efficient manner. For example, we are able to process 45 corporate actions in one go. This is difficult for private banks to do.

APB: In 2016, there were a number of acquisitions in the region.

Usually, the acquiring private bank opts to keep its core operating system – shedding those used by the other bank. Many of the deals seen last year did not go in Avaloq’s favour. How did the firm deal with this?

FF: Yes very often, when banks buy, they do not switch their systems – the buying bank integrates into the acquiring bank’s system. That is an education problem as banks are yet to understand that data migration can be expedited with better systems. Moving forward, we hope that this knowledge spreads in the market and that Warburg Pincus can help give us more credibility.

APB: Avaloq now has a sizeable private equity shareholder and plans to list in the future. What is the rationale behind an IPO? FF: The plan to go public with Warburg Pincus will help us reach the right maturity in three to five years.

APB: And finally, what’s next in the product pipeline for Avaloq in Asia?

FF: One-third of all our existing global customers are now using our digital offering. At the moment, we are working on enhancing our digital offering in Switzerland. Once we see success here, we will export the strategy to Asia.

APB: Has the consolidation of Asia’s private banking industry made your pitch easier or more difficult, considering that there are fewer banks to target?

ASIAN PRIVATE BANKER

25