www.asianprivatebanker.com
DECEMBER 2016
Issue 106
ASIAN PRIVATE BANKER Independent, Authoritative, Indispensable
THE
FINAL WORD Private banking heads have their say on the year that has been P7
I NSI DE
The industry in 2016: 5 key events
APB Mandate: Investment products & services: 5 key trends in 2016
Technology: Top 5 Chinese fintechs to watch
Movers & Shakers: Key trends in 2016
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Issue 106
December 2016
CONTENTS 4 Industry The industry in 2016: 5 key events 7 Industry The final word 16 APB Mandate Investment products & services: 5 key trends in 2016 18 Technology Top 5 Chinese fintechs to watch 20 Industry Structured Products Awards for Excellence 2016 CEO Andrew Shale Editor-in-Chief Shruti Advani Editor Sebastian Enberg Editorial Richard Otsuki Priyanka Boghani Charlene Cong Managing Director Paris Shepherd
Operations Benjamin Yang Koye Sun Jessie Cheng Dennis Luk Jacqueline Lau
22 People Movers & Shakers: Key trends in 2016
Business Development Madhuri Chatterjee Sonia Lam Sam Chan Olaide Ogungbesan Joanne Tse Eldar Gainutdinov Digital Tristan Watkins Yiyang Zhou Stacey Wong CĂŠcile de Buor
Published by Key Positoning Limited 13B Greatmany Centre 111 Queen’s Road East Wanchai, Hong Kong Tel: +852 2529 5577 Fax: +852 3013 9984 Email: info@asianprivatebanker.com ISSN NO. 2076-5320 asian private banker 3
INDUSTRY
The industry in 2016 5 key events [1]
Relentless consolidation
Industry leaders last year forecast that consolidation would kick up a notch in 2016. They were right. Since January, Asia’s private banking industry has witnessed a flurry of M&A deals - both inked and closed - bringing credence to the argument that scale is now, more than ever, a prerequisite for survival. In February, EFG International announced that it would purchase BSI from Brazil’s Grupo BTG Pactual for CHF1.33 billion. What followed was nothing short of seismic. BSI, already under investigation for its links to Malaysia sovereign fund 1MDB, incurred the full wrath of the Monetary Authority of Singapore, which directed the Swiss pure play to close its business in the city-state on the grounds that it committed “serious breaches of anti-money laundering requirements”. Both Swiss and Singaporean regulators gave the transaction the greenlight, however, and EFG closed the acquisition for a preliminary purchase price of CHF1.06 billion. BSI Singapore - though stripped of its licence - was ‘successfully’ integrated in an expedited asset deal under the stewardship of Albert Chiu, EFG’s chief executive for APAC. Earlier this month, EFG announced that it will integrate BSI’s Hong Kong business in 1Q17, with Singapore serving as the blueprint. Bank of Singapore has only been around since 2010, when OCBC Bank acquired ING’s private banking activities in Asia for an eye-watering 5.8% on AUM. Since then, the rebranded Bank of Singapore has grown organically at a CAGR of around 17% (to end-2015). Stiff
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domestic competition and the exigencies of scale may have prompted a rethink because, in April this year, it snapped up Barclays Wealth and Investment Management in Hong Kong and Singapore for US$320 million in cash - or 1.75% of the private bank’s US$18.3 billion in AUM as of 31 December 2015. By all reports, the integration was not as smooth as one would have hoped for. Bank of Singapore faced a degree of pushback from some Barclays bankers and some questioned the acquirer’s decision to largely shelve Barclays’ tech platform. Still, the integration was concluded in late November at a lower price of US$227.5 million with 75% of Barclays WIM’s assets transferred, bringing Bank of Singapore’s total AUM to over US$75 billion. Bank of Singapore also took over minnow DZ Privatbank’s Singapore business, which is shutting up shop in the city-state at the end of the year. Another pure play, Union Bancaire Privée, rang in the new year by wrapping up its integration of Coutts International, which it purchased from RBS. With licences in Hong Kong and a shot in the arm in terms of Asia client assets, UBP’s CEO Guy de Picciotto said that he wants to double the bank’s Asia AUM over the midterm and increase Asia’s share of the bank’s global AUM to 25%, also over the midterm. As far as future M&A activity goes, UBP is one to watch in 2017. Not one to be sidelined, DBS, one of the most fervent proponents of inorganic growth in recent years, revealed in October that it will purchase ANZ’s wealth management and retail
business across five Asian markets, including Hong Kong and Singapore. While the final asking price has not been disclosed, DBS said that it will pay approximately S$110 million above book value, while ANZ faces a net loss of around S$265 million. Meanwhile, ANZ’s CEO Shayne Elliott conceded that “[in retail and wealth], without greater scale ANZ’s competitive position is not as compelling.” Liechtensteinian private bank, LGT, capped off a strong year for its Asia franchise by agreeing to purchase ABN AMRO’s private banking business in Hong Kong, Singapore and Dubai. At the time of publishing, few details on the deal had emerged, although it was no secret that ABN AMRO was actively courting prospective acquirers. LGT said that the transaction, which is set to take place in the second quarter of 2017 subject to regulatory approval, will pump its AUM in the Asia up to over US$40 billion. Finally, Swiss private bank Edmond de Rothschild announced in early December that it will close its Hong Kong business. Widespread reports that the branch will cease to operate at the end the month provoked a response from HK CEO, Jing Zhang Brogle who said that the “branch has not begun the application process to relinquish its banking license and it will not cease operations by the end of December this year.” Whew!
