Issue 119 June 2018 Lite by Asian Private Banker

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Issue 119

I NDIA 2017 AUM & R M HEA DCO UNT L EAG UE TA BLES India's Top 20 soars: Unprecedented change for India's private wealth management landscape P 1 3 Fast and furious: India's Top 20 by RM headcount grows at eight times the rate of the region P 1 6

INSIDE Industry Indian wealth management special

Investments Asia's PBs say "stay the course, trust the fundamentals"

Investments Hedge funds vs liquid alts: the PB debate continues

Family Office/IAM Are Asia's IAMs ready for take-off?

P21

P43

P51

P54

CONTENTS ISSUE 119

Letter from the Editor

Echo Chamber Industry China Industrial Bank launches Hong Kong PB business

Industry Straight Talk: Marisa Drew, CEO of the impact advisory and finance department, Credit Suisse

Industry India 2017 AUM & RM Headcount League Tables

Regulations UBS becomes first foreign shareholder to apply for China JV majority ownership

Indian wealth management special ◆ Kotak talks up its wealth management roots as competition intensifies ◆ Waterfield Advisors forges ahead with advisory-only model ◆ Edelweiss's Kapoor: "Wealth management in India is going mainstream" ◆ Ambit Private Wealth wants to 'demystify' investments for 'Smart Indians' ◆ Centrum pursues partnerships, tier-two cities ◆ IIFL Wealth gears up for post-raise expansion

Technology PB COOs say innovation progress “on par” with rivals but lags tech giants

Events Chief Operating Officers Leaders Conversations 2018

Industry Foreign banks capitalise on India’s wholesale asset allocation shift onshore

Industry India’s Yes Bank expands to Singapore with NRI offering

Industry Deutsche Bank WM’s NRI push supports India U-turn speculation

Industry BNPP WM’s Vrielinck marks first anniversary as Asia CEO with major business reorg

Advertorial A rich tradition of excellence in wealth management

Events Investment Advisory Summit 2018

Industry One third of Asia’s wealth, asset managers doubt trailer fee ban

Investments Asia's private banks say"stay the course, trust the fundamentals"

Awards Asset Management Awards for Excellence 2018

Investments Julius Baer’s John Cappetta: Equity strategies dominate top fund inflows in H1

50 Published by Key Positioning Limited 13 Greatmany Centre 111 Queen’s Road East Wanchai, Hong Kong

Industry EFG in Asia leadership revamp

Investments Hedge funds vs liquid alts: the PB debate continues

Tel: Fax: Email:

Investments Asia’s WMs disagree over India’s equity market

Family Office/IAM Are Asia’s IAMs ready for take-off?

People Moves Movers & Shakers

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

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

+852 2529 1777 +852 3013 9984 info@asianprivatebanker.com

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LETTER FROM THE EDITOR

ompared to Hong Kong and Singapore, there can’t be too many furrowed brows in India’s domestic wealth management industry, which by all accounts is entering a golden age.

Most participants would point to significant structural changes from both an economic and demographic perspective as key drivers of growth — at the macro-level, it took India some 65 years from independence to become a trillion dollar economy and just 6.5 years to add the next. They also defer to Modi’s demonetisation drive, which has compelled flows into financial assets at the expense of gold and real estate. But that’s only part of the story because the firms Asian Private Banker has spoken to are also taking matters into their own hands, plotting their next moves on the assumption that this growth will continue, more-or-less unabated, for the next decade. Regulatory changes are opening up new opportunities for product innovation. They are also provoking some thought around the role of wealth managers in an industry where distribution has been the norm and advisory has yet to develop into a fully-fledged business line. Most firms are showing an eagerness to deal with the here and now of the digital revolution, in a number of cases viewing technology as an effective means to scale up by pushing down into the lower wealth segments. And clients themselves are coming around to the view that it may be better to engage with a professional advisor than go it alone. Under such conditions, compiling a ranking of India’s top wealth managers by AUM is a relatively pleasurable task. Briefly, our third annual Top 20 League Tables for India paint a picture of sustained growth across client assets and frontline headcounts, with local players leading the charge: • • • •

Top 20 combined AUM: US$169.3 billion (+63.3% YoY) Top 5 total AUM: US$85.7 billion Five new members to the ‘US$10 billion+ club’ ‘Local’ players account for 14 of Top 20 We hope you enjoy,

Sebastian Enberg Editor Asian Private Banker

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e ch o cham be r “[As] far as our private & commercial bank (PCB) is concerned, I am very optimistic... We expect to be able to sustainably grow revenues in the PCB, year after year, while simultaneously reducing our cost base as planned.” Christian Sewing, chief executive officer, Deutsche Bank “Ten years ago, Bank of China founded the private banking market, building China’s first private bank. Ten years on, we need to follow the trends and change with the times. But more so, we should stick to our principles and not forget our initial intentions. Bank of China Private Banking must seize this once-in-a-century opportunity to transform.” Liu Min, general manager, wealth management and private banking department, Bank of China “This is a business that has gone from some US$30 billion to over US$100 billion in AUM. We decided that given this velocity of growth, the size of the organisation and changes in the environment relating to regulation and technology, it was time to review the organisation.” Pierre Vrielinck, CEO wealth management Asia Pacific, BNP Paribas “We are targeting 50% revenue and assets growth target for the year, which we should achieve. We have the opportunity for the next 5-10 years to grow at this pace — as long as we keep our entrepreneurial mindset." Anshu Kapoor, head, global wealth management, Edelweiss “We no longer use the phrase ‘tax haven’, as we do not think that is the future of IFCs (international financial centres). In other words, we don’t see a future for IFCs that have secrecy as their main priority.” An Kelles, business development director, Greater China, Jersey Finance “There are some clients who prefer to think about entering the impact investing space with their philanthropic capital. So then the rationale is different – if they are otherwise going to give that money away, why not try impact investing – if they can generate a return on that capital, isn’t that fantastic... And if for some reason, the returns didn’t come out as you thought they would, you were going to give it away anyway." Marisa Drew, CEO of the impact advisory and finance department, Credit Suisse

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China Industrial Bank launches Hong Kong PB business

hina Industrial Bank has clinched regulatory approval to launch its Hong Kong private banking business — a rare expansionary move into the city for a mainland lender — as more of its peers have turned conservative under Chinese forex regulators’ tightened policies for capital outflows in recent years. Asian Private Banker understands Industrial will formally launch the unit under its Hong Kong branch in mid-August, although it began operations and client activities when it soft opened on 26 June. Joseph Tam, the former head of private banking and wealth management at Wing Lung Bank — a wholly owned subsidiary of China Merchants Bank in Hong Kong since 2009 — will spearhead the business as general manager. The Fujian-headquartered lender’s private banking expansion into the city has come after Bank of Shanghai cancelled its same plan earlier in the year, weighed down by the headquarter’s concerns about client growth and regulations, sources have said. The private banking addition will complement the client relationships Industrial has developed with Chinese listed companies under the corporate and investment banking business it has run in the city since 2014. Furthermore, it will act as an international service point for the bank’s fledging onshore private banking business, which reported 11.45% year-on-year asset growth to total RMB 324 billion (US$199 billion) last year, and 13.39% year-on-year growth in number of clients to reach 23,062.

“As a strategic platform for the private banking business of Industrial Bank outside China, it is devoted to meeting the needs of overseas wealth management, investment and financing, and various professional consulting services of high-net-worth private banking customers throughout the bank in the future,” according to the bank’s website which outlined business scope and priorities for the years ahead. “The Hong Kong branch’s private banking team will fully leverage the synergistic advantage within the Industrial Bank to deepen cross-border linkage, together with providing a wide range of financial services and consultation to private bank clients and their enterprises.” The private bank has built its trading capabilities around the basics to respond to Chinese clients’ most frequent demands in overseas allocation. It can execute trades for fixed income and forex in a few mainstream currencies, including the US, Australian and Canadian dollars, offshore yuan, euro, and Japanese yen. The business will rely more on external capabilities for more advanced solutions. It can distribute mutual funds and can refer clients to third-party advisors for insurance planning. The insurance activities will be focused around mainstream Chinese clients appetite for protection-oriented policies and succession planning. Industrial’s Hong Kong private banking team did not respond to Asian Private Banker’s requests for comment as of press time.

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Straight Talk: Marisa Drew, CEO of the impact advisory and finance department, Credit Suisse Credit Suisse chief executive, Tidjane Thiam, made a statement of intent when he handpicked the bank’s former co-head of EMEA investment banking and capital markets, Marisa Drew, as CEO of a new impact advisory division in September last year. Her appointment coincided with the bank’s 15th anniversary in impact investing and microfinance and comes at a time when Asian private client demand for impact strategies is gaining momentum. In her first interview with media in Asia, Drew told Asian Private Banker that the way forward will necessarily involve experimentation, iteration, and education. Marisa, why do you think Tidjane selected you for this role?

It’s a fair question and one that I asked Tidjane. Why me? I am the old-school, profit-minded investment banker, so this role was not the most obvious nor a linear next career step.

As I think back across the bulk of my career, much of what I was doing was providing lifeblood capital to early stage high growth companies.

Marisa Drew

You have also been ranked among the 11 most influential women in finance.

Don’t believe all you read! I think some of this recognition has come from the fact that, over the years, I have raised well over US$150 billion of capital in the markets for my clients. As I think back across the bulk of my career, much of what I was doing was providing lifeblood capital to early stage high growth companies. My industry focus has largely been in the media and telecoms sector, with a particular concentration on the big infrastructure build-outs of cable and mobile platforms around the world including in developing markets.

And from what we understand, you played a formative role in building the leveraged finance asset class in Europe?

Yes, I started my career in the US, but as cable and mobile licences began to be issued abroad, I increasingly found myself raising capital for European issuers. The challenge at the time, however, was that we were raising money for European companies but selling the transactions to US investors. This was not always a natural fit. After commuting to London weekly for 18 months and seeing the massive growth potential of the European market, it struck me that the dynamics were right to support a truly standalone Europe leveraged finance asset class. I believed strongly enough in this thesis to make a career bet and move to Europe to try to realise the vision. As with any new market, progress came in fits and starts. In the early days, the leveraged finance business in Europe was largely built on TMT issuers because, at the time, the voracious users of capital were these companies building out their networks. The rest of the industrial sector 8

was very un-levered, and the concept of utilising leverage to generate shareholder returns hadn’t really been embraced by finance directors and chief executives in Europe outside of the TMT sector. When the TMT bubble burst in 2000, the leveraged finance market crashed with it. Ultimately, the market came back but with a much more diversified industry representation, which is critical to a healthy market. A lot of the lessons learned from building the leveraged finance market are actually quite applicable to this sector, and I think Tidjane had the vision and foresight to see this. I think, in me, he saw somebody who has built businesses, someone with expertise in the capital markets and in structuring, someone who has a track record of innovating in new markets and someone who can figure out how to get capital to where capital is needed. On reflection, it didn’t take a lot of convincing when I thought about what I wanted my legacy to be and that I could bring my 30 years of banking experience to making a difference in the world.

Bearing in mind that your role encompasses all divisions of the bank, we’d like to focus on the private banking piece of the puzzle, and specifically how you intend to address what is a nascent, but slowly growing, demand for impact strategies from private clients.

The Impact Advisory and Finance Department has been established to serve all of our divisions, but the private bank is mission critical — especially in Asia. I see myself as having three client constituencies: wealth clients, institutional investors and corporate clients. The reason I

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am emphasising this is that there is synergy across all three constituent groups, each of which also has different needs and requirements. But if we focus specifically on private clients, the dialogue around impact investing tends to begin with clients’ desire to leave a legacy, and when they start to think and talk about legacy, they do so through the lens of their passions, which, of course, vary widely from person to person. So, if we are going to serve that client constituency effectively, we need to figure out a way to create investable opportunities in the various verticals that they care about (such as education, financial inclusion, the environment, etc). Then, if a client comes to us and says she wants 5% or 100% of her portfolio invested in the ESG or impact arenas, we can offer a range of solutions across an entire spectrum of verticals to allow for a diversified portfolio. Additionally, we strive to be able to offer a diversified mix of public and private, liquid and illiquid investable options. That said, much of the available impact opportunities that exist in the market today are illiquid investments.

[I]f we are going to serve [the private] client constituency effectively, we need to figure out a way to create investable opportunities in the various verticals that they care about.

On the one hand, you could say private wealth individuals should have more ‘patient’ capital in the sense that they don’t have a fiduciary obligation to be able to actively trade in and out of their investments (like institutional investors have). That is in theory — but often, the beneficial owners of investable assets will manage them through a family office and often the manager of the family office acting in a fiduciary capacity will say, “Yes, we want to invest for impact, but we also want liquidity.”

One of the more common observations is that there is a real dearth of available structures. Yes, we do see the odd bespoke solution, but there is a real need for larger scaleable funds or other opportunities to invest in.

That’s right. When you are starting a market, things typically start out small. You experiment, you prove some success, and then you do the next one, and it’s bigger. Or you create an evergreen or open-ended version of a successful structure once it works. That’s the way this sector is developing.

And, from your perspective, is scale kicking in?

At the moment, the sharp end of the impact investing spectrum is very much about small projects — sometimes a half a million to a few million in total size — which isn’t where we are going to serve our largest clients who are looking to invest in a meaningful way. If we are going to make a difference in the world, we also need to be galvanising big pools of capital and that is largely resident with the institutional investor community. Institutional investors have two key criteria. The first is the need for liquidity, and the second is the desire to invest at scale. The largest institutions really want to be writing cheques for US$200 million at a 9

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time. This is an area of focus for my team. If I am structuring something that meets the requirements of the institutional investor community, I also believe it will attract private wealth clients in due course.

When it comes to private client awareness and interest in sustainable investing as a whole, it’s fair to say that there are also pronounced geographical differences. Asia is behind Europe and the US in terms of actual allocation into impact strategies, although momentum is gaining. You have been in the region with your ear to the ground, so what have you learned and what is the current state of discussion?

I think you are absolutely right that Asia is at an early stage on the journey. There is an extremely high level of curiosity, but at this point, I’d say it's early days in terms of how much the overall client base is invested in impact. Some of this is the chicken and egg thing: there is certainly the desire but there is a dearth of investable products in the region. These things will develop in tandem. It’s the same pattern we have seen elsewhere. If I were to pick regions or countries that are ahead, it would be Switzerland and the Nordics followed by the rest of Western Europe and the US, especially in the green economy. Asia is definitely behind these markets, but as we’ve seen with other asset class and thematic growth in Asia, I predict it will catch up quickly.

