41 minute read
27 THE FINAL WORD — Key investment themes
One of the most-repeated views over 2021 was that the ‘60/40’ portfolio is dead, given the ultra-low to negative yields offered in many parts of the sovereign bond markets. From alternatives to commodities to private credit, how are you helping investors to allocate assets in what was traditionally the fixed income part of their portfolios?
Tee Fong Seng, CEO Asia-Pacific, Pictet Wealth Management A classic 60/40 portfolio may be suboptimal at times of higher inflation. From a strategic asset allocation perspective, the expected rise in inflationary pressure, in part because of energytransition policies over the next ten years, is a further argument in favour of endowment-style investing, i.e. the multi-asset approach adopted by endowment funds which include a range of real assets (private equity infrastructure, real estate, commodities and gold) that may protect against inflation.
We believe that alternatives, including real estate and private equity, will continue to grow this year. Super-low interest rates and rising inflation fears mean the yields offered by traditional assets have plummeted, increasing the number of investors willing to exchange some liquidity for the higher returns offered by private investments. In alternatives this year, we like real assets that can cushion against inflation, private equity as a growing asset class with low correlation to listed assets, as well as hedge fund solutions such as M&A, eventdriven, and macro strategies.
Tan Siew Meng, regional head, Asia Pacific, HSBC Global Private Banking It is imperative for investors to find new portfolio diversifiers among a broader universe of alternative asset classes. Introducing alternatives such as hedge funds or private assets into a portfolio can deliver better risk-adjusted returns than a portfolio of public markets alone. In 2021, HSBC Global Private Banking concluded another record year in Alternative Investments by raising US$3.2 billion in private client commitments globally, with US$1.9 billion from Asia, an increase from the US$2.3 billion raised in 2020.
Volatility is trending higher and rising rates are limiting the ability of low-yielding bonds to diversify risk. As rates rise, investors need to change tack to stay on track. More companies are choosing to remain private and for longer periods than ever before, providing a growing universe of private market opportunities. Our private market solutions have proven resilient and delivered strong risk-adjusted returns in spite of market dislocations. We believe private markets are complementary to clients’ public market holdings, and expect the private market illiquidity premium
to keep attracting investors and fundraising momentum to remain strong.
For 2022, we see a broad opportunity set for alternative investments and consider them to be a key portfolio diversifier, providing downside risk protection and uncorrelated returns.
Raymond Ang, global head, Affluent Clients, Standard Chartered Bank We have been advising clients to increase allocation to private assets, primarily private credit and private real estate. This is driven by our expectation that yields and returns in these areas are likely to be superior to similar assets in the public markets – for instance, we expect global high-yield bonds to generate returns of just 2.3% a year over the coming 7 years, while for private debt that number is 5.3% with only slightly higher volatility. Of course, these assets have some diversification benefits as well when added to an equity-heavy portfolio, although the hedge is less pure than for G3 government bonds.
Omar Shokur, CEO Asia, Branch Manager Singapore, Indosuez Wealth Management Whilst the fixed income allocation in our model portfolios has reduced somewhat (ranging from 28% in conservative portfolios to 10% in more dynamic portfolios), it remains an important asset class. Clients can still achieve stable income through balanced and prudent selection in duration, sectors and regions, spreading the risk within their portfolios. Having said that, as mentioned above, we continue to deploy multi-asset portfolios and advise investors to add gold and private equity in addition to the assets mentioned in the previous question.
Michael Blake, Asia CEO, Union Bancaire Privée With both nominal and real interest rates at ultra-low levels, traditional fixed income no longer offers the diversification benefits it used to offer in a conventional 60/40 portfolio. What’s more, one of the key pillars underpinning the strong equity market performance since the global financial crisis of 2008 has been the unconventional monetary policy of quantitative easing. This makes risky assets generally susceptible to increases in interest rates, so that a traditional fixed income allocation becomes somewhat positively correlated to equity markets. This acts to reduce the diversification benefits in a conventional 60/40 portfolio.
During this cycle, we have used innovative ways to bypass the limitations resulting from the conventional 60/40 allocation. That is why we have chosen to be overweight equities at the expense of fixed income, as we find more value in the former. The role of risk reducer — which conventional fixed income used to play in volatile times for equity markets in a 60/40 portfolio — has now been replaced in our portfolios with downside protection derivative strategies and structured products. With volatility at relatively low levels, these strategies offer reasonably cost-effective downside protection. We also use lower beta, alpha generating exposure via alternatives to help mitigate risk in portfolios.
Turning to our fixed income allocation, our reduced exposure to the asset class over the last few years has primarily comprised various sub asset-classes within fixed income which correlate more positively with the business and economic cycle. This includes areas such as high yield, hybrid capital structure securities, senior loans, emerging market debt and convertibles.
With these sub-assets now starting to look expensive, we are increasingly looking to use more alternative long/ short credit strategies within portfolios as a partial substitute. We have tactically entered and then exited sovereign bond market exposure to trade the range which yields have largely moved within. Whenever client investment objectives and risk appetite permit, we advocate the use of private debt and other yield generating private market exposure.