INDUSTRY
[2]
1MDB claims BSI, Falcon licenses in Singapore
Perhaps no other story dominated the headlines in 2016 than the sorry saga of Malaysia sovereign fund, 1MDB. Asia’s private banking industry found itself ensnarled in an investigation that spans multiple jurisdictions and that fed into a key narrative of 2016: money laundering. The first major private banking casualty was BSI. In May, the Monetary Authority of Singapore said that it was revoking BSI’s merchant bank licence, citing “serious breaches of anti-money laundering requirements, poor management oversight of the bank’s operations, and gross misconduct by some of the bank’s staff.” MAS went so far as to call out a num-
[3]
CRS jitters
Further contributing to the general regulatory angst is the incoming Common Reporting Standard regime - an OECD initiative that requires jurisdictions to obtain information from their financial institutions and to automatically exchange it with other jurisdictions. Now no longer a mere blip on the horizon, CRS comes into effect in Hong Kong and Singapore at the beginning of 2018. Private banks have been actively educating relationship managers and clients alike on what this means, although uncertainty over how CRS will impact banks’ processes and the
[4]
industry as a whole seems to prevail. According to a Singapore-based wealth planner at an international private bank, “CRS has the potential to level the playing field and banks will need to work harder to carve out their niche.” For RMs there is concern over the extent to which they can be held personally liable. CRS is set to be a key theme in 2017. Of course, April’s Panama Papers leak did little to soothe banks’ nerves.
Indonesia’s tax amnesty
The initial phase of Indonesia’s tax amnesty programme - aimed at clawing back cash parked overseas to boost state coffers - was widely heralded as a “success”, netting Rp97.2 trillion in tax redemption payments (more than half of the nine-month target of Rp165 trillion target) although asset repatriation was off the pace. In public, Singapore-based private banks have been sanguine as to the toll the amnesty has taken on client assets, although private conversations tend to take on a darker
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ber of BSI’s senior management in Singapore, including former CEO Hanspeter Brunner and former deputy CEO Raj Sriram. Then again in October, MAS announced that it had instructed Falcon Private Bank to close its Singapore branch for a “persistent and severe lack of understanding of MAS’ AML requirements and expectations”. Additional fines were handed out to DBS, UBS Singapore, Standard Chartered and Coutts for AML breaches. All in all, a shameful episode that MAS has not taken lightly.
tone. Reports emerged that some banks were offering Indonesian clients favourable terms to keep assets parked - a charge denied by Singapore’s Ministry of Finance and MAS. By comparison, the second phase of the amnesty has fared poorly although, with the programme scheduled to run until March next year, it will continue to figure prominently in the headlines.
Insurance mania
Hong Kong has been at the epicenter of an insurance boom this year and some private banks have sought to ride the wave. Demand has, in large part, been driven by mainland investors keen to shift cash offshore. Indeed, the number of single premium policies sold to mainland clients increased by almost 250% year-on-year during the first half of 2016, to 4,503. Some private banks were permitting clients to purchase policies with multiple swipes of a credit card. “We’ve swiped so many cards so many times that we’ve broken a few,” revealed a product head for a Hong
Kong-based wealth manager in September. UnionPay has since blocked mainlanders from using its cards to purchase investment-linked insurance in Hong Kong. More generally, private banks are actively talking about the region’s wealth transition as a fundamental impetus for ramping up wealth planning services. And with transactional volumes plummeting over the first half of the year, insurance-driven revenues were able to take up some of the slack.
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ADVERTORIAL
Income in Retirement: Why inflation matters Income investing has been in great demand among investors in recent years and we believe this trend is set to continue. Aging population, deleveraging, regulation and the middle class squeeze are all trends that are further exacerbating the need for income.
A
mong the secular trends underpinning the increased demand for income, one of the most relevant is demographic challenges. The world is getting older and living longer. According to the United Nations “a significant ageing of the population in the next several decades is projected for most regions Jack Lin, head of Asia Pacific, of the world”. Globally, the number of Middle East and Africa elderly people (aged 65 or above) is Pioneer Investments forecast to increase from 610 million in 2015 to over 1.5 trillion in 2050, when elderly people will account for 16% of the world population, double the level of today. The decreasing fertility rate in developed countries in recent decades is also a relevant factor as it translates into a shrinking working population. As a result, for the first time in human history the number of elderly people above 65 years is about to exceed the number of children below 5 and life expectancy continues to rise. This means that while the number of pensioners is rising, the number of working people to support their retirement is decreasing. In 2050 forecasts predict 3.5 working people per pensioner globally (deteriorating from the 2013 forecast by the United Nations of 4 to1). In many countries pensioners are already sourcing income from work and savings to supplement their pension. A strong focus on risk is relevant when planning for retirement income. Inflation, for instance, represents an important risk to consider. In fact, should inflation be higher than expected (i.e 2.5% vs. 1% in the graph shown), savers risk running out of funds in retirement, as shown in the following example. In the example, in fact, a retiree with a $1 million portfolio at age 65 with an annual withdrawal of $35,000, investing in a
portfolio that generates a fixed 2.5% annual income, risks running out of money at age 95, if a 2.5% annual inflation materialises. In addition, retirees face the risk to be exposed to higher inflation on their spending. In fact, in the retirement phase the share of expenditure for housing and health care increased.
WEALTH PROJECTIONS OF A $1 MILLION PORTFOLIO AT AGE 65; $35,000 ANNUAL WITHDRAWAL; 2.5% INCOME
Source: Pioneer Investments. Calculations show each year portfolio value based on a fixed 2.5% income and a capital appreciation equal to zero. Income reinvested. Simulations assuming annual $35,000 withdrawals, adjusted yearly for different fixed levels of annual inflation (0%, 1%, 2.5%). Simulations are for illustrative purposes.