There is certainly the desire [in Asia to make an impact], but there is a dearth of investable products in the region. Sticking with the chicken and egg analogy, just how important is it that you are able to demonstrate measurable impact or a track record of impact from existing strategies as a means to stimulate further client uptake?

Success breeds success. You are familiar with our Asian Impact Investment Fund (AIIF) — a joint venture between Credit Suisse and UOB Venture Management which raised US$55 million at final close. Raising the capital for that fund was an education process which took time because as a firsttime fund there was no track record — also, the concept of a regional impact PE fund had not been done in the region before. But guess what! You demonstrate success and return, and the next one becomes easier, and they keep growing in size.

What did the AIIF experience teach you with regard to the structuring, the positioning and the selling?

I am very pleased with the investments we have made thus far. I'm really thrilled about the quality of the entrepreneurs, the quality of the businesses, the impact they are making and the scale they are achieving with what they are trying to do — it’s quite extraordinary. And when we go to raise for the next fund, we will do it on the back of this success. 10

What we learned — and, by the way, this is not inconsistent with other impact funds raised in other jurisdictions — is that when people are entering into the journey of impact investing, if you talk about the impact first and financials second, the conversation becomes that much more difficult. However, if you start the conversation with the goal to achieve market-based returns and then bring in the impact aspect, it’s much easier to sell. Investors are used to generating market returns, but the icing on top is the impact you can make through this investment.

[I]f you start the conversation with the goal to achieve market-based returns and then bring in the impact aspect, it’s much easier to sell. Your point here would seem to challenge a perception held by some that impact investing can cannibalise purely philanthropic giving. The point is that if the most effective entry point for impact investing is market returns, then both philanthropy and impact investing can happily co-exist.

I agree, but it depends on your starting point with the capital you are allocating. There is a human nature element and desire to make an impact, I believe, on the part of most investors. But if you are thinking about impact investing as part of your traditional investing pool of capital, you do not want to begin with a concession on returns. At the same time, there are some clients who prefer to think about entering the impact investing space with their philanthropic capital. So then the rationale is different: if they are otherwise going to give that money away, why not try impact investing? If they can generate a return on that capital that's fantastic, because the returns can be recycled back into making a bigger impact. And if for some reason, the returns didn’t come out as you thought they would, you were going to give it away anyway. Asia is exactly where Europe was five years ago, insofar as many of our clients in the region who I speak to tend to segregate their philanthropic capital into one pocket and their returns-based investing capital into another. Today in Europe, what we are seeing is a philosophical convergence — i.e., that investing to do good in the world and generating returns from that investing are not mutually exclusive. As more awareness and more evidence of returns can be demonstrated in Asia, this view of convergence should come, but we are not quite there yet.

Do you view ESG investing as a stepping stone to impact investing?

Yes, I do. ESG is where a lot of clients enter the realm of responsible/ sustainable investing because it is “relatively easy” in some respects. You can screen listed securities negatively for investments which do not align with your values or you can proactively say that I will only invest in companies that positively meet a set of criteria, and you can define that set of criteria quite easily with your financial advisor. But when you move into impact investing whereby the investment is often

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illiquid, longer-term in nature and is designed to create a measurable impact whilst generating a return, much more education and discussion is required.

Privately, and notwithstanding overtures from leadership, many bankers in Asia are less enthusiastic about the medium-term business case for ESG investing, perhaps citing perceptions around performance and lack of definitive benchmarks. They are also incentivised to follow the path of least resistance. This hasnâ&#x20AC;&#x2122;t stopped a number of banks pushing forward with their sustainable investment agenda. Do you think client traction is best achieved through a top-down push or by gradually stimulating bottom-up demand?

Having it come from both the top of the bank and from clients is clearly the best. If bankers are engaging with their clients on this topic, it will most certainly stimulate demand. Equally, if clients say they care about sustainable investing (and increasingly they are), then the banks and their relationship managers must respond. What is critical is to ensure that the bankers who interface with clients are well-informed on the subject so they feel comfortable raising it in discussion with their clients. Education backed up by good data is critical to building confidence.

Given what we have discussed, what can we expect from Credit Suisse in the coming 12 months in the impact investing space?

My goal is to continue to add to the client offering by introducing more bespoke products across more verticals and asset classes. We will continue to support fund managers such as what we did 15 years ago when we co-founded the first impact fund manager called ResponsAbility. Since then, we have added other impact funds to our platform such as those from Blue Orchard and WHEB. We have the

What is critical is to ensure that the bankers who interface with clients are well-informed on the subject so they feel comfortable raising it in discussion with their clients. aforementioned AIIF private equity fund, and when this is deployed, we hope to launch another impact PE fund that should be another step up in size. In addition, an area that is not yet well-travelled in Asia, but I suspect will be in due course, is blended finance. The idea of blended finance is that you can marry donor or grant capital with for-profit capital in the same structure, thereby crowding-in capital. In the impact investing space, there are sometimes risks or returns that may be unacceptable for the for-profit capital world, but if a non-profit could take on that risk or provide some other kind of credit support, then it can become a scale play. So this is another area where my team are spending quite a lot of time collaborating with partners on innovative investable structures. Finally, in the realm of partnering with others, we just announced a collaboration which has the potential to make an impact in a different but innovative way. Credit Suisse and the World Bank Group have just launched the Disruptive Technology for Development (DT4D) Challenge Fund. This initiative will use donor capital from our clients to support the matching of disruptive technologies from the worldâ&#x20AC;&#x2122;s leading tech companies with World Bank projects in frontier markets, thereby significantly enhancing the impact those project can achieve. 11

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INDIA 2017 AU M & RM HE ADCOU NT LEAGU E TA BL E S

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India’s Top 20 soars: Unprecedented change for India’s private wealth management landscape The outlook for Indian wealth management is as bright as it ever has been – assets under management (AUM) with India’s Top 20 wealth managers jumped a superlative 63.3% in 2017, well outpacing Asia’s offshore space (+29.2%) over the same period and China’s domestic private banking market, which grew by just under 22% between 2015 and 2016. The US$10 billion+ Club

With a swelling high net worth (HNW) population (+20.4% YoY) and HNW wealth pool (+21.6% YoY), India – the fastest growing wealth market globally1 – is now home to seven private wealth managers with AUM in excess of US$10 billion. By comparison, the prestigious ‘$10 billion+ Club’ had just two members at the end of 2016.

TOP 20 TOTA L AU M

$10 billion+ Club Wealth Manager

2017 AUM (US$ billion)

2016 AUM (US$ billion)

Kotak Wealth Management

$29.6

$15.3

IIFL Wealth & Asset Management

$17.7

$14.8

Edelweiss Wealth Management *NEW*

$13.3

$7.4

Axis Bank Wealth Management *NEW*

$12.7

$8.2

BNP Paribas Wealth Management *NEW*

$12.4

$7.3

ICICI Private Banking *NEW*

$11.2

$8.5

Standard Chartered Private Bank *NEW*

$10.7

$7.8

I N D I A’ S TO P 5 W E A LT H M A NAGER S H OLD

Continued domestic dominance

As the top of the table balloons, the top five largest wealth managers in India now collectively hold just over half of the Top 20’s AUM with US$85.7 billion. And with four of the five being domestic players, home-bred wealth managers are cementing their market dominance.

AU M O F T H E TO P 2 0 : DOM EST IC V S FOR EIGN

Overall, domestic wealth managers accounted for 71.8% of Top 20 AUM, compared with 63.6% in 2016. Kotak Wealth Management retained its top ranking and, indeed, extended its lead by nearly doubling client assets to US$29.6 billion. And clearly this was not off a small base, nor did it make substantial changes to its frontline, which remained at 110 relationship managers (RMs). There is now a US$11.9 billion difference – equivalent to a single large Indian private bank – between Kotak and the second largest wealth manager, IIFL Wealth. However, those following IIFL should expect 1

Capgemini World Wealth Report 2018

$121.5

28.2%

billion

$47.8 billion

71.8% DOMESTIC

FOREIGN

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India 2017 AUM League Table (US$ billion) Rank Private Bank/Wealth Manager

Type

YoY % Change

2017 AUM

2016 AUM

2015-2017 CAGR

Kotak Wealth Management 1

Domestic

93.5%

29.6

15.3

75.6%

IIFL Wealth & Asset Management 2

Domestic

19.6%

17.7

14.8

43.5%

Edelweiss Wealth Management 2

Domestic

79.7%

13.3

7.4

107.1%

Axis Bank Wealth Management 2, 3

Domestic

54.9%

12.7

8.2

BNP Paribas Wealth Management 1

Foreign

69.9%

12.4

7.3

51.5%

Domestic

31.8%

11.2

8.5

21.4%

Foreign

37.2%

10.7

7.8

29.3%

Foreign

30.0%

9.1

7.0

23.2%

Foreign

14.3%

8.0

7.0

15.5%

Domestic

20.0%

7.8

6.5

13.1%

Domestic

185.7%

6.0

2.1

158.2%

Domestic

1275.0%

5.5

0.4

328.2%

Foreign

4.7%

4.5

4.3

3.5%

Domestic

18.5%

3.2

2.7

Domestic

93.8%

3.1

1.6

54.4%

6 7 8 9 10 11 12 13 14 15

ICICI Private Banking

Standard Chartered Private Bank Julius Baer

Citi Private Bank

HDFC Private Bank

ASK Asset & Wealth Management Ambit Private Wealth Barclays Wealth

2, 4

Client Associates

Anand Rathi Private Wealth Management

Deutsche Bank Wealth Management

Foreign

34.8%

3.1

2.3

1.7%

Centrum Wealth Management 2

Domestic

66.7%

3.0

1.8

41.4%

Karvy Private Wealth 2

Domestic

38.1%

2.9

2.1

18.9%

Avendus Wealth Management 1

Domestic

64.7%

2.8

1.7

67.3%

L&T Finance Wealth Management 2

Domestic

42.1%

2.7

1.9

44.1%

Credit Suisse Private Banking 1

Foreign

35.0%

2.7

2.0

16.2%

Motilal Oswal Private Wealth Management 2

Domestic

140.0%

2.4

1.0

85.2%

Domestic

83.3%

2.2

1.2

Domestic

28.6%

0.9

0.7

-40.0%

Domestic

50.0%

0.3

0.2

169.3

103.7 6

23 24 25

Waterfield Advisors

Sanctum Wealth Management Credence Family Office

2, 5

Total of Top 20 Notes: All figures are as at 31 Dec 2017 31 Dec 2017 INRUSD rate of 0.01566173 used for figures not originally reported in USD

¹ Source: APB estimates ² Source: Bank's/wealth manager's estimates ³ Total AUM of Axis Bank Burgundy is US$18.9 bn as at 31 Dec 2017 with 449 RMs; Figures on table only represent client accounts of more than INR 5 cr, and RMs that manage a minimum portfolio size of INR 300 cr ⁴ Reported as AUA ⁵ Total AUA for Credence Family Office is US$0.5 billion (or INR 3,500 cr) as at 31 Dec 2017 ⁶ Total AUM of the Top 20 as at 31 Dec 2016

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its growth velocity to increase after the firm raised US$110 million to “expand both organically as well as inorganically across geographies”, signalling further development of both its onshore and non-resident Indian (NRI) businesses. Parent company IIFL Holdings also plans to demerge its wealth, finance, and securities businesses into three separate listed companies next year. Of those that did grow inorganically last year, Anand Rathi Private Wealth Management saw its AUM soar to US$3.1 billion (+93.8%) after its acquisition of Religare’s wealth management arm in February 2017. The firm also revealed its intention to raise US$74.8 million through an IPO in April 2018. Meanwhile, Edelweiss Wealth Management, which announced it would acquire Religare’s securities business last December, hoped to triple its client base and “achieve scale” as well. The deal fell through in March, with Edelweiss reporting that Religare was unable to acquire the “requisite clearances within the agreed timeline”. Nonetheless, Edelweiss posted a formidable 79.7% AUM growth in 2017, sufficient to rank it third domestically, with US$13.3 billion.

Numbers never before seen

Perhaps most remarkable of all is the quadruple digit growth rate achieved by Ambit Private Wealth, which rocketed from 20th place in 2016 to 12th place in 2017 with a YoY growth rate of some 1275%. Its three-year compound annual growth rate (CAGR) is also the highest among all firms at 328.2%. Ambit now holds US$5.5 billion (reported as assets under administration) of HNW wealth, and is well on its way to joining the ‘$10 billion+ Club’ should it maintain even a semblance of its current pace of growth.

Keeping up with the home-bred firms

Foreign firms, somewhat damaged by recent flip-flops on their commitment to the market, have traditionally struggled with India’s complex regulatory and licensing requirements, geographical spread and fierce competition for talent, to the benefit of local players.

But even as the likes of HSBC, UBS, Morgan Stanley and EFG headed for the exit, those that stayed the course, for the most part, achieved strong double-digit growth, benefiting in large part from buoyant markets and, of course, the government’s demonetisation drive which saw money flow into financial assets. BNP Paribas Wealth Management dethroned Standard Chartered Private Bank as India’s largest foreign private bank, with client assets surging by 69.9% last year to reach US$12.4 billion. The French lender launched its non-banking financial company (NBFC) last year and has demarcated India and NRI as a major business ‘cluster’ as part of a reorganisation of its broader APAC activities. Still, while Standard Chartered slipped three spots in 2017 to seventh place, it grew its assets by a healthy 37.2% to US$10.7 billion. The British bank’s group CEO, Bill Winters, previously admitted that StanChart’s brand has “been tarnished in some markets”, pointing to Singapore and India as two countries where it has lost ground. However, with the bank focusing on strengthening controls, cleaning up the brand and investing in new technology, it remains a permanent fixture in India’s domestic scene and, halfway through 2017, its $0.6 billion worth of net new money came mostly from India and Hong Kong.

Bumped out, but staying in

On the other end of the spectrum, Credit Suisse, one of the largest private banks in Asia and globally, slipped out of the rankings, even as assets climbed by an estimated 35% YoY to US$2.7 billion. Though it has a full-fledged investment bank in India, Francesco de Ferrari, head of private banking APAC and CEO Southeast Asia and frontier markets, said in March that the private bank still needs to decide how to “scale up significantly”, while also describing India as a market with “much potential”. And while a question mark hangs over Deutsche Bank’s presence in India, the private bank did post a 34.8% YoY increase in AUM, bringing its total to $3.1 billion.