Lok Yim, head of Deutsche Bank International Private Bank APAC We should not assume that a very traditional asset allocation (such as the classic 60/40 equity/bond allocation) will work well. More sophisticated approaches will be needed. Even relatively small changes in interest rates can have major direct and indirect effects on asset classes.
Portfolios need to be built on the assumption that while some interest rates are set to increase, we are not going back to a “normal” situation. Changed correlations between asset classes mean that traditional portfolios (such as a 60/40 equities/bonds split) cannot be relied on to provide protection in the event of a market reversal. ESG strategies, alternative investments and additional risk controls will all have a role to play in portfolios in 2022.
Kwang Kam Shing, CEO of J.P. Morgan Private Bank Asia We see returns of a 60-40 portfolio to remain quite modest in the years ahead, so we believe alternative investing is only going to become more relevant. For income, we prefer flexible fixed income strategies and also stable income generation, such as core real estate, infrastructure, private lending.
For long term alpha, we want to lean in to megatrends such as healthcare and sustainability through private equities. We still like multi-strategy hedge funds as well, to add diversification to the portfolio.
Andy Chai, Asia CEO, Bank J. Safra Sarasin A still solid, but moderating macro environment and inflation rates that are too high for comfort will lead most developed central banks to increase policy rates in 2022 and beyond, although they will operate on different timelines. Forward markets are already in the process of pricing in the expected path of the respective policy rates over the coming years. This environment is conducive to higher bond yields and flattening pressure on yield curves, mainly in the 5y/30 segment as intermediate maturities will likely underperform. Record low real yields in developed markets should have some upside in 2022 as policy rates go up. However, we expect the upside for bond yields to be less pronounced than in previous cycles.
Arnaud Tellier, CEO Asia Pacific, BNP Paribas WM Fixed income investing has been challenging in an era of zero or negative rates. We remain underweight government bonds, which had negative returns in 2020 and 2021.
However, there are opportunities in fixed income. For example, clients that are overweight fixed-rate exposure can diversify via floating rate bonds and leveraged loans. Also, default rates remain low in investment-grade and high-yield credit providing opportunities for incremental yield pick-up. In emerging market bonds, local currency issuance provides a generous yield pick-up as those central banks raised rates aggressively last year ahead of the Fed. Many of these countries are commodityproducing countries and their currencies have rallied this year even as US interest rate hike expectations increased. Finally, selected Asian high-yield issuers offer a healthy yield pick-up after the sell-off in 2021.
There are many other portfolio diversifiers and no single asset class or investment theme can consistently outperform in all years. The key is really to build a portfolio of solutions and diversify — non-traditional ways to generate income include private credit, private residential REITs.
Lastly, one point to add is rising yields are good news as this year could provide more chances to reinvest at higher yields. We are confident there will be more attractive opportunities in fixed income in the coming 12 months.
Benjamin Cavalli, head of Wealth Management Asia Pacific, Credit Suisse Finding investment strategies to compensate for low investment income from bonds is a difficult task. However, this does not mean that investors necessarily need to take on more risk to achieve their return targets – if suitable, they can and should consider other trade-offs such as liquidity. Investing in private assets too can provide attractive risk adjusted returns for investors willing to accept more reduced liquidity.
Private asset investing can offer an alternative to bond portfolios through vehicles such as private credit, for example, to equities, via PE or access to asset classes such as real estate that are difficult to access otherwise. At Credit Suisse, we have developed a fully diversified offering within this space for clients looking to diversify their traditional public market securities.
Jean Chia, CIO and head of Portfolio Management and Research Office, Bank of Singapore. Equities and bonds will continue to be core to investment portfolios based on the breadth and depth of the asset classes, which provide relatively liquid and transparent exposure to economies and companies that drive growth. Returns will come from both asset allocation and security selection that combines the twin objectives of generating above market return (alpha) and avoiding risks. Importantly, unlike in the early stages of the liquidity-driven bull market where the rising tide lifted all boats, we enter a mature stage of the market cycle which is characterised by greater dispersion in returns across asset classes, disparity in regions and sectors within asset classes and winners/ losers within the same industry.
Alternative investments are becoming an important component of investors’ portfolios. They have demonstrated an ability to improve the risk-return profile of the traditional 60/40 equity-bond portfolio based on historical returns. The largest institutional investors in the world and many family offices currently allocate more than 20% of their portfolio to alternatives. The Yale University endowment – which pioneered the aggressive inclusion of alternative investments – has an allocation of over 75% to alternatives.
Illiquidity, activism by managers and limited access are key features of alternatives that provide additional sources of risk premia and higher expected returns necessary to improve portfolio outcomes as we move through the more challenging phase of the investment cycle.
At Bank of Singapore, the ability to source and access investment opportunities in private equity, private credit, hedge funds and real estate through funds and direct investments has helped bolster returns and diversification in client portfolios during the past year. More recently, the focus on helping clients navigate the inflationary environment and the climate change imperative has led us to add longer duration infrastructure assets and climate-linked opportunities to the range of alternative investment solutions available from Bank of Singapore.
Bhaskar Laxminarayan, CIO and head investment management APAC, Bank Julius Baer The fundamental approach to wealth management is portfolio diversification. In that sense the 60/40 is nothing but a traditional approach to the same. What has possibly changed is the mix and composition of the same. There is certainly more space for including alternates in the mix, be it public or private markets, but the bulk of most large wealth is still likely to pay homage to the traditional assets. Good to note that equities and fixed income markets remain the widest and deepest asset class with a larger access than most other investment options.