So what can investors do? In our view, traditional source of income (such as government bonds) may no longer be able to meet investor needs, as yields continue to be low. In the search for income, investors may consider enlarging their investment universe and exploring a wider range of potentially higher yielding investment opportunities across different asset classes – fixed income, equities, multi-asset or real asset. However, there are risks associated with potentially higher yielding assets. We think that an investment approach focused on broadening income sources while managing risks, such as inflation, may benefit investors in a low yield environment.
Disclaimer: Unless otherwise stated, all information contained in this document is from Pioneer Investments and is as of December 2016. The views expressed regarding market and economic trends are those of the author and not necessarily Pioneer Investments, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading on behalf of any Pioneer Investment product. There is no guarantee that market forecasts discussed will be realized or that these trends will continue. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested. This material does not constitute an offer to buy or a solicitation to sell any units of any investment fund or any service. Pioneer Investments is a trading name of the Pioneer Global Asset Management S.p.A. group of companies.
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INDUSTRY
THE
FINAL WORD Top private banking and wealth management heads share their views on the year that has beem and the year to come.
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INDUSTRY
the
ROSTER
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AF
AS
EK
Alex Fung CEO, Asia Vontobel Wealth Management
Amit Shah co-founder and executive director IIFL Wealth Management
Edmund Koh head of wealth management Asia Pacific UBS
FDF
JL
MC
Francesco de Ferrari head of private banking Asia Pacific Credit Suisse
Jimmy Lee head Asia Pacific Julius Baer
Mignonne Cheng chairman and CEO BNP Paribas Wealth Management APAC
RL
VC
SN
Ronald Lee head, private wealth management, Asia Pacific Goldman Sachs
Vincent Chui head of Asia institutional equity distribution and private wealth management Morgan Stanley
Sandeep Nayak CEO, broking Centrum Wealth Management
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INDUSTRY
INDUST RY T R E N D S What is your view on the one-bank approach versus the ‘pure’ or traditional wealth management debate? Are there inherent risks (i.e. closeness of investment banks and private banks) that challenge the long-term sustainability of the onebank approach or do purists risk losing business from clients who are in the wealth accumulation stage and may demand CIB capabilities? MC: Both the one-bank approach and the traditional wealth management route have their own merits. Our one-bank model has proven to be very successful and has been a core strategy of BNP Paribas. It propels us to provide holistic and more innovative solutions to clients, particularly the ultra-high and high net worth individuals. Through this strategy, BNP Paribas generates creative solutions and enables stronger client relationships, resulting in elevated client value. At the same time, clients benefit from a ‘one-stop-shop’ service, drawing on an extensive pool of resources including corporate & institutional banking and asset management without divisional boundaries. VC: A bank’s choice of the “one bank” or “specialist/traditional wealth management” approach lies mostly with its scale, strategy and core competence. In today’s overbanked environment, investors pick and choose service providers based on trust, relationship and product excellence. They do business with both universal banks as well as specialists depending on individual products. Transparency on product features and pricing, coupled with the millennial generation’s propensity to do their own internet-based research, means that banks need first-class products and best pricing to win. FDF: For more than a decade, Credit Suisse has been committed to serving its clients in Asia and in many emerging markets around the world on this integrated platform combining its strong private banking and investment banking capabilities, supported by rigorous risk and controls infrastructure. In addition, Credit Suisse Private Banking has always operated on an open platform providing clients with a wide selection of third party and inhouse products and solutions based on their needs and profile. This business model has been further solidified in Asia Pacific since October 2015 when the bank combined private banking and investment banking in one integrated business division in the region. This continues to serve our H/UHNW entrepreneur clients very well and we are convinced this is
the most relevant and powerful business model for Asian clients for where they are at their business and wealth cycles. In Asia, we firmly believe that managing the expanding wealth pools of Asian economies remains an attractive and rewarding business with secular growth potential, but only if banks can get the key elements right in a rapidly evolving regulatory, competitive and cost environment.
JL: Different clients may look for the advice and service they need during their specific stages. So one may say it is always difficult to argue which model would be better than the other. To us, we have managed to attract more than 100 highly qualified RMs in Asia this year. It is reassuring to see these seasoned professionals believe in our unique positioning as a real pure play.
AF: ...Vontobel has chosen a third path: the pure private bank-approach. We believe that in the next 5-to-10 years, particularly in China, there will be a major generational wealth handover. The inheriting generation will have a different approach - preserving wealth as opposed to building it. This is where international diversification will become important. This is where Vontobel’s strength lies: forward looking advice, active management, and tailor-made solutions. We don’t need scale to succeed - we choose differentiation.
RL: Many HNWIs in Asia are business owners so their personal and corporate wealth needs are intertwined. We focus on UHNW clients who may need to tap the resources of other parts of the firm, and we leverage these capabilities where appropriate.
EK: Building a sustainable business in wealth management requires economies of scale. For UBS, the clear strategic differentiator is our economies of scale. With CHF286 billion of AUM (in 3Q 2016), we are the largest private bank in APAC and have grown more than most competitors. As most of our Asian wealth management clients are business owners who are often interested in corporate activities for their businesses, beyond having a big balance sheet to lend, they will be looking for banks with the capabilities to execute corporate transactions. With our strong investment banking team globally and in the region, we are able to execute large asset-sales, M&A, IPOs, and other capital raising activities. For your reference, our crosssell ratio for 2015 was over 20 percent. This is crucial as we are seeing the first handover of wealth in Asia - around 460 of the billionaires in the markets covered are expected to pass USD2.1 trillion to the next generation in the next 20 years.