INDUSTRY

Fast and furious: India’s Top 20 by RM headcount grows at eight times the rate of the region

ompared to last year’s Top 20 wealth managers by RM headcount, the Top 20 class of 2017 added more than 700 RMs to bring the combined total to 1,925 – a sharp YoY increase of 54.5%. Not only were local players the major hirers, they account for the first 13 positions on the table. Furthermore, the Top 5 firms by RM headcount account for more than half of all RMs, employing 1,061 out of 1,925 front office staff. HDFC Private Bank topped the table with a 250-strong frontline, after growing 25% YoY. Rakesh Singh, group head of private banking, said earlier this year that HDFC’s accelerated hiring began as soon as the demonetisation drive kicked off, driving money away from gold and real estate and into financial markets.

Of course, HDFC was not the only bank to take advantage of regulatory changes and bulk up headcount. Anand Rathi posted the highest net increase, adding 52 RMs (+40.6%) to bring its total to 180. Foreign wealth managers did not fare very well on the hiring front last year with two banks, Standard Chartered Private Bank and Julius Baer, actually reducing RM headcount. StanChart retained its top spot as the largest foreign player by RM headcount, even with a slight net loss. Meanwhile, domestic player, Avendus Wealth Management, despite having grown headcount by 50.0% YoY – the highest rate registered amongst all Top 20 firms – came from a low base and rounded out the year with 21 RMs, displacing international giants Credit Suisse and Deutsche Bank Wealth Management to secure 20th place.

TOP 20 RM HEADCOUNT 3y CAGR

TOP 20 TOTAL RM HEADCOUNT

1,927

(2015 - 2017)

1,246

32.7% TOP 20 RM HEADCOUNT

1,094

57.3%

(DOMESTIC VS FOREIGN) Domestic Foreign Total

70.5%

Domestic YoY growth

2000

- 23.1%

Foreign YoY growth

1,927 1,794

RM Headcount

1500 1,225 1,094

1,052

1000 915

500

TOP 20 YOY RM GROWTH (2016 - 2017)

179

173

133

2015

2016

2017

Year

INDUSTRY

India 2017 RM Headcount League Table Rank

Private Bank/Wealth Manager

Type

YoY % Change

2017 RMs

2016 RMs

2015-2017 CAGR

HDFC Private Bank 1

Domestic

25.0%

250

200

156.5%

Karvy Private Wealth 2

Domestic

20.0%

234

195

IIFL Wealth & Asset Management 2

Domestic

3.2%

225

218

6.1%

Domestic

40.6%

180

128

62.7%

Domestic

11.0%

172

155

12.1%

Domestic

0.0%

110

3.9%

Domestic

27.7%

106

36.4%

Domestic

25.0%

100

19.5%

Domestic

21.8%

-6.2%

Domestic

27.7%

16.7%

Domestic

7.1%

Domestic

32.4%

22.5%

Domestic

30.0%

Foreign

-7.5%

-1.3%

4 5 6 7 8 9 10

Anand Rathi Private Wealth Management Edelweiss Wealth Management Kotak Wealth Management

Centrum Wealth Management

L&T Finance Wealth Management

Axis Bank Wealth Management

Sanctum Wealth Management Client Associates

Motilal Oswal Private Wealth Management

ICICI Private Banking

2, 3

Standard Chartered Private Bank

1 2

ASK Asset & Wealth Management

Domestic

6.1%

32.3%

Julius Baer 1

Foreign

-5.7%

-2.9%

Citi Private Bank 1

Foreign

32.0%

28.5%

Barclays Wealth 1

Foreign

7.1%

-10.0%

Ambit Private Wealth 2

Domestic

9.1%

30.9%

Avendus Wealth Management 1

Domestic

50.0%

44.9%

Credit Suisse 1

Foreign

58.3%

25.8%

Deutsche Bank Wealth Management 1

Foreign

12.5%

0.0%

Credence Family Office 2

Domestic

45.5%

BNP Paribas Wealth Management 1

Foreign

-17.7%

-14.2%

Domestic

133.3%

1,927

1,225 4

Waterfield Advisors

Total of Top 20

Notes: All figures are as at 31 Dec 2017 ¹ ² ³ ⁴

Source: APB estimates Source: Bank's/wealth manager's estimates Total AUM of Axis Bank Burgundy is US$18.9 bn as at 31 Dec 2017 with 449 RMs; Figures on table only represent client accounts of more than INR 5 cr, and RMs that manage a minimum portfolio size of INR 300 cr Total RM headcount of the Top 20 as at 31 Dec 2016

INDUSTRY

RM efficiency: foreign flipside

While domestic wealth managers claimed top spots in both the AUM and RM League Tables, foreign players outshined in the area of AUM per RM – an admittedly crude measure of RM efficiency. Five of the seven foreign banks sit within the Top 10, led by BNP Paribas Wealth Management. BNP Paribas more than doubled its AUM per RM with an average of US$885.7 million per RM. The figure places BNP Paribas Wealth Management’s Indian franchise just short of Goldman Sachs Private Wealth Management in Asia, whose ultra high net worth bankers have an average book size of US$988.6 million.

Standard Chartered followed, posting an average of US$289.2 million per RM, a YoY increase of US$94.2 million. And Julius Baer, having slotted India into its then-new emerging markets group in 2016 “to increase productivity and improve the client experience”, rounded out the top four, with an average US$275.8 million per RM – an increase of US$75.8 million on 2016’s figure.

In second place with US$314.3 million per RM, is multi-family office, Waterfield Advisors, which advises some 27 clients, at an average of US$81.1 million per client.

India 2017 AUM per RM League Table (US$ million) Rank

Private Bank/Wealth Manager

YoY % Change

2017 AUM per RM

2016 AUM per RM

Foreign

106.3%

885.7

429.4

Domestic

-21.4%

314.3

400.0

BNP Paribas Wealth Management

Waterfield Advisors

Standard Chartered Private Bank

Foreign

48.3%

289.2

195.0

Julius Baer

Foreign

37.9%

275.8

200.0

Kotak Wealth Management

Domestic

75.8%

244.5

139.1

Citi Private Bank

Foreign

-13.4%

242.4

280.0

Ambit Private Wealth

Domestic

1,087.6%

229.2

19.3

Deutsche Bank Wealth Management

Foreign

19.7%

172.2

143.8

ASK Asset & Wealth Management

Domestic

169.5%

171.4

63.6

Axis Bank Wealth Management

Domestic

44.6%

169.3

117.1

Barclays Wealth

Foreign

-2.3%

150.0

153.6

Credit Suisse Private Banking

Foreign

-14.8%

142.1

166.7

ICICI Private Banking

Domestic

3.1%

134.9

130.8

Avendus Wealth Management

Domestic

9.8%

133.3

121.4

Client Associates

Domestic

-8.8%

82.1

90.0

IIFL Wealth & Asset Management

Domestic

15.9%

78.7

67.9

Edelweiss Wealth Management

Domestic

62.1%

77.3

47.7

HDFC Private Bank

Domestic

-4.0%

31.2

32.5

Centrum Wealth Management

Domestic

33.3%

30.0

22.5

L&T Finance Wealth Management

Domestic

16.4%

28.4

24.4

Motilal Oswal Private Wealth Management

Domestic

88.3%

22.6

12.0

Sanctum Wealth Management

Domestic

-2.9%

20.0

20.6

Credence Family Office

Domestic

3.3%

18.8

18.2

Anand Rathi Private Wealth Management

Domestic

37.6%

17.2

12.5

Karvy Private Wealth

Domestic

14.8%

12.4

10.8

Notes: All figures are as at 31 Dec 2017 All figures are APB estimates

Type

ADS

R E G U L AT I O N S

UBS becomes first foreign shareholder to apply for China JV majority ownership Securities submitting an application to CSRC to allow UBS AG to increase its stake in the joint venture to 51%. We understand that CSRC is now reviewing the application,” the spokesperson added. UBS’s latest application to the CSRC has come after group CEO Sergio Ermotti told markets earlier in the year the Swiss bank would seek a majority ownership in the business. If approved, the change will see UBS increase its stake in the JV from 24.99% at present to 51%. The change would also underscore UBS’s pioneering role in the Chinese securities market.

BS has become the first foreign shareholder to apply for majority ownership in its China securities joint venture (JV) under a new regulatory framework unveiled by the China Securities Regulatory Commission (CSRC) over the Chinese May Day weekend. In an update posted on the CSRC registry for administration approval and information disclosures, after market close on 2 May, the Chinese securities regulator said it had received an application from UBS requesting a shareholding change in UBS Securities, the Swiss bank’s China securities JV. The CSRC said in the registry the matter is “under review”. “China is a key market for UBS,” a UBS spokesperson told Asian Private Banker. “The further opening up of China’s financial sector represents great opportunities for our China businesses, including investment banking, wealth management and asset management. The Chinese government’s decision to allow foreign companies to take up to 51% in securities joint ventures is another important step in the opening up of China’s markets.” “We are pleased to confirm a key milestone in this process with UBS

In 2006, UBS was the first foreign shareholder to enter into a JV partnership in the Chinese securities industry when it acquired a stake in the restructured business of Beijing Securities under a CSRC approval. The rebranded business, UBS Securities, is at present a five-way securities JV. The four other Chinese shareholders are Beijing Guo Xiang Asset Management, which controls 33% of the company; COFCO Group, 14%; China Guodian Capital Holding, 14%; and the Guangdong Communications Group, 14.01%. Separately, the Swiss bank is still in discussion to develop a separate JV with Qianhai Financial, a state-owned financial holding company controlled by the Shenzhen Special Economic Zone’s operating authority. The new JV will focus on “innovative wealth management”, according to comments made by Qianhai officials at the unveiling of the JV development agreement in December. The Qianhai JV will add to UBS’s existing onshore wealth management coverage offered through UBS China, its locally incorporated bank, and UBS Securities, the five-way JV in which UBS is currently seeking majority ownership. At the same time as the UBS Qianhai JV announcement, HSBC’s majority-owned HSBC Qianhai Securities opened for business, making it the Chinese securities industry’s first ‘pilot’ foreigncontrolled JV. HSBC said its JV would focus on corporate and institutional clients.

I N D I A N W E A LT H M A N A G E M E N T S P E C I A L

Kotak Mahindra talks up its wealth management roots as competition intensifies

otak Mahindra, India’s largest private bank by assets under management, has said it welcomes further competition in the domestic market as rampant wealth creation expands the opportunity set for local wealth managers and investors increasingly recognise the value of professional advice. But what competitors will struggle to match, according to Jaideep Hansraj, Kotak Mahindra’s CEO – Wealth Management and Priority Banking, is the bank’s deep-rooted presence in an industry where clients typically prefer interacting with the same team over and again.

Jaideep Hansraj, CEO – wealth management and priority banking Kotak Mahindra Bank

“Competition is good — it helps to expand the market — but the advantage we have is the depth of our roots,” said Hansraj, who oversees a private banking business that rounded out 2017 with just shy of US$30 billion in AUM, up 93.5% YoY, and a frontline of some 110 relationship managers.

But even as the pie becomes bigger and new players enter the fray, Hansraj expects to see greater heterogeneity in wealth managers’ business models, with some going for scale, and others that do not have the balance sheet opting for the advisory-only route.

“It is a boon for private wealth managers that there have been so many liquidity events in India in recent times with that money flowing into financial assets,” he continued.

Regulators may, in fact, force firms’ hands on the matter. The Securities and Exchange Board of India (SEBI) in January tabled a controversial proposal that would see entities, including banks and NBFCs, choose to register as distributors or advisors exclusively — a move that would essentially disentangle two functions that are typically entwined in private banking and wealth management.

“Families have exited businesses for a variety of reasons and created financial pools of assets. This has brought significant benefits to firms like Kotak, which have been managing these families’ wealth for well over a decade.” Indeed, India’s viable HNI population remains underpenetrated by international standards, and, while Kotak Mahindra has seen success in prying clients away from domestic, foreign and public sector banks alike, Hansraj said the majority of new client business has come from client referrals, and net asset growth has been driven by new clients, including families not previously banked in a meaningful way. Steady inflows are also evidence of a wind change the perception of HNIs towards professional advisors and the role they should play when it comes to managing private wealth. “Three-to-four years ago, a lot of families believed they didn’t need professional advice — they preferred to oversee their own wealth,” said Hansraj. “But this has changed dramatically as their wealth has increased. Now it is dawning on these families that they need professional investment advice.” Interestingly, Hansraj said that “peer pressure” is also playing a role in the uptick in demand for professional services, having observed that a family is more likely to consider its own situation when it hears that others are using professional managers.

Kotak’s Hansraj would not be drawn on the proposal. He did point out, however, that pure advisory in India — as in the rest of Asia — remains much further along the line and, to a large extent, depends on the size of the family in question. “At present, not too many are comfortable paying fees for advice, although the biggest growth will be in advisory simply because it is coming from a low base,” Hansraj said. Meanwhile, Kotak Mahindra, which derives some 80% of its business from India’s major centres, including Mumbai, Delhi, and Bangalore, is ramping up its focus on the country’s second-tier cities, where investors are turning their backs on ‘traditional’ assets such as real estate in favour of financial assets. It’s also set to unveil a new raft of digital innovations on the widely held assumption that “change, when it takes place, happens fast and hits you hard”. “We have done a lot on the digital front and though I cannot talk too much about what we have planned, it will be a combination of communication and transaction-based functionalities,” said Hansraj, without revealing further details. 21

I N D I A N W E A LT H M A N A G E M E N T S P E C I A L

Waterfield Advisors forges ahead with advisory-only model Soumya Rajan, founder and CEO, Waterfield Advisors

aterfield Advisors is something of a vanguard firm in India’s wealth management industry, having taken the bold step to go the advisory-only route. It is also a reaction of sorts to endemic conflict of interest issues experienced by its founder and CEO, Soumya Rajan, during her years as a banker. “I felt that as long as you are sitting in a bank, you must always deal with this, and so I believed the time was right for India to have a national MFO player,” Rajan told Asian Private Banker. “There was a clear need for an organisation that could source the best solutions for families irrespective of where they come from.” While arguably logical from a fiduciary and strategic perspective — domestic banks at the time were not actively discussing family offices and clients’ needs outside of investments, and major international players had yet to extend their family office services to India — Rajan’s decision to set up a pure advisory offering for India’s wealthiest families in 2011 went against the grain of a distribution-led industry where clients were not accustomed to paying a fee for advice.