Jasmine Duan, investment strategist, RBC Wealth Management – Asia We think of 60/40 as a vast simplification and an industry shorthand as opposed to a practical way to
manage investment portfolios. For example: where does a completely unconstrained emerging markets fixed income strategy fit in a 60/40 model? What about convertible bonds? What about carbon? The number of portfolio tools and ways to implement has expanded significantly over the years to meet differing investors’ objectives.
There’s a clear evolution towards portfolio risk allocation as opposed to asset allocation, which is a more comprehensive and flexible approach to managing the risk in portfolios. With markets vulnerable to both a rates shock and a growth shock, simply allocating 40% to bonds, or more correctly to rates, no longer offers the same level of protection to equities and is therefore less useful as a portfolio tool. To counter this, there are many other portfolio tools available, with the most obvious being using puts for downside protection. However, just like fixed income rates exposure, it’s not something you want to hold at all times, rather puts are just one tool that can be used at different stages in the market cycle to help manage total portfolio risk.
We equally advise clients to look into private credit, which is a relatively new area for some investors. Private credit assets under management have grown to US$1 trillion and continue to edge closer to the US$1.6 trillion US high yield market. Private credit offers good diversification, low correlation to traditional fixed income and attractive yields. Priv ate credit is also less affected by rising rates. Amid a 2022 backdrop of rising short-term rates, private credit will likely offer a significant buffer over publicly traded high yield or leveraged loans. But it is only suitable for clients with an appropriate risk appetite.
Eleven Ying, global market head and Singapore CEO, Heritvest Global Fundamentally speaking, this question is about how investments can be made in bonds in an environment where inflation is expected to rise and interest rate to increase.
With the continuous rise of US bond yields, inflation has once again become the focus of market discussion. Inflation expectations will force central banks to consider gradually raising interest rates from the current low interest rate environment. Although the rise of interest rates will reduce the price of bonds, the anticipated increases in interest rates will likely bring investment opportunities to conservative investors. a) Long bonds with shorter maturities: In the expectation of rising interest rates, bonds with shorter duration mean that their prices will not decline significantly affected by the rise of market interest rates, because the shorter the duration, the lower the sensitivity of bond values to interest rates. Conservative investors can receive more stable interest and bear smaller bond price losses at the same time.
b) Short developed countries’ Treasury bond futures contracts: The global economy has started to recover from the lowest point of the pandemic. Due to the pandemic, interest rates in developed countries have been reduced to a historically low range, which means that as long as the economy rebounds, there will be more room for interest rates to rise. Because the expectation of interest rate increases in developed countries is higher, the price of Treasury bond futures contracts in developed countries is expected to drop. Shorting such futures contracts will allow investors to profit from these futures discount because of backwardation.
c) Long redeemable bonds In the market where the interest rate is expected to rise, investors of redeemable bonds will have a more favourable position. Investors buy redeemable bonds at a discount or enjoy the "sweetness" of higher interest rate. When the interest rate rises, the issuer is less likely to redeem the bonds (because the borrowing cost is higher). Then the price change of redeemable bonds will be consistent with ordinary bonds. Investors of redeemable bonds still enjoy higher interest income which will be a more stable income for conservative investors.
In terms of asset allocation, a multi asset portfolio is the most effective way for dealing with uncertainties.
Cai Xinfa, Ping An Group executive, special assistant to the Bank’s president and head of retail banking, Ping An Bank The traditional 60/40 portfolio had been regarded as a classic strategy for a long time, and is still used by many institutions in China.
The reason is that, for investors, the risk-free yields of the Chinese bond markets are still attractive to a certain extent. If investors are ok with some fluctuations, they can choose debenture bonds for allocation in addition to rate securities in the fixed income part of their portfolios, to get higher potential returns. Now an increasing number of foreign institutional investors are gradually entering the Chinese bond market. They too are attracted by the potential yields. It is good for risk diversification as well.
On the other hand, we are not limited to the 60/40 portfolio. In addition to traditional stocks and bonds assets, many institutions provide clients with cash assets and alternative assets. In terms of strategy, if clients want to replace the investment in traditional fixed-income bond assets, they can choose, based on their needs, domestic or overseas retail credit strategy, quantitative stock neutral strategy, or long-short strategy.
Ping An Private Bank has a professional team of investment consultants and product experts to provide market research and analysis for various types of assets and make recommendations on the allocation ratio of general categories of assets based on the market research and analysis, assisting customer managers to provide personalised solutions for investors and build appropriate and healthy portfolios for clients according to their income expectations, risk tolerance, liquidity requirements, etc.
Alok Saigal, head, Private Wealth, Edelweiss Wealth Management Edelweiss Group is the largest alternative asset manager in India. So when yields are low, it plays well into the strategies which we have been running over the last decade. Each fund that we raised on the platform over the past few years has more than US$1 billion in these strategies.
Avenues besides high-grade low yield debt — such as InvITs [infrastructure investment trusts], REITS, and bullet payment bonds — provide opportunities to earn a reasonable fixed income return. With yields remaining low, the 60/40 model has moved towards a 75/25 model. People’s appetite for risk has increased and markets are rewarding risk.