SN: The one-bank approach is gaining prominence with the business community that is creating wealth in new ventures. There is a very thin line separating the services required by an individual in his personal wealth creation and the services related to his business. They are inseparable for promoters and young entrepreneurs who are in the SME space. I think purists are at risk of losing out as the profile of an individual includes his business and the associated services linked to his business. AS: The wealth management industry has evolved over the years and the new breed of wealthy are the young entrepreneurs who have set up businesses, are actively running it and looking to expand their business. In such an environment it becomes essential to offer a one-bank approach. We have the unique ability and agility to leverage synergies across the diverse businesses of our parent IIFL Holdings. We offer one-stop solutions for investments in India and have CIB capabilities besides having the expertise to manage multiple asset classes… There are risks in every model, be it one-bank approach or otherwise. What sets us apart is our broad array of offerings, robust risk-management systems, simple fee structure and a key differentiator, which is our innovative offerings.
INDUSTRY
BU S I NE SS PE R FOR MAN CE Given this year’s downturn in transactional activity, how has your bank fared in terms of growing its fee-based business? What initiatives (if any) will you take in 2017 to increase the percentage of client assets in fee-based offerings? EK: Asia Pacific continues to be one of the fastest-growing regions in the world for UBS Wealth Management as well as for the UBS Group. In third quarter 2016, UBS Wealth Management Asia Pacific had total invested assets of CHF286 billion and has attracted CHF 20.7 billion in NNM YTD. Our discretionary and advisory mandate penetration is 27.1% globally (3Q 2016) and the penetration in Asia Pacific has also seen steady growth in recent years. Given the market volatility, investors in this region are increasingly following our UBS House View and see value in adhering to our strategic and tactical asset allocation on a delegated basis. Our unique offering, UBS Advice, has also seen strong double digit YoY growth in AUM from last year. AS: Most of our clients pay us AUM-based fees, which allows them to benefit from our advice without worrying about the number of transactions done. Such a fee structure also eliminates asset-class revenue biases. For the last five years, on a YoY basis, our composition has been increasingly moving to a fee-based business. Our conscious efforts have been to make our clients sign-up with us as an advisory client. AF: As a pure private bank Vontobel confines its offering to mandate solutions for its clients. Regarding mandate solutions, we offer different fee models to align the different interest of clients but they all rely on a fixed fee-basis. Transaction activities, therefore, contribute just a limited amount to our revenues. Transactional revenues were also under pressure
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based on this year’s challenging market environment such as growth concerns in China, deteriorating oil prices in the beginning of the year, and Brexit at the end of June. As an active asset manager, based on the respective current market environment, we constantly seek and identify attractive investment opportunities and themes (e.g. in 2016: technology stocks, inflation-linked bonds, commodity investments) to discuss with our clients. Based on our approach, it was possible to provide our clients with attractive opportunities at all different market phases this year to overcome the downturn. FDF: Despite the challenging environment, nine months’ revenue performance in our Private Banking business in Asia stayed resilient. We generated NNA of CHF13.9 billion in the first nine months, at a growth rate of 12% over AUM, driven by broad-based inflows across market areas, productivity of RMs, and strong collaboration across Private Banking and Investment Banking particularly for our UHNW clients… Our total AUM hit a historical record of CHF169 billion, at a very strong 22% YoY growth. We also generated CHF1 billion in revenues, a steady 10% YoY growth, with strong client activity levels with UHNWIs and entrepreneurs. In a challenging market, our transaction revenues stayed steady, while recurring revenues increased 5%. Clients increasingly appreciate the benefits of managed investment strategies such as funds and discretionary mandates versus trying to trade single stocks or bonds on
their own… We have seen strong double digit growth in assets of managed investment strategies such as funds and discretionary/advisory mandates in our regional Private Banking business. SN: We have been growing and the year has seen both revenues and assets grow 50% YoY. In 2017, our offshore wealth services will be a focus to widen our private bank offering. VC: Morgan Stanley’s Asia wealth business leverages on the firm’s institutional transactional platform to service its UHNW customers. Our institutional platform has proven to be a differentiated source of competitiveness given the quality of the people, technology and products. Concurrently, we have indeed been expanding our fee-based business particularly on liquid and income funds products. Our funds AUM grew by a third this year. RL: Our fee-based assets grew to a record level this year as we continue to evolve our business to focus on wealth advisory services. We have also helped clients diversify their portfolios as they become more receptive to the idea of wealth preservation for their families. We will continue to develop our investment platform to ensure diversification of our feebased assets. The key is to tailor and provide holistic advice on solutions that best match clients’ objectives and needs.
INDUSTRY
TAL E N T In 2017, will you place a greater emphasis on blooding and developing talent internally or will you prioritise hiring externally as a means to bring in assets? JL: While we will continue to hire the right talent, we would also like to focus more on training and developing our own people in 2017. Developing our own talent remains as one of the key priorities.
25% stake in the company and this helps us manage the delicate balance between the investments required to build our platform as well as correctly align incentives of the employees.
EK: ...In 2017 we will continue to invest in human resources to attract and retain the best talent in the market, increasing both quantity and quality of client advisors. Being the best-resourced bank allows us to attract, train and retain the best people. UBS currently has more than 1,000 client advisors and more than 2,800 employees in UBS Wealth Management Asia Pacific, making us the largest team of any wealth management firm in the region.
As of March 2016, our team comprised over 180 financial advisors with over 1,100 manyears of wide-ranging financial services experience. In the previous fiscal year, we recruited over 130 people, taking our total number of team members to 487 as of March-end. This fiscal year, we have already added over a hundred people in various functions. The approach will be mixed. When opportunities come our way we will evaluate the need for inorganic growth. I reckon, a lot of it will be leveraging our strong platform and people. Within the organisation, we have horizontal movement in addition to the vertical climb. What is noteworthy is our attrition rate is less than 2% and perhaps one of the lowest in the industry.