“Regulation is in a grey area, but the regulator is trying to find a direction,” she said. “It is looking at what is happening elsewhere in the world and is trying to figure out how to prevent mis-selling, and to increase transparency and provide a better client experience.” “We have a five-year head start on our competitors because it is difficult to build an annuity business. It’s a nice cycle once it starts to operate, but for anyone who wants to come into it, it will take time to build their credentials. For us, it would be a wonderful regulatory tailwind. It would make clients much more aware that firms like us exist.” The firm also has ambitious plans to amass scale by pushing down the wealth curve, although such a move would necessarily entail a tweak to Waterfield’s business model given the cost implications of deploying advisory services to those below the US$40-50 million mark. “For the lower end of the pyramid, to make money, you need very good technology that will help bring down the cost of transacting. This US$540 million segment presents a good opportunity for advisory firms, and this is where we will grow,” she said.

“When I founded the company, I knew it would be a harder and longer road,” Rajan said. “But clients — as well as employees — need a credible choice. In the past, if clients wanted a fee-only choice, they wouldn’t have been able to find one.”

Waterfield is currently looking to raise capital for its scalability play, which Rajan said is likely to involve a ‘hybrid’ human-tech interaction model, especially as clients are only now beginning to understand risk in financial products.

Waterfield is gradually gaining traction with UHNW families — the firm had US$2.2 billion in AUM at the end of 2017, up 83.3% YoY — and recent moves from India’s regulators could stir up tailwinds. The Securities and Exchange Board of India’s proposal to separate advisory and distribution activities and force wealth managers to choose one line of activity, while controversial, understandably strikes a chord with Rajan, who describes the initiative as a potential “gamechanger”.

“Wealth managers are very good at telling you when to get into a product but never when to get out. Intrinsically, there is an enormous amount of inertia, so we need a solution that responds to the holistic needs of the client,” Rajan concluded.

I N D I A N W E A LT H M A N A G E M E N T S P E C I A L

Edelweiss's Kapoor: "Wealth management in India is going mainstream" Anshu Kapoor, head of global wealth management, Edelweiss

delweiss Wealth Management, India’s third-largest wealth manager by AUM, not only expects to grow revenues and assets by some 50% this year, but to maintain this aggressive rate for the next decade, according to its head of global wealth management, Anshu Kapoor, who said the firm continues to benefit from “a huge flow [of assets] directed into financial assets” and a significant shift in the scale and need for wealth management services in a country where around 150,000 families hold approximately US$2 trillion in wealth.

“Only about 20% of this wealth is with the organised players; and if I were to break it up, around 20-30% sits in real estate and 30% in equity in listed and unlisted firms. So the penetration has not caught up,” he said.

Edelweiss has also shrugged off its aborted acquisition of Religare Enterprises’ securities business after the acquiree failed to receive regulatory clearance. That deal would have added 1 million clients to its books. Kapoor said that the opportunities “keep coming”.

“The alternative investments class has been helped along by the regulator and changes to the insolvency bankruptcy code,” explained Kapoor, pointing out that Edelweiss was the first local player to launch a distressed asset fund for its clients and one of the few players that offer infrastructure-linked assets.

“Had we got it, it would have been great, but now we are also looking to buy out capabilities,” he said. “I’m very positively surprised — we are talking to a lot of fintechs with great products but without scalable business models. This is all very early stage. Nothing has been finalised.” In fact, Edelweiss is at the forefront of a decisive shift in the centre of gravity between product pushers and solutions providers. From Kapoor’s vantage point, the wealth management industry in India is “going mainstream”. “What used to be the prerogative of the distribution arm of a bank or financial services firm is now the domain of unique and independent wealth management firms, and this trend will only continue,” he said, adding that, now more than ever, the relative success of players in today’s environment is a function of value proposition, client experience, technology, and product platform.

Indeed, the regulator has also played a decisive role in developing the industry, creating regulatory structures for new classes of products germane to India’s ultra high net worth community, and to the benefit of Edelweiss.

Meanwhile, Edelweiss is pushing ahead with its digitisation programme. Kapoor believes the firm’s investments in tech are beginning to pay off, not only in basic risk profiling but in deploying actionable advice that is customised to an investor’s profile, where 60-70% of clients are entrepreneurs with specific needs, whether around raising capital or making acquisitions. But Kapoor also expects disruption in India to come from tech firms themselves, which can commoditise standard services including asset allocation. “So why would a customer need a firm like Edelweiss?” asked Kapoor. “They come to us for knowledge and unique wealth management opportunities that such tech players cannot provide.”

I N D I A N W E A LT H M A N A G E M E N T S P E C I A L

Ambit Private Wealth wants to 'demystify' investments for 'Smart Indians' Siddhartha Rastogi, director, Ambit Asset Management

mbit Private Wealth, like its peers, has been a major beneficiary of the Modi government’s demonetisation drive in late-2016, which stimulated torrential flows into financial assets at the expense of ‘traditional’ asset classes such as gold and real estate. In fact, post-demonetisation, and for the first time, India witnessed a surge in financial assets which was higher than the growth of all other asset classes combined, according to Siddhartha Rastogi, director at Ambit Asset Management, who told Asian Private Banker the opportunity now lies in demystifying investments for a segment he labels “Smart Indians”. Indeed, current momentum in India’s wealth management market should not be understood as a direct outcome of initiatives taken by authorities — whether demonetisation, GST reforms, or the Real Estate (Regulation and Development) Act — but rather as a product of factors that, at the macro level, include the country’s demographic composition. “A large population of India is aged less than 26-years,” said Rastogi. “In such a dynamic environment, one would expect to see a rise in aspirations. These individuals are frequently asking how much of their savings can be used as desired, and how much is required for post-retirement expenses, as opposed to leaving wealth behind for the next generation.” Accordingly, Ambit expects to see “momentous growth” in the wealth management industry over the next decade — irrespective of interest rate cycles, and the global macroeconomic environment. Rastogi said the key to growing in this context is delivering clear, actionable, and value-added advice and solutions to a rising breed of ‘Smart Indian’ investors. He defines ‘Smart Indians’ as “those who are successful in their respective fields and have made [it] big in life, with an average investible surplus

for the family of US$1 million and above, excluding the house in which they live in, who are well travelled, educated, and are clued up about macroeconomics and politics”. “A lot of wealthy clients are increasingly becoming interested in exotic products, but if you look at ‘Smart Indians’, they are not only thinking about the present but also the future across retirement and philanthropic needs,” he explained. “These people want demystified investments.” By Rastogi’s reckoning, ‘Smart Indians’ are already fully-banked but only a select few use formal wealth managers or advisors. Moreover, these individuals are less inclined to follow tactical or modish product plays. “In places such as Hong Kong and Singapore, people like the excitement of a new product that comes every week,” he said. “Now, the challenge is whether this is a sustainable way to create wealth. The challenge is not to have too many things, but to keep things simple. The problem is we want to create excitement. Wealth isn’t created that way.” Ambit’s thesis and philosophy, according to Rastogi, is to stay clear of inordinately complex products unless explicitly requested. “If you want to make money in India, look at equity and fixed income, and do it in an uncomplicated manner,” he said. “You may hear us making ripples by disrupting the equity markets by educating our clientele and simplifying investment strategies,” Rastogi continued. “By 2020 or 2022, we hope we can also disrupt the Hong Kong and Singapore markets based on the same philosophy: buy good and clean companies, shut them in a coffee can jar, and wealth will be created.”

I N D I A N W E A LT H M A N A G E M E N T S P E C I A L

Centrum Wealth Management pursues partnerships, tier-two cities Sandeep Nayak, executive director & chief executive - broking Centrum Wealth Management

entrum Wealth Management, the Indian-based boutique with an estimated US$3 billion in assets under management as at end2017, is forging ahead with its strategy of tying up with universal banks to bring its wealth management offering to a wider base of India’s high net worth individuals. “A number of banks are keen to work with us, and we are currently in early-stage talks with a few of them,” said Sandeep Nayak, Centrum Wealth Management’s executive director and chief executive - broking. Centrum already has in place a deal with South India-based lender, Lakshmi Vilas Bank (LVB). The two parties inked a memorandum of understanding in January last year, with Centrum agreeing to provide its wealth management and family office services to interested high net worth clients of LVB. Interaction between Centrum and LVB has since deepened, and “while early days”, Nayak said the progress “has been very good”.

Meanwhile, Nayak, who previously said Centrum Wealth Management is targeting Rs 50,000 crore (~US$7.4 billion) in AUM by 2021, does not expect the firm’s growth to moderate. Especially since the government’s ‘surprise’ demonetisation move in November 2016, capital has flowed into the banking system and, specifically, financial assets, proving a boon for domestic wealth management firms. But market penetration remains low, and though other players are likely to enter the fray, Centrum is increasing its focus on Tier 2 cities which are “less competitive”. “The foreign wealth players tend to stick to the bigger cities, but domestic firms that understand other geographies have the ability to penetrate the second tier,” he said. Indian customers today are also more inclined to turn towards a strong local player, given the damage foreign banks have done to their reputation by “going in and going out because of their own problems”, Nayak continued.

“We have met all their branches and branch managers and are working closely with them on wealth management, and have agreed on a plan to service their customers,” he said.

Opportunities in the mass-affluent segment are also proving hard to ignore for Centrum. Nayak described the mass-affluent market as “critical for the success of the firm” and will look to step into the space next year.

Centrum’s tie-up strategy, while domestically-focused, is not dissimilar to cross-border arrangements between offshore and onshore banks in East Asia that are designed to open up pools of capital to typically foreign players with limited access to domestic markets.

However, a play for this market would likely be tech-led and distinct to its private banking offering, which is also undergoing digitalisation.

Not all are convinced that such partnerships are sustainable, and in India, this could be said of brokerage-focused tie-ups given the dynamic nature of the equities space, according to Nayak. “But when it comes to wealth management, and asset allocation, these are long-term endeavours, and so it is only natural that banks will want to forge durable partnerships with firms such as Centrum,” he said.

“The group recently brought on a very senior person to look at our digital service,” Nayak said. “We have already developed an app for trading mutual funds and equities and we are looking to launch other client-facing tools for reporting and transactions — there is a clear demand from our private banking client segment to view their portfolio as a big picture.”

INDIAN WM SPECIAL

IIFL Wealth gears up for post-raise expansion Karan Bhagat, co-founder, managing director and CEO IIFL Wealth and Asset Management

IFL Wealth Management, India’s second largest private wealth manager by AUM and a subsidiary of IIFL Holdings, has been on a tear of late, joining the ranks of those firms that have raised capital to fund business expansion and enjoyed the tailwinds of demonetisation. Last month, IIFL confirmed it will raise some US$110 million through the sale of 4.49 million shares at Rs 1,661 apiece to investors, including Ward Ferry, Rimco (Mauritius) Ltd, and General Atlantic, which already holds a 21.6% stake in the firm and will ply in an additional US$13.8 million. Karan Bhagat, co-founder, managing director and CEO of IIFL Wealth and Asset Management, said at the time the investment would provide the firm with additional means to expand across geographies. He also said it would enable IIFL Wealth to improve its credit platform and serve as a sponsor to its growing alternative investment fund schemes. The raise comes on top of already impressive growth over the past few years. IIFL Wealth Management cemented its second place ranking in the Top 20 League Table, closing out 2017 with just under US$18 billion in AUM, up from US$15 billion in 2016. While a smaller increase in percentage terms than some competitors, Bhagat told Asian Private Banker the 20% year-on-year jump in AUM “in an absolute amount was large” and that “the assets are growing and the maturity of relationship managers is increasing every year”. He said new inflows came from a combination of existing clients deepening walletshare and new clients against a positive market backdrop.

“[Beyond demonetisation], and for the past decade, we have seen three or four major transactions a fortnight which have produced liquidity for our clients, to our benefit. Professional entrepreneurship is on the rise, for example in the tech sector, and the corporate services industry has grown significantly, ensuring a large flow of AUM. And finally, real estate has lost favour to the benefit of financial assets,” Bhagat explained. But perhaps looming even larger on the horizon is IIFL Holding’s planned demerger, which would see it unpack its wealth, finance, and securities units and list them publicly as three separate companies over the course of the next 12 months. Bhagat said that while the demerger won’t have a significant impact on the operations of IIFL Wealth given that its platform, as it is, is robust and purposefully built for the wealth management business, it will provide the firm with added clout for expansion, hiring and offering good equity stock options. That growth is unlikely to come via inorganic means. Bhagat said slim pickings onshore, especially in Tier One cities effectively takes acquisition off the cards. So too in the offshore space, where IIFL Wealth operates, but where its business is still “very small”. “But in Tier Two cities, such as Chennai, there are potential opportunities to acquire at some stage because, in these centres, clients typically prefer to deal with the local players,” he added.

TECHNOLOGY

PB COOs say innovation progress “on par” with rivals but lags tech giants

rivate banking COOs and technology heads, for the most part, believe they are keeping up with their rivals in terms of the quality and speed of their tech programmes, but are under no illusion that they lag global tech giants — namely the FAANGs and BATs — when it comes to innovation, according to a survey conducted at Asian Private Banker’s COO Leaders Conversation 2018.

Over the past 12 months, what has been the speed and quality of innovation at your bank, versus your assumption about the rest of the private banking industry? Speed Quality 46%

While this should not come as a surprise given that the wealth management industry is renowned for its languid approach to innovation, the fact that a handful of the world’s most dominant tech players are slowly veering into financial services — including wealth management — should sound alarm bells for leadership, which risks losing its grip on lower-end clients as asset allocation, advisory, and execution services become increasingly commoditised.

38% 31%

31%

15%

Overall, the vast majority of respondents (76%) said the pace of innovation in their respective institutions is at least slower than global tech giants, while some 62% said the quality of their innovation was inadequate or worse.

Over the past 12 months, what has been the speed and quality of innovation at your bank, versus your assumption about the rate of change within FAANGs? Speed

54%

38%

15%

8% 0% Much faster

Much better

Faster

Better

On par

Slower Inadequate

Much Very slower Inadequate

Also of primary concern is the shifting regulatory environment, with a number of private banks pursuing third-party regtech solutions, particularly for automated tax reporting. Meanwhile, 40% of COOs and tech heads polled said that solutions that automate and speed up KYC procedures are a top priority. This was followed by regulatory reporting solutions given the burden banks face from MiFID II and CRS — both of which went live in 2018.