Simon Sims head of Transactional Business, Morgan Stanley Private Wealth Management Asia
MORGAN STANLEY PRIVATE WEALTH MANAGEMENT ASIA
Most fixed income advisory desks at private banks across Asia-Pacific endured a torrid 2021. Volatility in the highyield credit, a perennial favourite asset class among U/ HNWIs in the region, was sparked in part by a liquidity crisis among some highly leveraged Chinese developers and left a number of PBs issuing margin calls to clients and de-risking portfolios.
One of the most astute in pinpointing the issues at the private sector Chinese developers, particularly the high yield names, was Morgan Stanley Private Wealth Management Asia. The US private bank turned cautious on the Chinese property sector at the start of the year after noticing red flags through Morgan Stanley Research as well as insight from its UHNW entrepreneur clients in China — including rising interest rates for onshore bonds, the issuance of opaque borrowing structures and the fact that policy tightening in the housing sector was not fully reflected in the market.
As 2021 wore on, Morgan Stanley PWM Asia began trimming clients’ leverage and exposure to high-yield names proactively, well ahead of most of peers. As a result, the bank did not see a single default at any issuer on the fixed income advisory desk’s solicitation shelf and managed to help clients mitigate potential loss during the period under consideration.
Because of the increased focus on the real estate sector, Morgan Stanley PWM Asia during the year made several enhancements to better keep pace with developments in China’s property sector. These included discussions with onshore credit specialists to better understand trends and issues on the ground; closer communication
“In fixed income advisory, risk mitigation and loss avoidance is of paramount importance. I am pleased we managed to achieve that in 2021 and will continue to source opportunities and identify risk in the high yield market for clients. ”
- Simon Sims, head of Transactional Business, Morgan Stanley Private Wealth Management Asia
with the investment bank’s fixed income division; and enhanced frequency and types of client alerts.
The bank brought into play its global platform to make alternative recommendations to clients in the region as it steadily reduced the number of Chinese issuers on its solicitation shelf. Those included contingent convertible Additional Tier 1 (AT1) bonds issued by European financial companies as a means of capitalising on the continent’s economic recovery from COVID-19; US industrial and energy issuances as a way of playing the re-opening trade; and high quality perpetual bonds issued by Hong Kong companies.
While Morgan Stanley PWM Asia was unable to escape the worst of the volatility in high yield bonds, with its highyield revenue for the year falling on an absolute basis, the bank significantly outperformed its peers in terms of top line from the fixed income business in the region.
For these reasons, Morgan Stanley PWM Asia is Asian Private Banker’s Best Private Bank – Fixed Income Advisory for 2021.
Shafali Sachdev head of FX Advisory, Asia, BNP Paribas Wealth Management
BNP PARIBAS WEALTH MANAGEMENT
Last year presented a dilemma for the FX advisory desks of private banks across the region. With the coronavirusinduced volatility in currency markets in 2020 largely dissipating in 2021, how were PBs to generate interest in the asset class when markets remained stagnant?
BNP Paribas Wealth Management (BNP Paribas WM) was one bank that found a solution to this conundrum. By responding with a suite of new products and strategies designed to address client portfolio-level needs and to mitigate the steady fall in the volatility, the bank was able to deliver a chunky boost in revenue and trading volumes.
Among the innovative solutions BNP Paribas WM introduced to clients in 2021 were some that took advantage of path dependency and market correlations to develop structures that more than compensated for the decline in volatility, helping clients to hedge more effectively while enhancing profitability on their trades.
In addition, BNP Paribas WM built out its capabilities in commodities trading markets to capitalise on its view that the reflation of the global economy following COVID-19 would lead to increased demand for metals such as copper, nickel, zinc, lead and gold.
During this period, BNP Paribas WM took the opportunity to focus on upskilling its relationship managers and boosting digital capabilities. Following extensive training programmes, RMs and investment counsellors in the region are now able to directly execute and hedge FX trades live without having to call the FX desk. Within seconds, RMs can access live pricings on FX vanilla
“We are very honoured to be named the Best Private Bank – FX Advisory by Asian Private Banker. In a postpandemic 2021, as FX volatility dropped, we needed to refocus our FX advisory business to ensure that we had a deep understanding of clients’ overall portfolio needs, and to find innovative and impactful answers for these.
Our customised solutions, our investments in real-time technology, the scaling of our advisory services, and our focus on digitisation all meant that we were able to engage with clients in ways that most added value to them. We are grateful to our clients for their enthusiastic response and support for our approach.”
- Shafali Sachdev, head of FX Advisory, Asia, BNP Paribas Wealth Management
options, exotic options and structured products following digital enhancements designed to accommodate a hybrid remote work/work from the office model.
The result of all of these initiatives was an industryleading hit rate in terms of the more than 200 trades proposed to clients in 2021 and a leap in FX trading desk revenues in the region during a time when major currency markets were largely static. Much of that topline growth was driven by the sale of value-added structures, which gained increasing prominence with clients as 2021 wore on.
For the reasons above, BNP Paribas WM is Asian Private Banker’s Best Private Bank – FX Advisory for 2021.