We continue to be a net hirer in Asia and plan to hire strategically depending on the needs of the business. However, cost management and increased efficiency are top priorities for the entire firm at all times. RL: Having the right people is the key to our success. We look for talent from diverse backgrounds and provide targeted training programs to support their career development at the firm. We also spend a significant amount of time with our existing people, and guide them towards raising the bar of excellence with clients as well as how they manage their books of business. AS: In the wealth management space, we are possibly the youngest team and yet possess one of the highest work experience. We did this by attracting the right set of people with relevant work experience. Our employees own around
VC: We are indeed ramping up efforts to hire junior bankers. We are looking for individuals with strong potential and connectivity with the millennial generation, but we are extremely selective. FDF: We will focus both on selectively hiring senior talent and developing our existing talent … [I]n the past year, we have continued to successfully attract quality assets and relationship managers to our platform, adding 100 net new RMs in 12 months.
continue to hire senior bankers strategically and have a good pipeline in place for 2017, a key focus is to onboard and integrate our new bankers and further increase the productivity of our existing talent base. We have key initiatives in place to blood new talent, including: a new RM onboarding initiative throughout the first year of their joining; a mentorship program by our most senior and successful private banker; front-to-back mentoring programs so that new RMs fully understand Credit Suisse’s platform and processes; as well as targeted development programs (e.g., the ‘Entrepreneurs Banker Program’) to deepen our RMs’ understanding of the corporate side of a client’s wealth. SN: Developing internal talent and bringing in high quality external hires will both go handin-hand in growing the Centrum Wealth franchise. We will necessarily build on the work done in both of these areas. AF: Vontobel constantly educates and trains its people in a variety of capacities (e.g., financing, compliance, sales). To accomplish this, we launched our “VT Curriculum” program in 2016 to holistically strengthen the skills of our staff - all while making additional hires. Our team of eleven relationship managers is comparatively small, but we aim to expand and grow organically. So both elements are important to us; the development of our people and the hiring of new relationship managers should they fit to our organisation.
In 2017, a key focus will be on maximizing returns from these investments. While we will
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INV E ST ME N T PR ODUCTS & S ERVICES Client appetite for equities remains muted and this is impacting investment diversification. Is this of concern to your private bank and, if so, how will you tackle this challenge? If it is not a concern, why not? MC: While it is true that investor interest in equities has been relatively muted, we’ve seen much more focus on fixed income instruments; equities as an asset class are still very much a core investment for our clients. With the likelihood of higher inflation, corporate earnings will increase and there is an expectation of an upcoming shift from fixed income instruments into equities. This is also evidenced by recent fund flows. During the past several weeks, the market saw a great rotation out from fixed income instruments into developed markets equities, the US in particular. The rebalancing to more equity positions will continue as reflation trade gathers pace and as more countries join the fiscal spending bandwagon. AS: The focus in wealth management is not skewed to a particular asset class. There are various customised strategies we make available to clients in the form of structured products, which could have equity component in them. Global liquidity has been flowing into US Dollar assets post-Donald Trump’s election. While the long term growth story for India remains intact, the year 2016 has been challenging for most asset classes. The Risk-On Risk-Off investment setting appears to be changing at frequent intervals. We had a big correction in the first quarter followed by global markets getting jittery regarding Brexit, the Trump victory and
an Italian referendum. While the above factors have led to outflows by Foreign Portfolio Investors (FPI) in November, the start for December has been better. India remains an attractive investment destination. The recent demonetisation move by the government will bring about a re-rating for India. Improving macro-economic profile and contained inflation paves the path for further moderation in interest rates. Leaving aside weakness and volatility over the next few months, we expect a build-up of positions in the equity market. The way we are tackling the muted appetite for equities is by increasing allocation to fixed income. For us, no two clients are the same so, to that extent, the strategy for each investor will differ based on the risk-taking ability and existing asset allocation. On the fixed income side, we believe that there is opportunity to play duration as yields could come off. However, there could be significant volatility and hence to some investors we suggest using active management strategies like dynamic bond funds to play out this strategy. VC: We feel strongly that equity as an asset class will be re-rated in 2017. GARP (Growth at Reasonable Price) opportunities abound in the
US, Japan and Asian emerging markets in particular. And here in Asia, there are also plenty of macro trading opportunities in Japan and China to focus on. AF: Equity allocations are a very important element of our diversified portfolios. Within the current low interest rate environment, equity positions continue to have a major role in the hunt for yield. Although equity market valuations are not low, they are still attractive. As such, an active selection of sectors and single stocks in the current market environment becomes increasingly important. We have seen interesting sector shifts in 2016 (e.g. from value to more cyclical stocks) and, based on our research, we have identified compelling investment topics (e.g. infrastructure, technology). We actively advise our clients to diversify their equity exposures along regions, countries, styles and sectors. We strive to convince our clients that in the current low interest environment of anticipatedly increasing inflation and further interest rate hikes by the Fed, investing in equities still offers superior return potentials in comparison with many other asset classes.