Quality

38%

15%

38%

What is currently your bank’s top priority on deploying regtech? 23% 40%

8% 0%

Much faster

Much better

Faster

Better

On par

Slower Inadequate

29%

Much Very slower Inadequate

21%

“Simplification” on the list of innovation agenda

That is not to say that the ambition is not there: roundtable delegates revealed a wide range of priorities on their transformation agendas. Keywords such as ‘data’, ‘AI’, and ‘robotic process automation’ featured prominently, as did ‘simplification’, pointing to the ultimate goal of streamlining processes and increasing efficiencies.

10%

KYC/Client onboarding

Regulatory Suitability reporting (transactions/ tax)

Data management

CHIEF OPERATING OFFICERS LEADERS CONVERSATIONS 2018 27 esteemed private banking chiefs of operations, technology, and digital gathered at Asian Private Bankerâ&#x20AC;&#x2122;s Chief Operating Officers Leaders Conversation, held on 17 May in Singapore, to engage in leading discussions on AI, data analytics and regtech in private banking. We would like to thank all the conversation catalysts, partners, and attendees for contributing to an event that continues to play host to the most significant discussions surrounding the modern-day private banking COO. View more photos at apb.news/coolc2018

EVENTS

Foreign banks capitalise on India’s wholesale asset allocation shift onshore A wholesale asset allocation shift of Indian investor portfolios, driven by recent policy reforms, has created long-term tailwinds for the industry to capitalise on greater risk-taking. How are foreign institutions capturing a share of the rapidly growing pie? Wholesale asset allocation shift: Real estate and gold to equities and alternatives

Real estate and gold’s ubiquitous and prominent presence in Indian HNWIs’ portfolios is well-documented — one Credit Suisse estimate claims an 80-86% allocation to the two asset classes by the segment. But after November 2016’s landmark demonetisation, the allure of the two asset classes rapidly wore off. A recent Kotak Wealth Management report noted an 11 percentage point drop in real estate allocation from 2011 to 1H18, citing the effects of demonetisation as the cause of change in investment patterns and portfolio restructuring by UHNWIs. “From the financial markets perspective, since demonetisation, India has witnessed ‘financialisation’ of domestic saving,” explained Ashish Gumashta, CEO of Julius Baer Wealth Advisors (India). "This is overall positive of markets in India, as well as for the private banking industry, as the relative attractiveness of real estate and gold 30

— which typically had some ‘cash’ element — has come down and investors are now seeking out more investment opportunities from financial instruments.” According to Gumashta, concurrently strong equity markets in recent years — the Sensex registered +28% in the past three years — bolstered risk appetite, driving greater allocations to equities and alternatives. "Clients are looking at more growth-oriented solutions through equities, mutual funds and discretionary portfolio management schemes,” he said, highlighting Julius Baer's direct equity offering which provides an end-to-end proposition, supported by liquidity solutions and leveraged opportunities, as a key differentiator. "With the development of the product and regulatory landscape in India, investors are also taking some exposure to alternative

INDUSTRY

investment schemes in long/short, pre-IPO, private equity and structured credit strategies.” According to Kotak Wealth Management data, UHNWI allocations to equities and alternatives grew from 2013’s 35% and 4% to 1H18’s 44% and 14%, respectively. 46% and 45% of respondents expect to increase investments in equities and alternatives, respectively, outpacing debt (31%) and real estate (29%). “A combination of lower interest rates caused by the high liquidity in the banking system, a correction in equity markets and difficulties in the real estate sector created opportunities for investors,” said Samir Bimal, head of Indian and international markets at BNP Paribas Wealth Management, echoing the ongoing trend of greater risk appetite. “Even as tax adherence and a shift towards a formal economy gained pace, there was a move towards equity-oriented products given limited suitable alternatives. In general, demonetisation was beneficial to onshore wealth managers, as it could help scale up equity and alternate product AUM and augment the revenues from these products.”

Managed assets tailwind favours foreign players

Unlike many of its neighbouring HNWIs, distinguished by a strong preference for self-directed investing, Indian HNWIs have demonstrated greater willingness to delegate assets to professional managers or rely on professional advice. A recent Boston Consulting Group (BCG) report noted that Indian HNWI allocations to equities and investment funds rose from 2013’s 17% to 2017’s 22%, and is projected to reach 32% by 2022. The Indian HNWI asset pool of equities and investment funds is expected to grow at a CAGR of 21% from 2017 to 2022, significantly outpacing offshore funds (12%), bonds (10%), life insurance and pensions (10%), and currency and deposits (9%). This is particularly favourable for foreign wealth managers. On one hand, this allows international institutions to showcase their best practices in product due diligence, risk management and the extensive reach of their financial market coverage and advice. On the other hand, this is a revenue pool that foreign institutions can comfortably and competitively tap in to due to better margins and its high-value nature.

“[Each business] has to play to their strengths rather than compete to be the best in everything. Foreign firms will find it very difficult to compete with local players, especially on scale (such as attempts to capture a pie of India’s rapidly growing mass affluent) or pricing (such as execution-only business, where cost-efficient trading platforms are already dominant),” commented Credit Suisse’s private banking market group head for NRI APAC and Indian sub-continent, Balakrishnan Kunnambath. "The preference for managed assets bodes very well for Credit Suisse where we have very strong asset class coverage and portfolio management practices to support client needs." One major trend in Indian fund investments is the emergence of demand to capture returns from the ongoing IPO boom via alternatives. Investors have been willing to take the liquidity premium in order to capture superior future returns, sometimes taking exposure as early as 12 to 18 months before a planned listing. Bombay Stock Exchange (BSE) CEO Ashishkumar Chauhan said in a 2017 report that it estimates some 1,000 companies to be listed in the next four years, adding that smaller firms would "no longer have anything to hide” post-GST reforms. Although foreign investment banks have lost much ground to domestic players in recent years — a Prime Database estimate claims that more than 70% of 2017’s IPO market share was owned by local investment banks — their local market presence and market-making capabilities are still robust enough to obtain access for key clients in cornerstone investments. "Traditionally, private markets have been focused on commercial real estate or large-scale residential real estate projects, but economic changes are now creating new opportunities in fintech, e-commerce, education and tourism businesses,” Kunnambath added. "We are looking at alternative investment funds in the pipeline focused on cornerstone investments like pre-IPO. Clients have expressed strong interest in such opportunities.” Product access and due diligence aside, foreign wealth managers are also vying for greater market share by adding value in other ways to bolster fee-based revenue. BNP Paribas’ Bimal attests to this point, highlighting growing demand for tactical allocation advice, flat fee advisory services and fund share classes with lower expense ratios — a particularly relevant differentiator for India’s notoriously feesensitive HNWI segment. 31

INDUSTRY

The “One Bank" play

More than just shifts in Indian HNWIs’ asset allocation, the next stage of India’s growth cycle will be critical for local business owners with serious ambitions. Foreign banks are eyeing this space, as the potential opportunities play to their natural strengths in universal banking capabilities and global access, especially with regard to supporting clients’ corporate needs. "We know that entrepreneurship is the most significant source of HNW wealth across our key markets. Our research on HNW business owners highlighted a ‘business before wealth’ approach, where they prioritise their business growth ahead of personal wealth strategies,” commented Sandeep Das, head of Standard Chartered Private Bank, India. “Our strong balance sheet translates into the ability to undertake a wide variety of lending and funding for our clients, both domestically and across our footprint,” adding that around 50% of entrepreneurs banking with universal financial institutions also utilise their commercial and investment banking services. "As part of client feedback, clients constantly highlight commercial banking and corporate and institutional banking capabilities as a competitive advantage for us,” Das described, explaining how Standard Chartered’s corporate finance and M&A services help clients to manage their businesses, release liquidity, and diversify away from concentrated risk in their own businesses. “We also have the ability to offer principal finance opportunities that could be of interest to clients for business purposes as well as private investment.” In addition to business needs, Credit Suisse’s Kunnambath also highlighted improving professionalisation of wealth management and family governance, which has led to growing needs from India’s UHNW and family office segment for support in non-business or investment activities. “This is not simply about setting up a structure or a family trust, but beyond that — for example, helping to create a family constitution, develop family governance models, and support succession and legacy planning,” he elaborated. "These kinds of solutions help extend the life-cycle of a relationship to last multiple generations rather than just relying on plain vanilla businesses like pure equity execution which are largely commoditised.” 32

BNP Paribas’ Bimal echoed the observations of demand for noninvestment services and stated that there was a growing interest from the segment to give back. “In addition to financial and investment solutions, we see an increased preference to achieve social benefits alongside financial gains,” he said. “This sentiment has been filtered through products and services delivery, and we are currently advising large business families on their SRI [socially responsible investment] and impact investing strategies."

Overoptimism?

Despite the rosy outlook for India’s overall domestic private banking market, there are still doubts about the potential for real success amongst foreign players given the number of obstacles, such as regulations and hiring. On the regulatory front, there are a number of uncertainties that could challenge foreign wealth managers’ propositions. SEBI (Securities and Exchange Board of India) recently began scrutinising NRI-owned FPI (foreign portfolio investor) vehicles — a regime that allows offshore funds to invest directly into India — posing a challenge to private banks attempting to connect their NRI client bases with the local market (Credit Suisse estimates just a 25% exposure to India from NRI investors). And for domestic assets to flow to foreign markets, the LRS (Liberalised Remittance Scheme) limits offshore investments to US$250,000 per financial year. For private banks hoping to showcase the capabilities of their internal products, SEBI renewed efforts to push for regulation preventing inhouse distribution, effectively ensuring that investment advisors and product manufacturers derive from separate companies. Regarding hiring, the pool is relatively thin given the size of the market, limiting the expansion rates of foreign players which tend to focus on poaching senior talent from competitors. Standard Chartered’s Das estimates that the top ten wealth managers in India house 500 private bankers, and the top 20 have a little over double that number. “We are very selective about our hiring. A good match in terms of profile and values is quintessential for us,” Das said, highlighting that the bank made 60 frontline hires globally in 2017. “We are always looking for good bankers, but we are not in a race."

INDUSTRY

And relative to other markets, transferral of offshore talent back to the onshore market is difficult. “Due to lifestyle differences, it is difficult to transfer a banker from Hong Kong or Singapore to India,” explained one source, adding that the option may be more viable with other onshore markets in Asia, such as Taiwan or Thailand. “This limits the overall talent pool to local Indians." In addition to the local market environment, numerous sources have cited challenges with implementing onshore strategies, especially regarding the ability to achieve operational efficiency and obtain senior management buy-in. Proof that the onshore market is not for the faint of heart is in the exits of major offshore players in recent years, most notably HSBC Private Bank, Morgan Stanley and UBS Wealth Management. “Although foreign firms have the ability to bring in investments in capital and the experience to import best practices, it requires quite a bit of vision and courage to be effective in the local market,” Credit Suisse’s Kunnambath comments. “This is especially the case in building operational efficiency.”

Kunnambath cites tech costs as an example, where global banks’ “burgeoning” IT costs are simply not comparable to local players relying on startup costs. “You cannot just copy global processes for the local business. You have to adapt. Policies that are considered holy grails have to be revisited. Many of our foreign competitors are not seeing this and are simply relying on direct replication of platforms and processes [from global offices].” Despite the challenges foreign wealth managers may face, the onshore opportunity is undeniable. According to recent Capgemini data, the Indian HNW population grew more than 20% in 2017, the fastest-growing country segment globally, with ongoing liquidity events and a strong growth trajectory likely to maintain a positive outlook in the foreseeable future. “Wealth management firms are being listed for billions of dollars in India, while renowned offshore private banks exiting Asia were recently selling for mere hundreds of millions,” concluded Kunnambath, reiterating the potential of the market. "The onshore opportunity is phenomenal." 33

INDUSTRY

India’s Yes Bank expands to Singapore with NRI offering

ndia’s privately-owned Yes Bank has received approval from the Reserve Bank of India (RBI) to establish representative offices in London and Singapore. Announced in a media release, the new offices will allow Yes Bank to extend its private wealth management and corporate banking services to NRIs in both markets.

Rana Kapoor Founder and CEO December 2017 data from India’s Yes Bank Ministry of External Affairs documented approximately 350,000 NRIs in Singapore and 325,000 NRIs across all of the UK. Speaking exclusively to Asian Private Banker, Rana Kapoor, founder and CEO of Yes Bank, said that he expects the representative offices to go into operation within the next 12 months. Once it has received the appropriate regulatory approvals, Yes Bank will draw from its internal talent pool and also make “some additional hires” to form the regional leadership teams. “At Yes Bank, our hiring policy is to identify the finest-quality talent in the market and groom them for leadership positions,” Kapoor told Asian Private Banker. “We will continue with the tenet and will comply with laws of the land — both Indian and Singaporean — to ensure that we find the right talent and continue providing [the] highest standards of service to our customers.”

“This is a significant development in the overall augmentation of Yes Bank’s business model and will help in further diversification and expansion of financial services to the NRI diaspora,” he added. “The Singapore representative office would act as a perfect platform for servicing Yes Bank’s existing global client base in addition to providing networking coverage for the bank’s large investor community in these parts of the world.” Yes Bank’s London and Singapore representative offices are part of a larger international push. The Indian lender already has a presence in Abu Dhabi and intends to also open offices in New York City and Shanghai.

In hot demand: NRI bankers

NRI bankers have recently been very sought after, with banks of all sizes reporting a variety of team hires and management-level appointments. In April, HSBC Private Banking hired Singapore-based Sundar Ramani as a market head, international and NRI. In March, BNP Paribas Wealth Management appointed Vikas Jaidka as its head of NRI after its previous NRI head, Masroor Batin, relocated to Dubai to head the French lender’s Middle East and Africa wealth businesses. Meanwhile, pure-play firm J. Safra Sarasin lost senior NRI banker Nakul Beri to Standard Chartered Private Bank. In January, sources indicated that Deutsche Bank Wealth Management alone had hired 20 NRI bankers following the relocation of head of Global South Asia coverage, Amrit Singh, from London to Singapore in September.