Stefan Lecher regional head of Investments & Wealth Solutions, Asia Pacific, HSBC Global Private Banking
HSBC GLOBAL PRIVATE BANKING
HSBC GPB’s alternative advisory business benefited from record inflows of US$1.9 billion in Asia in 2021, as robust client interest prompted a more than doubling in capital committed by regional clients to private markets compared with the previous year.
Those flows included a strong contribution from those that were new to the asset class, highlighting HSBC GPB’s success in converting clients to alternative investments for the first time.
That success can in part be attributed to the breadth, quality and performance of HSBC GPB’s alternative platform in the region. More than half of the hedge funds and private markets funds offered to clients during the period under consideration were exclusive to HSBC GPB clients. Four of the 10 largest private equity (PE) players are present on the bank’s alternatives platform, with key launches during 2021 including a flagship North America buyout fund, a diversified portfolio of secondary PE investments and direct co-investments, a healthcare-focused private credit fund, and a USfocused semi-liquid private credit fund.
Specifically, China-focused hedge funds offered by the bank demonstrated strong outperformance versus the major Chinese stock indices during the judging period, a feat all the more impressive considering that 2021 was a year marked by market turbulence sparked by a regulatory crackdown on the technology and sector and a violent sell-off in high-yield bonds.
That outperformance can be at least in part attributed to the rigorous due diligence and selection process HSBC GPB conducts on all hedge funds included on its high conviction list. Out of an initial universe of 7,000 funds, the bank whittles down prospective strategies based on quantitative and qualitative screening and due diligence to a final list of over 30 hedge fund managers in Asia.
“Very pleased to be named once again as Best Private Bank – Alternative Advisory by Asian Private Banker for the third consecutive year.
We have seen stronger demand from clients to use alternatives solutions as they look to safeguard their investment portfolios from market volatility and inflationary concerns. HSBC had another record year in Alternative Investments in private client commitments globally in 2021, in which over half came from Asia.
To meet our valued clients expectations in Alternative Advisory in 2022, HSBC will offer innovative highquality, high-conviction solutions to support key themes while remaining diversified across manager styles and sectors, making the most of HSBC Group’s alternative investments and asset management strengths.”
- Stefan Lecher, regional head of Investments & Wealth Solutions, Asia Pacific, HSBC Global Private Banking
HSBC GPB has excelled in maintaining close communications with clients during times of market volatility over the last 12 months, made timely recommendations to clients to switch out of high-beta holdings into low-volatility hedge funds to minimise the impact on their portfolios.
Looking at HSBC GPB’s broader alternatives offering, the bank’s high-conviction hedge funds on average experienced smaller drawdowns during sell-offs than both the MSCI World Stock Index and the HFRI Fund Weighted Composite Index of hedge funds, and with a higher Sharpe ratio.
Jyrki Rauhio Regional Head of Credit Advisory, Asia Pacific, HSBC Global Private Banking
HSBC GLOBAL PRIVATE BANKING
Throughout 2021, HSBC Global Private Banking (HSBC GPB) made several critical enhancements to its credit advisory platform in the region that boosted its client proposition, ensured sound risk management and attracted strong net interest income in an era of ultralow rates.
The private bank significantly increased its focus on customised lending solutions relative to the more traditional Lombard loan business during the period under consideration, ranging from single stock financing, to air, aircraft and single hedge fund financing.
Within the customised lending business, HSBC GPB enriched its capabilities to provide financing against single, illiquid stocks and larger transaction sizes, and it bolstered credit offerings to tap the emerging HNW segment of hedge fund founders and private equity general partners.
Landmark deals delivered by HSBC’s team of 21 dedicated credit advisors and 10 credit specialists included US$200 million in single-share financing and US$70 million in pre-delivery financing for a yacht, both in Hong Kong.
During the year, HSBC GPB managed more than 7,000 credit facilities out of its Hong Kong and Singapore offices, maintaining a high rate of penetration among the bank’s clients.
HSBC GPB made extensive efforts to manage risks across its credit portfolio in the region during a year of volatility in markets, including Chinese technology stocks and high-yield bonds. The credit team closely monitored all client relationships on a daily basis, particularly those with high leverage to pinpoint those
“We are honoured to be named Best Private Bank – Credit Advisory by Asian Private Banker for the second consecutive year, as we continue to strengthen and expand our credit advisory platform with more exclusive, best-in-class and tailored solution that best fit our clients’ needs.
Our credit advisory business has gone from strength to strength with continuous investment into people, we have expanded the team in particular building out our structured lending capabilities to provide bespoke and structured lending products to clients in view of the increasingly complex financial situations they are facing.
In addition, the credit advisory team in Asia has been managing a robust Lombard credit business, with over 7,000 lines of credit made available to majority of our private banking clients to facilitate daily leveraged investment activities last year. We are thankful to our valued clients for their ongoing trust.”
- Jyrki Rauhio, Regional Head of Credit Advisory, Asia Pacific, HSBC Global Private Banking
with a tight margin situation and encourage an early topup. As a result, HSBC GPB endured no credit loss cases during the period under consideration.
The bank focused on the development of several new propositions that could bear fruit for the credit business in the future, including cross-border property financing, new stock exchanges whose securities will be eligible for Lombard loans, and automation tools to flag portfolio concentration risk.