How has your private bank’s discretionary business fared in 2016 and how will you grow this business in 2017? EK: Our discretionary and advisory mandate penetration is 27.1% globally (3Q16) and the penetration in APAC has also seen steady growth in recent years. Given the market volatility, investors in this region are increasingly following our UBS House View and see value in adhering to our strategic and tactical asset allocation on a delegated basis. We have launched a few innovative mandate offerings in the past two years and we will continue to launch additional portfolio strategies that will aim to achieve attractive returns. FDF: Our discretionary mandates’ AUM have gone up by more than 20% YOY in the first
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nine months this year. It will remain a key focus area for Credit Suisse in 2017. We will continue to develop our investment expertise and platform to meet the needs of our clients. Our commitment to our clients starts from helping them to build their core portfolios using a discretionary mandate. It is likely that financial markets will continue to remain volatile in the months ahead. Therefore, we advocate our clients to focus on multi-asset income investing to preserve their wealth. Diversification and active management will be crucial to reduce downside risks. At the same time, we observe that many investors prefer to generate income through their portfolios. Hence, our invest-
ment approach will combine both multi-asset and income generation as the key pillars in building a strong core portfolio. One of Credit Suisse’s unique strengths in discretionary mandates lies also in its capability to customise portfolios for clients. Today, we have more than 50% of our discretionary mandates tailor-made for our UHNW clients. As we continue to work with entrepreneurs in this region, customisation in discretionary portfolio management is a feature this segment of clients is looking for to cater to their specific needs.
R EG UL AT I O N S & COMPL IANCE What measures are you taking to prepare bankers and clients for the CRS regime? JL: By combining the FATCA with CRS projects early this year, we were able to make use of the skills of a successful FATCA project organisation and the lessons drawn from that project. We offered CRS introductory training sessions for our bankers as early as April 2016 and have just recently followed up with mandatory operational readiness training. Similarly, we have approached all of our clients with CRS information in Q2 of 2016 and have subsequently invited some of our clients to attend CRS information sessions conducted by third-party specialists. Going forward, we expect to roll out web-based training mainly for new joiners and will also communicate any major updates on the local CRS rules to our colleagues and to our clients. EK: UBS welcomes the new measures by regulators for a common reporting standard to
strengthen its framework for international tax cooperation. It is critical that the regulators and all industry players work hand-in-hand to provide a safe and well regulated wealth management platform for wealthy individuals in Asia and beyond. These new measures will be applied to the entire private banking industry and reflect the global realities of the wealth management business – where investment advisory excellence, expertise, performance, service, platform – are vital to the future of the wealth management business, a future which is characterised by openness and transparency. The development will play to our strengths. UBS has for several years, already started its transformation from a traditional private banking model to a performance-driven, client-centric investment manager. Our client promise is to protect and grow our clients’ wealth over
generations. No other bank can deliver this better than UBS. AF: The proper implementation of the Automatic Exchange of Information (AEOI) is very important for us. We have set up an internal project managing all the different topics and elements in relation to AEOI (and the new CRS regime). We have prepared the people internally (especially RMs) with specific training and different information meetings. Systems have been adopted accordingly and documentation and forms have also been changed. In addition, all clients have been informed about the purpose of AEOI and its implications.
How will regulators’ efforts to increase fee transparency impact clients’ approach to product selection? VC: Investors will absolutely demand value for money. Unless banks can demonstrate that their products offer good risk-adjusted alpha, investors will likely opt for low-cost passive strategies. To this extent, our synergy with Institutional Securities will help us differentiate on delivering alpha generation products commensurate with clients’ risk profiles. SN: Under an open architecture platform, the product selection will entirely be guided by a customer’s risk profile and financial goals. Transactional revenues would have led to a push strategy, but with advisory fee on the AUM agreed in a transparent manner, the
product selection is not linked to transactional incomes for a wealth firm. This will lead to growth of the industry with greater trust in the private bank advisor. AS: The regulators’ efforts to increase fee transparency will of course bring about a major change as clients will have to be charged fees as against the earlier method of earning commissions from product manufacturers. This paradigm shift will of course improve transparency and ensure the interests of the clients, advisors and the organisation are aligned.
to increase fee transparency. In fact, the hallmark of our service includes transparency in fees. Among our many innovations, one of them is the All-In-Fee which is the only revenue that we make from the client for advisory services. There are no hidden charges here. This fee is based on AUM and, hence, eliminates asset-class revenue biases completely. A combination of Direct Code investing for mutual funds, new unit class with lower fees and nil brokerage will lead to a substantial and immediate savings in total portfolio management cost.
We have not waited for any regulatory efforts
T H E FI NAL WOR D What word best describes or captures 2016 in terms of Asian private banking? «SEISMIC»
«CHANGEOVER»
«PATIENCE»
«SURPRISE!»
«RISK-ON-RISK-OFF»
«TRANSFORMATION»
«VOLATILITY»
«OH GOD!»
14
ASIAN PRIVATE BANKER
T ECH NO LO GY How important is it that tech investments are able to deliver measurable returns in the short-to-medium term? What key metrics do you employ to determine tech ROIs? VC: Currently, most technology dollars are invested in “guarding and optimising the bank” given our evolving and complex regulatory environment. My sense is that we might be at an inflection point to be able to use some of these dollars to invest in technology to help clients get better educated and prepared on investing and managing risk. Hopefully, this allows clients to weed out a lot of noise out there and focus on differentiated content and ideas. AS: … A significant part of India’s wealthy is relatively young and this presents an opportunity for us to create innovative products that significantly utilises news technologies including social and mobile-enabled investing applications. Technology ROI cannot be a stand-alone metric for us because clients seek ease of access and flexibility in how, where and when they can access their information. Moreover, technology ensures greater transparency and compliance. We use technology for all our internal applications to achieve faster client mapping. Our technology helps us pitch relevant products to the client and enables collaboration across teams. Our HR Management System is also technology-driven. In fact the technological initiatives including those at our client events, have earned us the appreciation of our customers. AF: …Clients profit from more information, increasing transparency and higher interaction with their personal relationship manager, driven by newly developed functionalities and platforms. Further, technology enables higher quality and more efficient back and mid-office processes. Vontobel invests heavily in tech-
nology to deliver higher quality value-adds to its clients. With our digital banking solution Vontobel Mobile Private Banking, we provide, for example, a valuable and exclusive banking platform for our clients. The ROI is relevant from a long-term perspective, driven by our (strategic) investments. FDF: ...Technology frees up RMs from administrative work and enables them to bring higher value adds to the client relationship, in addition to allowing them to focus on winning new clients. If an RM can spend more time with clients, this is not only a cost-benefit but the top-line benefit. Moreover, in an established situation where a digitalised client front-end is up and running, there can be significant cost efficiency in servicing a client as well. From a metrics perspective, we are seeing very strong progress on client adoption and client engagement via our Digital Private Banking platform. Client trading via the digital platform is increasing rapidly and the use of ‘self-service’ functions, such as the activation of eDocuments and Go-green (ie that clients no longer receive mailed advices for transactions and statements) is growing very fast.