INDUSTRY

Deutsche Bank WM’s NRI push supports India U-turn speculation

eports that Deutsche Bank has stepped back from its decision to sell its private and retail banking businesses in India, while unconfirmed, are consistent with the bank’s recent NRI push and a broader uptick in interest in the domestic wealth market. The German lender, under new leadership, is said to have halted discussions with IndusInd Bank on the sale of the two units, according to a report by Bloomberg, which also claimed that Deutsche is now “considering increasing its investment in India”. A spokesperson for Deutsche Bank Wealth Management declined to comment on “market speculation” when contacted by Asian Private Banker. However, Deutsche’s wealth management business, overseen by Fabrizio Campelli, is currently undergoing a rebuild that centres on “highgrowth markets”, including Asia, the Americas and EMEA. The bank said last year that it would hire around 100 “client-facing employees” and invest EUR 65 million in client-focused technology. Significantly, half of those hires were earmarked for the Asia business, headed by Lok Yim, who took over as Asia head of wealth management in 2016. Yim has thrown his weight behind the private bank’s non-resident Indian (NRI) business, spending considerable time in Singapore and the Middle East, making a slew of NRI-focused hires throughout 2017 with 10 more additions planned for the second quarter. He has also crowed about the performance of the private bank’s NRI desk in Dubai, which was the best-performing team in the bank’s Global South Asia (GSA) unit in 2017 by revenue and AUM growth. Notable too is the fact that Amrit Singh, Deutsche’s head of wealth management coverage for GSA, relocated from London to Singapore. By one measure, 53% of offshore Indian wealth is held in Hong Kong, Macau, Singapore, Malaysia and Bahrain. By retaining its India private banking setup, Deutsche keeps alive the possibility of sewing together a global Indian proposition — even if, as Yim has previously stated, the bank’s India onshore business “does not contribute very much to [its] NRI business”. Such a move would be consistent with steps taken by other major international players to shore up synergies between their domestic India and NRI businesses. For instance, BNP Paribas Wealth Management, Julius Baer and, most recently, Credit Suisse Private Banking have restructured their senior management teams to better service NRI clients who are inclined to invest in India and Indian HNWIs with families abroad. It is also consistent with a widely held view that, in order to build an NRI business, an onshore presence is, today, crucial. Furthermore, a number of international private banks are said to be eyeing the India space, in stark contrast to the large-scale exodus of

foreign players in recent years, punctuated by exits by UBS Wealth Management, RBS, HSBC Private Banking and Morgan Stanley Private Wealth Management. Bank of Singapore, which boasts a strong NRI business and recently opened a branch in Dubai International Financial Centre, is understood to be considering opportunities in India — although early days. Vikram Malhotra, Bank of Singapore’s global market head for South Asia and Middle East, previously told Asian Private Banker that the bank is “well placed to capture opportunities related to helping NRIs invest globally and in Asia”, and that it is “currently reviewing whether it makes sense for [Bank of Singapore] to be in India as well, from a longer-term perspective”. Meanwhile, rival DBS, which already has a substantial banking presence in India by way of a locally incorporated wholly-owned subsidiary, is also understood to be considering a fully fledged private banking play in the country. Varun Chugh, DBS Wealth Management’s head of global South Asia team previously told Asian Private Banker that the bank has built a “global Indian corridor” that leverages its India branch franchise and that, as India grows and creates wealth, DBS Private Bank “will continue to enhance [its] ‘Inside Out’ and ‘Outside In’ strategy". There is also speculation that UBS Wealth Management could make a comeback in India. The challenges facing foreign private banks in India include the sheer size and distribution of the market, complex regulations and licensing requirements, and stiff competition for talent. However, if Deutsche has the stomach to persist in the space and is able to increase synergies between its onshore and NRI businesses, a U-turn on the sale of its Indian wealth management franchise may prove a smart play in the long run. 35

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INDUSTRY

BNPP WM’s Vrielinck marks first anniversary as Asia CEO with major business reorg

NP Paribas has reconfigured its Asian wealth management business around four key market ‘clusters’ and shuffled senior personnel in what amounts to the biggest reorganisation of the private bank in years.

The changes, which are intended to usher in a new era of sustainable business Pierre Vrielinck growth, come as Pierre Vrielinck marks chief executive for APAC his first full year at the helm after taking Wealth Management over from Mignonne Cheng as chief BNP Paribas executive for APAC Wealth Management in April last year. Cheng remains chairman of the private bank. Vrielinck told Asian Private Banker today that after five-to-six years of rapid growth but relatively little organisational change, the time was ripe to evolve the business. “This is a business that has gone from some US$30 billion to over US$100 billion in AUM. We decided that given this velocity of growth, the size of the organisation and changes in the environment relating to regulation and technology, it was time to review the organisation,” said Vrielinck. At 18% (2012-2017), BNP Paribas WM has one of the highest organic growth rates in Asia. Formal business lines have been drawn around the Greater China, Taiwan offshore and onshore, Southeast Asia, and India and NRI market clusters, with Andy Chai picked to oversee the key Greater China cluster covering the Hong Kong and China markets. Vrielinck said the intention behind combining Hong Kong — the private bank’s crown jewel in Asia — and China was to leverage interdependencies between the two markets and to “achieve greater synergies and optimisation”. At the same time, the bank is looking to increase its footprint and focus in the China market, which is pegged to become a primary growth engine. “While we have seen massive growth in our China clients business in recent years, the potential of the China market tells me that we can do more,” Vrielinck said. Meanwhile, the Southeast Asia cluster, whose contribution to the regional wealth management P&L is considerably less than that of Greater China, will be run by Arnaud Tellier, formerly head of investment services Asia, with current Southeast Asia head Ricardo Sanchez-Moreno set to return to France.

Tellier previously served as Singapore CEO between 2013 and 2015, when he was replaced by then-COO Ernest Leung, who was subsequently named head of core clients for APAC in what was another management shuffle. Sources indicate that Leung has now been named head of sales management. Vrielinck said the bank intends to “push growth” and “invest massively” in the Southeast Asia cluster, which includes Singapore, Malaysia, Indonesia and emerging markets. Inga Kua, head of Indonesia, and Clarence T’ao, head of emerging markets, remain in their roles and report to Tellier. However, David Koay, who was brought on as market head for Singapore and Malaysia in February last year, has resigned, according to sources. The bank declined to comment on Koay’s departure. The final two market clusters — Taiwan onshore and offshore, and India and NRI — have emerged relatively unscathed on the back of strong recent performance. However, Samir Bimal, market head of Indian markets (India onshore and NRI), recently brought on a new NRI head, Vikas Jaidka, after former head Masroor Batin was appointed CEO of BNP Paribas Wealth Management Middle East & Africa. Simultaneously, Tellier’s switch has opened the way for Garth Bregman, formerly head of portfolio management in Asia, to step into the role of head of investment services in the region. Bregman’s promotion comes at a time when the bank is placing a greater emphasis on its managed solutions business in Asia, although Vrielinck said that Bregman’s appointment was more a case of him having “the profile to manage the entire organisation”. Staff were informed about the new growth programme, dubbed ‘Driving Sustainability’, earlier in April. Vrielinck said the reaction was positive. “It’s really about client focus, sales and management efficiencies, digital transformation and risk management — we have not changed our strategy, this is about moving the business forward,” he said. “We want to be among the top five in 2020, which means we need to sustain this growth. And when you look at the region’s potential, we feel this is achievable.” The Asia franchise also received the backing of Vincent Lecomte, coCEO BNP Paribas Wealth Management, who was in the region recently to address teams. “The message from Vincent was that Asia is critical to the future of the organisation and that the group is committed to Asia and to supporting the business and teams,” said Vrielinck.

ADVERTORIAL

A rich tradition of excellence in wealth management

tandard Chartered established its first foothold in India more than a century and a half ago, and it is now a leading international bank in the private banking space with an unrivalled track record and unmatched network of trusted advisors and financial experts. With its ‘One Bank’ proposition, a private banking presence in five Indian cities, and a long-established reputation for outstanding service delivery, the bank’s tailored investment solutions offer peace of mind to high net worth individuals (HNWIs) and their families. “Clients’ interests lie at the heart of our business,” explains Sandeep Das, managing director and head of Standard Chartered Private Bank, India. “We recognise that our clients’ private and business wealth needs are closely linked. Clients can expect the same reliability and quality of advice for their private wealth that we have been providing for their business.” Ranked first among the international banks for private banking and wealth management in India by assets under management last year, Standard Chartered provides advice to some of the country’s most eminent families, and is the private bank of choice for a significant proportion of India’s wealthiest people. The lender is also a dominant player in the dynamic non-resident Indian (NRI) banking realm, leveraging its global network of expertise to provide highly specialised and individually tailored advice to clients. “Being both local and international enables us to serve global citizens such as the Global South Asian Community (GSAC), who retain strong emotional and economic ties to India,” Das elaborates. “Being one of the largest international banks onshore in India, we can connect GSAC clients residing in other international locations to investment and philanthropic opportunities in India.”

Local knowledge, global resources

India’s economic landscape has transformed significantly in recent decades. And with rising wealth and the monetisation of physical assets in family businesses, the opportunities lying within India’s grasp are immense. By combining its deep local knowledge of HNWIs with a tailored and scalable value proposition, Standard Chartered is ideally positioned to ride that wave of growth and help its clients navigate a fast-evolving and increasingly complex wealth management landscape. “We have the advantage of being more local than other global players and more global than local players,” Das says, expanding on Standard Chartered’s ‘One Bank’ proposition. As well as being one of the largest and oldest foreign banks in India, Standard Chartered was the first international bank to have its IDR (Indian Depository Receipts) listed. Its connection to India is further evidenced by the fact that the Indian government marked the bank’s 150th anniversary in 2008 by honouring it with a commemorative postage stamp. As part of a global bank, Standard Chartered can deliver both personal and business solutions on every level and scale. The private banking team 38

Sandeep Das managing director and head of Standard Chartered Private Bank, India works closely with its corporate and institutional banking and commercial banking businesses to support clients’ corporate wealth requirements. The bank provides clients with corporate finance and M&A services to help them manage their businesses, release liquidity and diversify in order to avoid concentrated risk in their own businesses. It can also offer principal finance opportunities. With onshore capabilities in some of the fastest-growing wealth management markets in the world, Standard Chartered is well placed to support clients as their wealth increases, by drawing on its global banking presence and offering a world of lending and funding possibilities.

The entrepreneur’s choice

The bank’s strategic target is to bring together the people and companies driving investment across Asia, Africa, and the Middle East, providing insights to clients and access to unique trade and investment opportunities. “No other bank (in private banking) is in the same combination of dynamic, fast-growing markets as we are,” asserts Das. “We enable networking between entrepreneurs and business owners, and our bank has hosted a number of investor roadshows in Asia and beyond.” Another key differentiator, Das says, is Standard Chartered’s balance sheet. “Being liquid as a bank means we can lend more readily to private banking clients. Our strong balance sheet translates into the ability to undertake a wide variety of lending and funding for our clients, both domestically and across our footprint.”

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Combined with its deep-rooted history in India, Standard Chartered’s strong presence in the world’s most compelling markets and robust lending capabilities position it well as an entrepreneur’s bank – ready to serve the ever-evolving needs of India’s wealthy business owners.

Adaptability is paramount to success

In today’s complex and constantly shifting global financial realm, investors do not always behave consistently. In response, Standard Chartered’s approach has been to remain open-minded to diverse insights. Adaptability is central to Standard Chartered’s investment philosophy. Understanding that markets develop and adapt over time, and that set strategies will perform well in certain environments but poorly in others, the bank employs an adaptive investment process. “The game has shifted from who has the best access to information to who can make the most sense out of the reams of available insight and information,” Das states. “When it comes to investment decision making, a group of well trained and diversely informed and thinking professionals tend to perform better than an individual expert,” he continues, speaking of how the bank embraces the idea of “collective diversity over expertise”. By embracing a range of opinions regarding economies and asset prices, the bank identifies, weighs and incorporates elements from each perspective to ensure the best investment outcome. Meanwhile, to keep pace with clients’ rapidly evolving demand for digital banking capabilities, the bank has invested US$3 billion in innovation and technology across its businesses, including US$250 million to build a global wealth platform with an enhanced and consistent user experience, empowering users with self-service capabilities to manage their investment needs.

“Our hiring approach focuses on senior bankers who can identify and support the diverse needs of our clients through the different market cycles,” explains Das. “We also launched in 2017 our Private Bank Academy in partnership with Fitch Learning and INSEAD to create a bespoke, industry-leading programme for our global frontline teams to deliver a higher level of service and advice to our clients.” The constant strengthening of its team has enabled Standard Chartered to invest and drive innovation in private banking for clients in India at a time when many competitors are consolidating or exiting the market.

Family first: hope for the next generation

Standard Chartered is a trusted advisor to its clients across generations, and understands that what matters most to clients at the end of the day is family. Their top concern – regardless of the complexity of their wealth management needs – is fundamentally ensuring the wellbeing and success of the next generation. In Standard Chartered’s view, equally important as the transferal of wealth is the passing on of knowledge and the ability to deal with the responsibilities that come with an inheritance. Targeting those aged 20 to 32, the bank has developed a Future Leaders Programme that is based upon five pillars: leadership, entrepreneurship, philanthropy, sustainability and communications. The programme gives participants the opportunity to learn from global business and philanthropic leaders about how to represent their families and their country on the world stage. It represents both an investment in the world’s most important collective asset – the next generation – and an expression of hope for a bright and optimistic future as India pushes forward with new confidence into a century of challenges and opportunities.

Drawing from the finest global talent

The population of HNWIs has grown significantly, resulting in an everbroadening array of products and services. Alongside stronger regulatory frameworks and complex market structures, high expectations have been placed on banks and their private bankers.

For further information, please email:

Contact.PvBIndia@sc.com

EVENTS

INVESTMENT ADVISORY SUMMIT 2018 Bookended by panels of private banking luminaries, the Asian Private Banker Investment Advisory Summits were held last month in Hong Kong and Singapore to host debate and discussion around the future of Asiaâ&#x20AC;&#x2122;s wealth management industry. The events attracted over over 500 senior wealth managers. We would like to thank the attendees, partners, and all the speakers for making the events such a success. View more photos at apb.news/ias2018

HON G KO N G

EVENTS

SINGAPORE41

INDUSTRY

One third of Asia’s wealth, asset managers doubt trailer fee ban

ver a third of respondents representing Asia’s private banking and asset management community do not expect a trailer fees ban in Hong Kong and Singapore, according to the findings of a survey conducted at Asian Private Banker’s Investment Advisory Summit 2018 in Hong Kong. Although delegate discussions held at the annual event revealed the growth of fee-based assets is gathering pace, most agreed the abolishment of kickbacks — and consequent attempts to fill the trailer fee revenue gap — will be the true growth catalyst for fee-based business.