Cynthia Lee regional head of Wealth Planning and Advisory, Asia-Pacific, HSBC Global Private Banking
HSBC GLOBAL PRIVATE BANKING
The pandemic has acted as a catalyst for U/HNW clients to begin or review their wealth planning and succession journey. Riding on the bank’s reputation as a trusted partner in the region, HSBC Global Private Banking has translated this momentum into tangible revenue growth in the said year by delivering a highly customised and holistic roadmap for wealthy families with different needs.
Many banks traditionally considered wealth planning service as a value-add that does not bring in significant revenue for the business, but HSBC Global Private Banking has been excelling in this area for decades and leverages its wealth planning expertise as a conversation starter with prospects, or as a key service offering that could reinforce a trusted, long-term relationship with existing clients.
After integrating into the bank’s global private bank client coverage model in 2020, the wealth planning and advisory teams at HSBC took advantage of the combination of the Wealth and Personal Banking (WPB) platform and collaboration between private banking and corporate banking in 2021 for greater exposure to clients which could be in the earlier stages of wealth creation. The wealth planning and advisory team conducts monthly training and weekly updates with RMs to ensure that they are well aware of the latest wealth planning developments, as well as able to identify and channel clients’ wealth planning demands to the team.
Building on the back of solid growth in 2020, the bank recorded another year of a double-digit increase in AUM and AUA (assets under administration) in 2021. With the market volatility sustained throughout the year, the demand for liquidity planning tools resulted in another strong year of growth in the revenue generated on liquidity planning tools.
As a household name established for over 150 years in Hong Kong, HSBC has been through economic cycles
“It is an absolute honour to be named once again as Best Private Bank – Wealth Planning Services by Asian Private Banker for the fourth consecutive year.
The pandemic is still forcing U/HNW clients to pay greater attention to their wealth and succession planning. As a trusted partner, the Wealth Planning & Advisory team drove tangible revenue growth last year by its proactive engagements with clients — either to initiate a conversation with prospects, to deepen relationships with existing clients or to provide regular updates on the latest wealth planning developments in the market.
Bringing into play our expertise, our deep roots in Asia and our understanding of the region, we will stay close to clients and their families, to provide customised solutions that cater to the needs surrounding all important decisions in their lives.”
- Cynthia Lee, regional head of Wealth Planning and Advisory, Asia-Pacific, HSBC Global Private Banking
as well as periods of uncertainties with its clients in the region. This allows the wealth planning and advisory team to accurately identify what keeps clients awake at night, and provide customised solutions that cater to needs surrounding important decisions in life — whether these be decisions of changing or diversitying residency or citizenship, planning for a family business exit, setting up a family office, designing a family governance blueprint, formalising the family’s philanthropic giving framework or establishing trusts to segregate family assets prior to a public listing of the entrepreneur’s business. The judging panel was impressed by the case studies showcased by the bank, which demonstrated the wealth planner’s attention to detail and a good variety of solutions available to meet the above needs.
LIGHTHOUSE CANTON
While the COVID-19 pandemic has helped to highlight the importance of wealth planning among independent wealth managers and their clients, Lighthouse Canton has gone above and beyond in offering value-added solutions to U/HNWIs in the region.
Aside from the bread-and-butter services of trust structure, succession planning and tax advisory, the Singapore-based group has carved out a space for itself in the market that few peers have been able to match.
Among the capabilities that were presented to the Asian Private Banker judging panel were Lighthouse Canton’s prowess in setting up bespoke funds for clients, as well as its active engagement with regulators in Singapore in order to gain tax exemptions for funds under Section 13 of the Singapore Income Tax Act. In addition, the firm has taken a pro-active stance in identifying opportunities to provide advice to clients, such as during business acquisitions and life events, including divorce and prenuptial agreements.
Those efforts translated into new business during the period under consideration, when Lighthouse Canton acquired nine new clients, of which five were referred by existing ones. Those engagements on the wealth planning side also had the knock-on effect of boosting the overall AUM of the independent wealth manager by a few hundred million US dollars.
The judging panel was particularly impressed by a real-life example shared by Lighthouse Canton that illustrated the breadth of its wealth-planning capabilities. The client, who held the nationality of one country but whose family were located in two others, was able to consolidate his assets into a Private Trust Company structure in Singapore that itself was held in a Jersey Purpose Trust, eliminating the need for a will for the assets. Lighthouse Canton was able to provide services
Shilpi Chowdhary Group CEO, Lighthouse Canton
“In today's global landscape, families and businesses have become increasingly multi-national. This requires a holistic approach when we view their holdings, structures, legacy planning, and other related goals. Clients have come to us looking for innovative, effective, and practical solutions to guide their personal and business legacies and plans.
We are honoured that they have chosen to place their trust in us. The awards recognise our dedication and ability in providing clients sound, timely and multijurisdictional advice on their asset holdings and related structures.
Our vision has always been to create value for clients through innovative investment solutions, and we will keep delivering on that promise to them.”
- Shilpi Chowdhary, Group CEO, Lighthouse Canton
including law and regulatory analysis of the clients’ various assets; execution of the structure; transfer of assets and holdings; as well as sourcing an international law firm to advise on the process.