EK: …Human-Centered Design is where we begin transforming business and culture from within. UBS is the only wealth manager to ensure quality of its design thinking curriculum through collaboration with Asia’s leading university, the National University of Singapore. Participants are put through a tailored course where 90% of the learning is considered experiential. Participants engage to meet client and end-user needs and see how they can move from vision to concept to reality. More than a dozen “problem statements” have been worked on in 2016. Several are being fast-tracked, including enhanced tools for our Client Advisors and a single platform for businesses within UBS to engage clients or prospects. We believe you cannot put a price on innovation or cultural transformation. Our approach has been to invest wisely and we believe our approach is the best combination of making sure we get the most out of our learnings while making sure that we don’t spend too much.
SN: Technology investments in terms of service delivery to a client in the evolving digital world are a mandatory need of the wealth business. It threatens the very existence of firms not geared up to the revised order of the Digital World. Customer preference of receiving a digital led service model is guiding investments in technology and adapting to change is more relevant (than ROI).
What will be 2017’s buzz word? «OPERATIONAL EFFICIENCY»
«RISK-ADJUSTED RETURNS»
«MAXIMISING ROIs»
«DIGITAL MAKEOVER»
«OPTIMISING»
«DISCIPLINE»
«REFLATION» (x2)
ASIAN PRIVATE BANKER
15
A P B M A N DAT E
Investment products & services 5 key trends in 2016 [1]
Asian HNWIs delegate buy-and-hold fixed income allocations
In a year characterised by evaporated risk appetite and intense uncertainty, fixed income proved the silver lining for an industry that saw its transactional volumes nosedive.
When a handful of regional defaults spooked the markets, many investors decided to enhance their buy-and-hold strategies by delegating the duty of bond selection and monitoring to professionals.
And within the asset class, one solution stood head and shoulders above the rest: the fixed maturity bond fund.
After Credit Suisse’s private banking unit in Asia made industry headlines by initially raising US$2 billion from private banking clients through Credit Suisse Asset Management’s (CSAM) fixed maturity bond fund, asset and wealth managers scrambled to replicate this success, exploring variations on the fund (e.g. high yield, emerging markets). Most recently, Julius Baer joined the fixed maturity party in Asia, raising US$600 million for an AllianceBernstein solution.
Robust growth and monetary easing has provided Asian HNWIs with the piece of mind to invest in bond issuances, simply by buying and holding until maturity. But with Fed rate hikes just around the corner and populist sentiment driving structural changes in the economy, Asia’s return-focused investors are thinking long and hard about risk.
[2]
Raw equity market wounds contribute to transactional income plunge
The stereotypical retail investor is known for possessing a short-term memory. But three months on from the Shanghai Composite mini crash (nevermind the worst start in 20 years to global markets), Asian HNWIs were still reticent to re-enter the markets. Coupled with a series of key risk events and the absence of a major driver of market direction, it is not hard to comprehend investors’ heightened regional risk aversion. This diminished appetite caused transactional income to plunge (in some cases by more than 30%) at Asia’s private banks. According to a
[3]
Shaky markets and weakening yuan drive private asset demand
A global slowdown - driven in no small part by a transitioning Chinese economy - and a weakening yuan are motivating mainland HNWIs to seek further diversification through private markets. In the first half of 2016 alone, the region injected more than US$8.7 billion into private equity (PE) investments in Europe and North America, compared with US$9.8 billion for the whole of 2015. At 85%, Chinese investors accounted for the bulk of the regional flows into PE markets. Demand was not limited to equities in the private market: wealthy investors from the region sought out yield from private fixed income in-
16
recent Asian Private Banker report, structured products volumes fell by a bank-weighted average of 13.8%. Wealth managers were able to partially offset the drop in transactional volumes with a resurgence of interest in non-equity structured notes like credit-linked notes (CLNs) or constant maturity swaps (CMS) alongside renewed demand in a post-election reflationary trade - but for many, the damage was already done.
APB MANDATE
struments, such as distressed debt from Europe or energy sectors. Wealth managers were beneficiaries of this flow, as large foreign financial institutions had a chance to showcase their global footprint and introduce deals that span various geographies and sectors. Chinese wealth managers also joined the private asset party, as evidenced by Noah’s raising of CNY5.4 billion in PE products in the first three months of 2016 and CreditEase’s reported raising of US$200 million in mid-2016 through PE partners, BlackStone and KKR.