The findings by the FPSB may well have become embedded in the minds of industry practitioners, with 37% of survey respondents saying that trailer fees are here to stay.

Currently, what percentage of your private bank/wealth management firm’s revenue is generated through transactional activities? 31% 25%

Attendees pointed to more mature markets in Europe, where retrocession bans kickstarted the popularity of fee-based offerings like discretionary or advisory mandates.

22%

14%

Reflecting on Hong Kong and Singapore, 12% of respondents said they believe the ban will occur by the turn of the decade, 31% expect prohibition between 2020 and 2025, and 20% expect trailer fees to be outlawed after 2025.

Less than 20%

20-30%

30-40%

40-50%

More than 50%

When will the trailer fee ban be implemented in Hong Kong/Singapore, if at all? 37% 31%

Even so, Asia’s private banks remain optimistic about the future of feebased income. Indeed, 31% of private banking and wealth management respondents claimed that more than half of their business revenues are generated through transactional activities. Private banks and wealth managers are also actively promoting flatfee advisory mandates with varying levels of success. While current penetration rates remain low, nearly half (48%) of all respondents believe that a penetration rate of more than 10% is achievable by 2025.

20%

12%

On or before 2020

2020 - 2025

After 2025

I don't believe trailer fees will be banned in Hong Kong/Singapore

Currently, what percentage of your assets are serviced within an advisory mandate (flat-fee active advisory contract)? 30% 25%

In a 2016 report, Hong Kong’s Securities and Futures Commission (SFC) said a trailer fee ban was inappropriate for the local market due to limited optimism about the adoption of pay-for-advice models. The SFC cited a survey issued by the Financial Planning Standards Board (FPSB), which noted that only 11% of survey respondents were willing to pay US$1,900 or more while the vast majority (55%) would pay US$640 or less. “Based on these survey results, the adoption of a pay-for-advice model with a complete ban on receipt of commissions by intermediaries may not seem appropriate for Hong Kong,” SFC said in its consultation paper, instead suggesting greater fee transparency and disclosure. 42

29%

16%

0-2%

2-4%

More than 4%

We do not currently have a flat fee active advisory offering

INVESTMENTS

Asia's private banks say "stay the course, trust the fundamentals" Fears of a trade war, rising US rates, and frothy valuations may be holding back global share prices, but private banks, for the most part, are urging clients to stay the equity overweight course and trust fundamentals over noise. Trade war risk: Malignant or benign?

In its extended effort to make good on its ‘America First’ policy, the Trump administration imposed a 25% tariff on an additional US$34 billion worth of Chinese imports in early July. The private banking industry broadly shrugged off the move as too immaterial to affect fundamentals and markets. UBS Global Wealth Management attached a 30% chance to a full-blown US-China trade war, adding that the limited recent market impact observed — despite rising tensions — reflects the minimal economic impact tariffs should have, and that equities should “grind higher”. Julius Baer projected a slightly more optimistic 20% chance for a trade war, expecting tensions to remain a “tit-for-tat trade dispute”. But compared to the first round of tariffs, private banks are expressing greater caution this time round. Bank of Singapore suggested that markets are overestimating the possibility of a trade war compromise, stressing that the dispute is as much about security as it is about trade. According to the Singaporean lender, the US “could be ready to accept moderate economic damage in order to undermine a growing military rival”, given the policy focus on intellectual property theft and products linked to China’s 2025 industrialisation plans. UBP, meanwhile, noted that while the current economic impact is insignificant, the new tariffs — expanded to cover a total of US$450

billion of imports — could lead to a full 1% reduction in Chinese GDP growth and a potential policy response that includes loose monetary policy and relaxation on housing and infrastructure investments.

Rising US rates: More hawkish than expected?

As expected, the Federal Reserve Bank recently delivered another 25 bps hike to push the funding rate to 2.0%. What was less expected was the slightly more hawkish guidance provided by the median dot plot, that suggests two more hikes this year — one more than markets have priced for. The four rate hikes are in line with J. Safra Sarasin’s 2018 projections, but the three in 2019 are one more than it expects, reflecting the Fed’s optimism about growth and inflation. Similarly, UBS Global Wealth Management warned investors to watch for a “sharper uptick in wages and inflation” given a US economy that is expanding above its long-term trend. At Bank of Singapore, the rate path outlook is even more hawkish, with the bank’s chief economist, Richard Jerram, saying that the Fed needs to tighten policy faster and further than it is currently signalling. “The difference in market expectations for this year is not significant, but it widens as the forecast horizon extends. Even in 2020, the market does not see the Fed pushing rates beyond the neutral levels,” Jerram explained. He said the Fed’s economic forecast “makes no sense” due to what he believes is a misalignment between growth, unemployment and, effectively, inflation. 43

INVESTMENTS

“This is unrealistic — if the Fed wants to cool down an overheating economy, then at some point interest rates will need to rise beyond the neutral levels of 2.75-3.0% — otherwise policy is still stimulating growth.”

Credit Suisse echoed these sentiments on earnings momentum. The Swiss major said that strong economic growth should provide a boost while trade frictions are “likely to have microeconomic rather than macroeconomic implications”.

Valuations: Earnings growth story still intact

As such, private banks remain moderately bullish on equities despite the uncertain backdrop. Interestingly, while absolute equity risks may have elevated, the asset class’s relative attractiveness remains strong.

Regardless of the state of geopolitics and the outlook for global rates, private banks continuously highlight that earnings — the real key driver of stock prices — continue to experience positive momentum. According to Citi Private Bank, the correlation between corporate earnings and share prices “never decoupled”, calling S&P 500’s slightly above-average forward P/E valuations “decent” (16.5x) and non-US equities’ slightly below-average valuations “attractive” (13.5x).

Of the eight banks whose asset allocations Asian Private Banker tracks, four have decreased allocations to equities (compared to the same period last year), and the remaining four have added or maintained allocations. Deutsche Bank Wealth Management leads the equity bulls with an additional 2.5% allocation to the class.

Asset allocations 2H18 Equity

Fixed Income

Alternative

Cash and cash equivalent

Bank of Singapore ¹

39.2% (-0.8%)

38.0% (-7.0%)

14.0% (+4.0%)

8.8% (+3.8%)

BNP Paribas Wealth Management ²

47.0% (0.0%)

32.0% (0.0%)

16.0% (0.0%)

5.0% (0.0%)

Citi Private Bank ³

42.0% (-14.3%)

34.4% (+5.6%)

21.5% (+9.5%)

2.0% (-1.0%)

Deutsche Bank Wealth Management ⁴

47.5% (+2.5%)

37.5% (-4.0%)

10.0% (0.0%)

5.0% (+1.5%)

Julius Baer ⁵

46.0% (-2.0%)

40.0% (+2.0%)

7.0% (+1.0%)

7.0% (-1.0%)

LGT ⁶

47.0% (+2.0%)

34.0% (+2.0%)

16.0% (-3.5%)

3.0% (-0.5%)

Standard Chartered Private Bank ⁷

41.0% (-2.0%)

44.0% (+5.0%)

15.0% (+5.0%)

0.0% (-8.0%)

UBS Global Wealth Management ⁸

45.0% (0.0%)

30.0% (0.0%)

20.0% (0.0%)

5.0% (0.0%)

Bank

Notes: Minor differences due to rounding. Figures in brackets are YoY changes.

¹ ² ³ ⁴

Bank of Singapore, monthly investment guide, "Looking Through the Turbulence", June 2018 BNP Paribas Wealth Management, global balanced profiled mandate, June 2018 Citi Private Bank, mid-year outlook 2018, as of Global Investment Committee meeting, 23 May 2018 Deutsche Bank Wealth Management, USD profile, June 2018

⁵ ⁶ ⁷ ⁸

Julius Baer, research weekly "Sovereign Money for Nothing, Checks for Free", 28 May 2018 LGT Investment Services Europe (USD Generic Asset Allocation), 13 June 2018 Standard Chartered, Global-focused tactical asset allocation, June 2018 UBS, global model portfolios, (for a balanced risk portfolio, USD profile), 21 June 2018

ADS

Asian Private Banker combines qualitative and quantitative research to provide descriptive statistics and in-depth narrative behind the numbers in our dedicated industry research, reports, and white papers.

For further information on research opportunities, please contact: Stratos Pourzitakis, PhD Head of Research T +852 3703 9561 M +852 5213 1636

Research Clients: 45

AWARDS

In a hugely competitive year, the following fund managers were recognised for their outstanding achievements and overall industry excellence. Asian Private Banker's judging panel surveyed 36 key fund selectors across 27 private banks to find out which asset managers performed the best across four key criteria: product performance; business performance; service quality; and branding and marketing. Based on these surveys, 55 shortlisted asset managers pitched and competed across 28 categories. Congratulations to those who came out on top. We present to you, the winners of Asian Private Banker's Asset Management Awards for Excellence 2018.

46 46

AWARDS

View more photos at apb.news/ama2018

Julius Baer’s John Cappetta: Equity strategies dominate top fund inflows in H1 Julius Baer’s clients in Asia are heeding the bank’s CIO call to favour stocks over bonds as evidenced by fund flows for the first half of the year, with equity strategies dominating Julius Baer’s top ten funds by inflows. Equity strategies make up six of top ten funds by H1 inflows

The great rotation of 2013 that never came may now be happening in Asia’s private banking market, with clients actively adding equity risk while increasingly shunning fixed-income assets due to the risk of a rising rate environment. “At the end of 2017 and coming into 2018, we’ve been suggesting investors favour equities over fixed income across the board. John Cappetta From a fund flow perspective, head fund advisory specialists, Asia we’ve observed that our clients Julius Baer and relationship managers are taking that advice,” said John Cappetta, head fund advisory specialists, Asia at Julius Baer. According to Cappetta, six of the top ten fund holdings year-to-date that registered the most inflows were equity funds primarily invested in thematic strategies based on long-term, secular trends. The remaining four include two alternative funds (macro and market neutral), a multi-asset fund and an unconstrained bond fund. “Equity fund demand continues to be focused on thematics where the growth opportunities lie — including the rise of Asia, feeding the world, digital disruption and energy transition. They’ve performed relatively

well, maintaining gains in the current environment. Any pullbacks have turned into opportunities for clients to add exposure,” Cappetta continued. “We are beginning to hear more noise about exploring the potential for a fintech fund, but the market may not be large enough for a dedicated strategy. Most fintech exposure continues to be accessible only as a portion of a larger business.”

Fixed income funds retreat

Meanwhile, in line with the bank’s house view, Julius Baer’s clients in Asia are shunning fixed income, with six of the top ten funds by Asia outflows for the same period invested in the asset class. “From our conversations with portfolio managers, there is no consensus call on where rates will go from here — we are dealing with managers that are calling for the ten-year US Treasury yield to move anywhere between 4% and 2%,” Cappetta said, explaining the bank’s move to shift fixed-income assets — especially EM and HY debt — into the aforementioned unconstrained bond fund. “That’s why we don’t mind advising our clients to invest into a wider mandate to provide portfolio managers with more flexibility to manage volatility.” In addition to fixed income funds, the bank is also observing a retreat from a China ETF, another top ten holding by H1 Asia outflows, due to the potential for alpha in this equity market. “We support active management in this market due to historical returns and the market environment, and this shift out of a passive China exposure bodes very well for our clients’ risk-adjusted returns,” Cappetta added.

INDUSTRY

EFG in Asia leadership revamp EFG’s leadership ranks in Asia are set to receive a major facelift at a time when the Swiss bank is searching for growth momentum after a disruptive BSI acquisition. The changes will impact both booking centres in the region.

ong Eng Huat, EFG’s chief executive for Singapore and Southeast Asia, will retire before the end of the year, after almost seven years with the bank.

EFG’s spokesperson declined to comment on Lee’s status, but confirmed that Balmelli has been appointed the sole head of private banking in Singapore.

This was confirmed by a spokesperson for the bank, who said Kong will continue to manage the Singapore branch until the new CEO is unveiled on 26 July subject to regulatory approval.

Meanwhile in Hong Kong — the hub of EFG’s Northeast Asia activities and traditionally its engine of growth in the region — veteran private banker Richard Straus will join as head of private banking in Hong Kong, where Kees Stoute is branch CEO.

Asian Private Banker understands that Kong will be replaced by Tho Gea Hong, RBC Wealth Management’s current head of wealth management, Southeast Asia and chief executive, Singapore branch. EFG’s spokesperson declined to comment on the matter. A spokesperson for RBC could not be reached for comment. While an external appointment on paper, Tho is no stranger to EFG and its unique business model, having served as its head of private banking, Southeast Asia and deputy CEO for Singapore during a four-year stint that ended in February 2016, when she left for RBC. Her appointment would mark a reunion of sorts with EFG’s APAC region head, Albert Chiu. At the same time, sources told Asian Private Banker that Lee Chang Tze, one of EFG’s two deputy CEOs and heads of private banking in Singapore alongside Oliver Balmelli, has left the bank after some 18 months in the role.

Straus had been at Julius Baer since 2015, where he headed the Taiwan market business. He left the Swiss pure play some two months ago. The appointment was confirmed by EFG’s spokesperson, who said Straus joined the bank “this week”. The leadership refresh comes as EFG pursues growth in its regional franchises as part of a multi-pronged strategy fleshed out near the end of last year, which includes strengthening the bank’s risk and compliance framework and increasing synergies across the group. More recently, EFG International rejigged its executive committee and established a global business committee that comprises regional heads — including Chiu.

INVESTMENTS

Hedge funds vs liquid alts: the PB debate continues

sia’s private banks have yet to reach consensus on the tradeoff between traditional hedge funds and UCITS equivalents, although they have been proactively advising clients to take on some downside protection by adding exposure to hedge funds amid increasing volatility.

it is looking for low-correlated solutions in order to add value on a riskadjusted basis in client portfolios.

In terms of asset allocation, quite a number of private banks have seen increased allocations to hedge funds over the past 12 months. For example, UBS Global Wealth Management currently calls for 14-20% in hedge funds across various risk profiles, while HSBC Private Banking is advising a 30% allocation to alternatives overall. Hedge funds, and the broader alternatives universe, also featured as an important asset class in DBS’s second-quarter CIO report.

However, not all private banks take the side of liquid alternatives or UCITS III funds.