Lighthouse Canton in 2021 demonstrated a dedication to enhancing client knowledge. A series of eBooks produced by the group address key topics and questions on wealth planning-related issues, such as the differences between trusts and foundations, and drafting wills in Singapore versus internationally. The independent wealth manager launched a knowledge centre during the year, providing clients with access to timely investment updates as well as content aimed at increasing engagement with the next generation.
These are the reasons why Lighthouse Canton is the winner of Asian Private Banker’s Best Independent Wealth Manager – Wealth Planning Services for 2021.
Sascha Zehnter head External Asset Managers, Credit Suisse Wealth Management Asia Pacific
CREDIT SUISSE
Many private banks reinvented their intermediary services in 2021, attracted by the rapid growth of the number of independent asset managers (IAMs) in Asia and the profitability of serving these intermediaries.
Credit Suisse Wealth Management has long recognised the immense potential of Asia’s intermediaries segment and developed deep relationships with key IAMs in the region. The Swiss player maintained its leading position in the said year by focusing its effort and resources on serving the leading IAMs in the region with its unique institutional dual relationship model and by constantly improving its investment product offerings and digital platform capabilities.
In view of the growing demand for structuring collective investment schemes amongst IAMs and to complement the existing Private Label Fund (PLF) offering, the Credit Suisse intermediary service team initiated a partnership with Credit Suisse Investment Banking, with the CS EAM platform acting as a custodian, broker and provider of other banking services for AMCs structured by the Investment Bank. These AMCs are typically held within a Special Purpose Vehicle structure in Credit Suisse Wealth Management and allow EAMs to take advantage of the entire WM suite of products (such as equities, fixed income, funds, FX and derivatives) with simplified access, a more agile setup and a lower investment threshold than structuring a traditional Private Label Fund (PLF).
Drawing on the strength of the bank’s advanced digital platform, a new initiative was launched which aims to provide IAMs with access to an equity structured products
“We are delighted that Credit Suisse has been named Best Private Bank – Intermediary Services for the fourth time. Our vast experience and deep understanding of the market combined with our best-in-class global platform has enabled us to distinctly serve the needs of the EAM industry. We remain fully committed to growing our business partnerships in the region, and to investing in the best digital solutions in the industry.”
- Sascha Zehnter, head External Asset Managers, Credit Suisse Wealth Management Asia Pacific
platform. The bank is in the process of enhancing API connectivity to provide near real-time portfolio data and trading capabilities to IAMs.
The bank’s product and services development are well supported by positive client uptake: Credit Suisse achieved significant client business volume growth for Asia from 2019 to 2021 with a high number of new EAMs onboarded and a strong pipeline of prospects despite more competitors entering the segment.
The bank recorded double-digit revenue growth for EAM APAC from 2019 to 2021 and a significant uptick in net new assets (NNA) from both existing and new clients. These solid figures are the best testament from IAM partners that Credit Suisse has maintained its edge as well as its profitability in this sophisticated business segment.
Credit Suisse is Asian Private Banker’s Best Private Bank – Intermediary Services for 2021.
UBS
2021 marked another year of impressive growth for UBS’ family office services. After the Swiss lender announced its worldwide expansion and increased regionalisation of the Global Family Office (GFO) group in early 2020, the bank grew its Singapore GFO team to capture the business opportunities in the burgeoning Asian family office community.
Building on the bank’s integrated one-bank solution, UBS participated in numerous landmark institutional deals led by Asian top family offices.
The bank has defended its dominating position in APAC equity issuance, having executed the highest number and volume of Hong Kong primary placements in 1H2021. In addition, as of November 2021, UBS had executed more than 10 international convertible bonds and exchangeable bonds (CB/EB) offerings for APAC clients, with multiple transactions completed on a sole or lead basis.
UBS has been at the forefront of SPACs on the back of Asian wealthy families’ interest in this market, which has translated into active participation over the past year.
The Swiss giant took part in numerous Asia-intoUS SPAC listings, business combination and/or PIPE placement of US-listed SPACs with Asian companies and had advised in the most number of deals involving Asian companies as targets by November 2021.
Compared to 2019, UBS GFO more than doubled its institutional transactions volume and grew around 50% in one-bank revenue in 2021.
The bank showcased its capability of meeting complex needs of UHNWs in one case where it managed to
LH Koh co-head Global Family Offices at UBS GWM APAC Tommy Leung co-head Global Family Offices at UBS GWM APAC
“The Global Family Office client segment in APAC has been experiencing significant growth. UBS is well positioned to capture this growth in the foreseeable future by helping existing clients establish their family offices, opening new client relationships, and supporting both Asian and non-Asian clients to set up their presence in Asia Pacific.”
- LH Koh, co-head Global Family Offices at UBS GWM APAC
“Our one-bank approach has clearly distinguished UBS from its peers. We are able to offer exceptional client experience to Asia’s large and sophisticated family office clients, and deliver superior results by bringing together the expertise across our wealth management and investment bank businesses. This recognition by Asian Private Banker is a testimony to the success of our global coverage model.”