A P B M A N DAT E
[4]
Passive evolution accelerates
The passive-active debate may well persist until the last standing alpha generator falls. Meanwhile, shrinking returns from global assets, intensifying fee scrutiny and a wealth of literature that not only supports traditional ETFs but also new specimens of beta has helped the passive vehicle to grow from US$300 billion to US$2 trillion globally. Even investors in Asia, who have enjoyed several decades of high octane regional growth, are not immune to this phenomenon. The growing demand from Asian HNWIs to diversify assets globally means that investors will have to test mature and efficient markets, like US or Eu-
[5]
rope, where alpha is harder to come by. At iShares, for example, private banks in Asia ex-Japan registered US$1.5 billion of inflows into ETFs, as of end-October 2016, representing a 158% increase in inflows for the whole of 2015. Discretionary managers and the growing breed of single and multi-family offices in Asia have been major contributors as investors replace allocations from managers that fail to deliver sustainable and consistent alpha that can justify fees.
Hedge funds fail to deliver
In a year when investors found absolute returns to be more relevant than alpha generation, hedge funds should have taken the cake. Unfortunately, a record worst start to global markets caused the HFRI’s fund-weighted composite index to record returns of -0.6% and +1.8% in the first and second quarters, respectively. The poor start dampened demand for hedge funds, even as European watchdogs brought hedge funds to the masses in a regulated and liquid form. According to an October poll conducted by Asian Private Banker, client appetite for hedge funds in 2016 measured a limp 4.7 out of 10,
with 40% of respondents citing poor recent performance as the primary deterrent. This caused some dismay at Asia’s private banks and asset managers that have spent time and resources putting in place an array of uncorrelated solutions for a year like 2016. Sure, slithers of allocations played out just fine (more often than not from close-ended vehicles limited to a handful of clients from well-connected institutions) but, for the most part, markets didn’t cut the broader hedge fund industry a break.
APB MANDATE
17
TECHNOLOGY
Top 5 Chinese fintechs to watch [1]
Clipper Advisor
FOUNDER: Liu Zhen HQ: Beijing FOUNDED IN: 2015
WHAT DOES IT DO? Clipper Advisor’s Blue Sea Wealth mobile app is a robo advisor that applies the “Yale model”, enabling Chinese investors to make investment decisions based on automated advice and to rebalance portfolios based on risk tolerance assessments. POSSIBLE APPLICATIONS FOR PRIVATE BANKS The app can be white-labeled by banks that are looking to roll out their own forms of robo advice to empower RMs or give clients direct access to digital investment advice. In particular, Clipper Advisor is a big draw for investors seeking global exposure.
[3]
99bill
FOUNDER: Guan Guoguang HQ: Shanghai FOUNDED IN: 2004
WHAT DOES IT DO? The company, whose key investor is Wanda Group, provides a range of financial services including mobile payment, consumer loans and wealth management services. Users sign up using a single account to access a full range of purchasing, borrowing and saving services. It leverages big data, artificial intelligence, blockchain and machine learning technologies. POSSIBLE APPLICATIONS FOR PRIVATE BANKS 99bill, which is also an app, can be white-labeled by private banks and used as a client-facing tool.
[2]
XinGuo Technology
HQ: Guangdong FOUNDED IN: 2001
WHAT DOES IT DO? A China-based startup that provides blockchain technology for supply chain financing. It specialises in smart contracts. POSSIBLE APPLICATIONS FOR PRIVATE BANKS Smart contracts - with the ability to automate trades on swaps - has been touted as a tech that could reduce the need for intermediaries, thereby reducing spreads at private banks. XinGuo Technology was recently selected by DBS to showcase its innovations to a round of potential investors.
[4]
Financial 360
FOUNDERS: Ye Daqing, Lu Jiayan HQ: Beijing FOUNDED IN: 2011
WHAT DOES IT DO? Also known as rong360, the firm provides search, recommendation and application services for financial products for individuals and SMEs. It is powered by a big data engine that slices and dices products on demand. POSSIBLE APPLICATIONS FOR PRIVATE BANKS Its services could be extended to the HNW tier, either via a B2B model or by direct adoption.
CHINA’S FINTECH SPACE IN NUMBERS
[5]
Xuanji
FOUNDER: Zheng Yudong HQ: Beijing FOUNDED IN: 2016
WHAT DOES IT DO? Launched by PINTEC, Xuanji is a robo-advisory technology platform that provides intelligent investment advice to Chinese investors through its application of algorithms. Users can customise and rebalance their portfolios by applying quantitative modeling and machine learning. POSSIBLE APPLICATIONS FOR PRIVATE BANKS Though robo-advisory is yet to find a ‘natural’ home at Asia’s private banks, the technology is receiving widespread attention for its ability to provide smart advice and to empower relationship managers.
12 tn+
(RMB) (US$1.74 tn)
Internet finance industry 2015 (Source: McKinsey)
45%
of global US$9.6 bn Chinese fintech investments (Sources: DBS & EY)
US$2.4 bn in investments into Chinese fintechs in 1Q16
INDUSTRY
2016 was, admittedly, an unforgiving year, but a number of structured products providers excelled by adapting to these challenges and listening to clients. We thank the 52 structured products specialists from the 29 private banks who participated in this year’s awards poll and congratulate the following winners of Asian Private Banker’s Structured Products Awards for Excellence 2016.
“I
n 2016 resilience was the differentiating factor between private banks. It was not easy to provide investment solutions with strong conviction in the absence of market support and looking ahead to 2017, the environment is again fast-changing. Those players with the ability to generate relevant and innovative ideas will be in the best position to offer investors value and meet the high expectations of wealthy Asian investors, which remains the collective goal of private banks, investment banks and asset managers.
Stephane Honig, Head of Sales Wealth Management & Family Offices, Global Markets, APAC BNP Paribas