Yet, within hedge funds, banks’ views diverge when it comes to specific strategy implementations. Bank of Singapore, for one, sees “little future” in conventional hedge funds and any other ‘black box strategies’ compared to liquid alternatives, for transparency and liquidity concerns.

Johan Jooste CIO Bank of Singapore

“The majority of hedge funds that we look at would either be UCITS or those that are close enough to UCITS compliance — even if they haven’t registered with the UCITS framework,” Johan Jooste, CIO of Bank of Singapore told Asian Private Banker.

“In other words, the objective is volatility minimisation as opposed to return maximisation,” Jooste explained.

UBS Global Wealth Management is one such example. In a recent interview, Gunther Jost, co-head of hedge funds, Asia Pacific at the Swiss bank, pointed out that, compared with hedge funds, UCITS III funds have limited strategies that investors can access. “If our clients decide to invest in hedge funds, Gunther Jost they are willing to give up on liquidity to co-head of hedge funds, benefit from the diversification impact for Asia Pacific their portfolios,” he said. UBS GWM “In terms of UCITS III products, obviously you cannot put all hedge fund strategies into UCITS wrappers. Quite a number of well-known managers that investors want to get access to are not available in UCITS funds, so that already limits the opportunities that investors have.” Rodolphe Larqué, Credit Suisse’s head of fund solutions for Credit Suisse Private Banking Asia Pacific agreed, adding that from a returns perspective, UCITS III funds also have limitations.

“The UCITS framework makes it a lot easier and more transparent for our clients to understand the underlying strategies. From a private bank point of view, things that are opaque, difficult to understand, or black box strategies have very little future.” Jooste added that, when it comes to hedge funds, the bank does not tend to be tactical about timing when implementing strategies. Instead,

Rodolphe Larqué head of fund solutions Credit Suisse Private Banking Asia Pacific

“While UCITS provide added liquidity, they tend to limit managers’ capacity to generate alpha due to stricter investment rules,” Larqué said.

INVESTMENTS

Outside hedge funds

Apart from hedge funds, private banks are also eyeing other asset classes or tactical trading solutions outside the public domain to deal with an environment of rising turbulence. Bank of Singapore’s Jooste told Asian Private Banker that the bank had recently launched a private equity strategy which has gained traction among its clients, even though investors have to take at least a five- to 10-years view on the particular strategy given the long lock-in period.

Client demand remains lacklustre

Even as traditional asset classes were hit by volatility — notably, equities and bonds have experienced a roller-coaster ride during the first half of 2018 — quite a number of private banks admit the overall demand for alternatives among Asian clients remains relatively low. During a recent interview, Charles Wong, Aviva Investors’ head of wholesale distribution Asia, said there is still a long way to go before markets see significant capital inflow from Asia’s private banking clients into alternatives.

“On a risk-adjusted basis, this strategy tends to outperform if you have patience,” Jooste added, highlighting that investors can avoid shortterm market dynamics and turmoil, to some extent. Additionally, shortening interest rate exposure is another popular approach among private banks to deal with rising volatility. HSBC Private Banking’s head of investment strategy and advisory, Asia, Fan Cheuk Wan, said earlier that in the late stage of this economic cycle, the bank had been adding floating rate instruments in client portfolios in order to minimise the interest rate risks within fixed income. Fan Cheuk Wan head of investment strategy and advisory, Asia HSBC Private Banking

Charles Wong head of wholesale distribution Asia Aviva Investors

“I believe Asian investors have to suffer much more pain before they start to see the benefits of downside protection solutions, such as multi-strategy or other alternatives,” Wong said.

“They are still reminiscing about the good feelings they had last year, and don’t realise that a storm could be coming,” he warned, adding that Asian investors have been “so spoiled” by the performance of financial markets in recent times, in turn, making them reluctant to add downside protection in their portfolios.

Bank of Singapore’s Jooste echoed this point, adding that, as long as the Libor rates are on the rise, floaters will work well, especially as the opportunity costs of holding shorter-dated paper are much less than 12 months ago.

Even so, the outlook for alternatives overall remains positive and some private banks have already notched up early success.

Furthermore, although long positions in volatility currently appear expensive, some HNWIs in the region still seek attractive entry points to long the VIX index, Jooste pointed out.

Credit Suisse’s Larqué also observed that traditional hedge funds have been gaining traction since early this year.

“Among the approaches to deal with volatility, the most difficult one for clients to position is the volatility trades, because they could be really expensive when volatility is high, but it’s a very effective hedge,” Jooste added.

UBS Global Wealth Management told Asian Private Banker that APAC AUM in hedge funds has grown by some 60% over the past three years.

“We have two major exclusive solutions in this space, which have received a lot of interest from clients, and I expect them to become blockbusters this year,” Larqué said.

INVESTMENTS

Asia’s WMs disagree over India’s equity market Wealth managers in Asia are at loggerheads over how clients should approach India's equity market amidst an economic recovery and monetary tightening. While DBS Private Bank and Noah Holdings believe India will serve as the main growth engine for emerging market Asia, Credit Suisse Private Banking says the market offers only "return-free risks".

Major driver of emerging market (EM) Asia

Frank Lee senior investment strategist DBS Private Bank

“India should be one of the major drivers in EM Asia,” Frank Lee, senior investment strategist at DBS Private Bank told Asian Private Banker, noting that, in terms of sectors, agriculture, industry and services are worth watching closely as they have all seen a pick-up in trends.

The Indian economy expanded 7.7% year-on-year in the first three months of 2018, beating market forecasts of 7.3%. "We expect [the country's GDP] growth to stabilise above the 7% mark in FY19, with favourable base effects providing an optical boost to the 1H numbers," Lee added. Noah Holding’s CIO, William Ma, is also optimistic about the Indian market, citing Modi government reforms, strong domestic consumption growth and a young demographic as major drivers of the country's equity market. “With strong GDP growth, we believe the Indian market will continue to gain interest from global investors and outperform the Asian market in the long term if the government reform continues and domestic companies use this opportunity to spend more on CAPEX to upgrade their production facilities and expand market share,” Ma told Asian Private Banker. William Ma CIO Noah Holdings

However, despite the long-term positive view, Noah’s approach to gaining access to the market, given its volatile nature, is via equity hedge funds. “We believe Indian hedge funds that can be nimble in their gross and net exposure, as well as partially hedge the rupee, tend to generate more stable returns with a higher Sharpe ratio in the long-term,” Ma said.

Noah sees “good” demand for the firm’s Pan Asia fund of hedge funds, in which Indian hedge funds makes up a notable portion of the portfolio. The Chinese wealth manager plans to increase the allocation to Indian managers if volatility rises.

Indian equities only offer “return-free risks”

Suresh Tantia investment strategist Credit Suisse Private Banking

In contrast, Credit Suisse Private Banking holds a relatively negative view on the Indian equity market, pointing to macro concerns — the fiscal and current account deficit and rising oil prices — as reasons why the market only offers investors “return-free risks” in the short term.

“We believe Indian equities will underperform Asian markets over the next 12 months,” Suresh Tantia, investment strategist at Credit Suisse Private Banking, told Asian Private Banker. Tantia added that Indian equities are expected to deliver “one of the lowest returns in Asia” over the next year. “Recent currency depreciation and high bond yield also do not provide comfort on the market," he continued. "While bonds are pricing in the macro fears, Indian equities remain richly valued on the back of domestic flows, post government’s demonetisation move, and are trading at a one-year forward P/E of 17.1x,” Tantia said. Beyond valuations, Tantia believes concerns around potential populist policies ahead of next year's general elections also weigh on the market. Year to date, the country’s stock market has witnessed a drawback, with the MSCI India Index recording a 1.26% drop, compared to a 3.06% return for the MSCI Emerging Markets Index.

F A M I LY O F F I C E / I A M

Are Asia’s IAMs ready for take-off? No longer bit-part players in Asia’s wealth management scene, independent asset managers (IAMs) are growing in number, sophistication, and market share according to the exclusive findings of a deep dive research report from Asian Private Banker, in partnership with Julius Baer. Hong Kong and Singapore, alone, are home to some 160 IAMs with an average AUM per firm of approximately US$570 million and a total market share of 5.5%. This is still some way behind IAMs’ penetration rate in Europe, where the market is significantly more mature, including in Switzerland, where around 2,500 firms manage approximately US$430 billion in total.

Market share of IAMs in Hong Kong and Singapore Hong Kong

Singapore

Total

160

Estimated number of IAMs Estimated AUM (in US$ billion)

38.1

53.4

Upon closer examination, those firms that boast the lowest cost/income ratios also have the fewest RMs (and headcount increase), the highest average AUM and among the highest average YoY increase in revenues, at 60%. Meanwhile, IAMs with cost/income ratios in excess of 80% — around a quarter of the universe — are undergoing a rapid scaling-up process, increasing RM numbers by 53% and revenue by 63% YoY. This is notwithstanding their average eight years of operation. Cost/Income

<40%

40% - 60%

61% - 80%

80% <

Percentage

17.9%

24.6%

33.9%

23.6%

AUM/firm

900

350

510

240

91.5

Even so, recent growth momentum suggests that the prospects for Asia’s IAM industry are especially positive. Some 94% of contributing firms in Hong Kong and Singapore posted an average revenue increase of 42% for their latest financial year, while 55% reported an increase in their relationship manager headcount. The pressure to accumulate scale in this competitive market momentum is translating into pressure on the bottom line for a number of firms, with 24% of contributing firms reporting a current cost/income ratio in excess of 80%.

Cost/income ratio of IAMs

RMs

AUM/RM

450

Change in Revenues (YoY)

60.0%

28.0%

47.5%

63.3%

Change in RM Headcount

23%

26%

34%

53%

Avg. Years of Operation

IAMs’ AUM threshold for new client onboarding Yes

61%

39%

50%

Average threshold

US$8.7 million

40%

Median threshold

US$2.0 million

Average threshold if exclude IAMs with threshold > = US$100 million

US$2.8 million

30%

The majority of Hong Kong and Singapore-based IAMs (61%) adopt a minimum threshold for new clients, with the average bar set at US$2 million, excluding those firms with a threshold of at least US$100 million.

20% 10% 0% < 40%

41% - 60%

61% - 80%

81% <

F A M I LY O F F I C E / I A M

Breakdown of IAMs’ offered services by total revenue 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Percentage of IAMs’ AUM with their top three custodian banks Percentage of AUM with top three custodian banks

2nd

3rd

10.0%

Min

5.0%

Min

Max

80.0%

Max

50.0%

Max

30.0%

Mean

40.5%

Mean

25.4%

Mean

14.9%

Min

O th

co Ta un x tin Se g rv an ic d es

E an sta ni te ng Pl

Co Ad rpo vi rat so e ry

er Fam na i nc ly e ov G

In ve Ad stm vi en so t ry

Al lo

A ca sse tio t n

1st

In terms of revenue streams, contributing firms cited asset allocation and investment advisory as their most significant sources, but anecdotally pointed to retirement and succession planning as important future streams as Asia undergoes what is the ‘largest wealth transfer in history’. It is also worth noting that 41% of contributing IAMs said they receive rebates, although this percentage is likely to be higher for the entire population.

Breakdown of offered portfolio services (weighted against DPM)

The vast majority of IAMs partner with just over six custodian banks, yet the top three custodian banks selected by IAMs receive the lion’s share of their AUM. On average, contributing IAMs said they book approximately 80% of their AUM in their top three banks. IAMs identify pricing and credit rating as the most important criteria when selecting custodian banks, followed by the quality of banks’ IAM desks and their onboarding process.

Criteria for selecting custodian banks Pricing Credit Rating Service Quality of IAM Desk Onboarding Process Brand Reputation International Footprint Investment Products 0

Advisory 34.2%

Discretionary 65.8%

1 = least important, 5 = most important

Incentives to move to an IAM Expectation for Higher Remuneration Ability to Spend More Time with Clients

In parallel, the discretionary portfolio management (DPM) penetration rate for Asia’s IAMs is a remarkable 71% — or 66% when weighted against firms’ AUM. This comes in stark contrast to the penetration rate for private banks in Asia, which is currently less than 10%. It is important to stress that a number of IAMs in Hong Kong and Singapore offer DPM services exclusively and, notwithstanding the difficulties the broader wealth management faces to convince clients of the merits of delegating, some IAMs set this as a prerequisite for client onboarding.

Broader Product Selection Less Compliance Burden Better Work-life Balance 0

1 = least important, 5 = most important

The report also sketches the profile of the average RM who leaves private banking to join an IAM firm and explores the driving forces behind such a decision. 55

F A M I LY O F F I C E / I A M

In general, RMs move to the independent asset management industry after spending around a decade at a private bank. Notwithstanding the loss of institutional support and reduced economic security, these individuals appear satisfied with their decision to join an independent asset management firm. Moreover, apart from expectations for higher remuneration, their expected ability to spend more time with clients, and the opportunity to choose from a more comprehensive selection of products motivate them to make the shift.

Satisfaction levels of relationship managers Very Satisfied 6.2%

Dissatisfied 1.1% Indifferent 18.5%

Satisfied 74.2%

In line with their expectations, more than 80% of our contributing RMs appear to be satisfied or very satisfied with their remuneration, which includes two basic components: a fixed salary which accounts for 54% of the total annual amount, and commission which stands for the remaining 46%.

Breakdown of individual annual remuneration

Monthly salary

Commission

Min

Max

100%

Max

100%

Mean

53.8%

Mean

46.2%

Overall, based on the survey data and anecdotal evidence, on average, the remuneration of the RMs can increase by as much as 45%-50%. Beyond Hong Kong and Singapore, Mainland China and Thailand are home to nascent yet burgeoning IAM scenes given their relatively vibrant wealth management markets. Indeed, the recent boom of Thailandâ&#x20AC;&#x2122;s domestic market is well-evidenced by Julius Baerâ&#x20AC;&#x2122;s JV with Siam Commercial Bank, announced in March 2018. The findings are based on qualitative and quantitative data accumulated from 66 surveys and 27 semi-structured interviews with representatives of private banks, IAMs and MFOs, legal and fintech experts.

For a free copy of the IAM Report, please visit apb.news/2018iamreport This survey is conducted independently by Asian Private Banker, but is made possible through the sponsorship of Julius Baer. Full Research Report Length: 61 pages

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For further information on our research, please contact: Stratos Pourzitakis, PhD Head of Research T +852 3703 9561 M +852 5213 1636

Lisa Cheng Researcher T +852 2529 4777 59