- Tommy Leung, co-head Global Family Offices at UBS GWM APAC
coordinate across global teams from both GWM and institutional bank to issue a one-of-its-kind sustainabilitylinked bond, complete a landmark US SPAC issuance followed with an M&A while conducting ongoing fundraising and liability management.
Bringing together the unique capabilities across wealth management, institutional asset management and investment banking together with deeprooted local knowledge and client network, UBS is Asian Private Banker’s Best Private Bank – Family Office Services for 2021. How important is governments’ support to ensuring family office industry prospers in the region? What is at the top of your wish list for how governments in Hong Kong and Singapore can support the private wealth management industry's development (e.g. fewer travel restrictions, more tax incentives, review/relax on a particular regulation)?
Raymond Ang, global head, Affluent Clients, Standard Chartered Bank Government support to establishing and growing any part of an industry is crucial. The support — which often comes in the form of regulations and governance framework — facilitates the setting up of the industry, and quite importantly, incentive programmes often help to attract players to enter the market.
Singapore Singapore has established itself as one of the leading private banking and wealth management centres globally and in Asia. Singapore is reputed for its strong governance, sound financial regulations, political and economic stability.
The government has a critical role to play in supporting the growth of the industry, and in particular, providing incentives to attract individuals to invest in Singapore. The Singapore government has been very supportive and has implemented several initiatives and schemes to welcome potential investors to use Singapore as its base to manage their wealth. Recent examples include the Global Investor Programme (GIP), 13X and 13R schemes to attract funds of non-Singapore investors.
To support the growth of family offices in Singapore, the Monetary Authority of Singapore and Economic Development Board jointly established the Family Office Development Team (FODT) in 2019 to lead and coordinate initiatives that will enhance Singapore’s position as the Global Family Office Hub in Asia. As at 2020, 400 family offices have been established in Singapore (https://www.edb.gov.sg/en/ourindustries/family-office.html). I would expect that this number has grown further in 2021.
Hong Kong Hong Kong is another established financial hub in Asia and more recently positioned itself as the global offshore RMB Business hub. The Wealth Management Connect scheme aims to unlock wealth potential from the Greater Bay Area and give Hong Kong a competitive advantage towards the private wealth and family office sectors.
The family office business in Hong Kong has flourished in recent years and is one of the vital growth segments in the wealth and asset management industry. The various government agencies have extended their partnership with industry players in several ways. Standard Chartered has collaborated with InvestHK, FSDC and HKMA on holistic marketing and promotion campaigns to facilitate family office setup. InvestHK acts as single point of contact to provide one-stop support services while the SFC recently clarified the licensing requirements for family offices, which should attract more family offices to Hong Kong.
To be even more successful at attracting family offices, the Hong Kong authorities may want to consider using tax incentive programmes.
Amy Lo, co-head of Wealth Management Asia Pacific, head and CEO of UBS Hong Kong, and a Group managing director at UBS We are seeing a clear rise in the importance of family offices in Hong Kong and Singapore. According to the latest Hong Kong Private Wealth Management Report by PWMA, 73% of our survey respondents said that attracting more family offices to set up in the city will be an important area for growth in the PWM industry. Against this backdrop, the concerted efforts by governments and regulators in promoting Hong Kong and Singapore as the leading hubs for family offices in Asia are extremely important in creating a family officefriendly ecosystem to enable family offices to operate and thrive in the cities.
The UBS one bank approach allows family office clients to enjoy a full suite of services in a seamless manner. This approach has been a longstanding differentiator of the bank, demonstrating our enduring commitment to serving family offices within the APAC region and beyond. As such, we have formed the Family Office Competence Centre in Singapore and the UHNW and Family Office Solutions Group in Hong Kong to advise wealthy clients on the steps required to design and implement the most optimal family office structure to realise their visions.
For Hong Kong in particular, PWMA has been working closely with regulators. A more flexible regulatory regime, and enhanced investor protection measures would be beneficial to Hong Kong’s position as an attractive destination for FOs and boost investor confidence and trust in Hong Kong. On talent, we suggest introducing more tailored training programmes catering to the needs of family offices to be offered to practitioners and university students in preparation of serving these clients.
Arnaud Tellier, CEO Asia Pacific, BNP Paribas WM Indeed the demand for family offices in Asia is increasing as the number of wealthy individuals in the region is rising rapidly. At the same time, the need for sophistication and professional management has risen. This creates opportunities for professionals in Asian financial hubs like Singapore and Hong Kong.
The demand is certainly strong, and a favourable regulatory environment and tax regime are key to the development of the family office industry. Therefore, government support is essential together with close cooperation with the industry.
Singapore has been very active in creating an attractive environment for family offices since 2019. The government and MAS are pushing the overhaul of an industrial, regulatory, tax and immigration policy to support the development of the wealth management industry.
As a result, the number of family offices setting up in Singapore increased significantly. According to Singapore’s Economic Development Board, the number of family offices in Singapore increased fivefold between 2017 and 2019. As of the end of 2020, there were 400 SFOs in Singapore, and the number continues to grow.
Meanwhile, Hong Kong too is ramping up its efforts in strengthening its position as the regional family office hub. In June 2021, the government’s InvestHK department set up the FamilyOfficeHK Team to provide one-stop free consulting services for family offices. The city has also offered tax incentives benefiting family office businesses.
