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Monday 29 December 2008
Flight to Safety Opens Door to Private Banks
The global economic crisis may have pulverized financial markets, but it has also introduced mainland investors to the importance of wealth protection, and that could bode well for the future of the region’s private banking industry.
The global economic crisis may have pulverized financial markets, but it has also introduced mainland investors to the importance of wealth protection, and that could bode well for the future of the region’s private banking industry.
Well-heeled mainland investors have scrambled to find financial security this year after market volatility shredded their equity holdings and dried up traditional cash cows such as initial public offerings.
As a result, investment portfolios have become more conservative, swapping speculative investments such as structured products for cash and government bonds.
And that has played right into the hands of private banks in Hong Kong, which have made a living by packaging tailored wealth protection strategies.
“A lot of money has been lost, and so some wealthy mainland Chinese have matured quite rapidly toward our business model and are more receptive to us today,” said Philip Jehle, the head of the private-clients unit at the boutique private bank Lombard Odier Darier Hentsch (Asia). “Asset diversification has not worked in this current correction. What has worked is risk management.”
Mr. Jehle said his core investment strategy was a defensive one, anchored in traditional safe havens such as physical gold, government bonds, highly rated corporate bonds and cash.
After recording losses from huge stakes in complicated and untested investment products, some mainland investors are starting to come around to the idea of having a more predictable and transparent portfolio.
“Not only the Chinese but also Hong Kong investors have been keener to shift their investment products from structured products to plain vanilla products,” said Timothy Lo, THE managing director at CIC Investor Services. “People have become more realistic and pragmatic.”
Even as mainland investors have become more cautious after having their fingers burned while the market collapsed this year, some still hang on to memories of the good times when fortunes were made quickly.
Stock market participants seemed to have the Midas touch over the past two years, when the benchmark Shanghai Composite Index soared by more than 350 per cent. Last year, the mainland’s number of high-net-worth individuals jumped 20.3 per cent, the second-fastest rate in the world, according to Merrill Lynch’s Asia-Pacific Wealth Report.
“They do have lower expectations [now], but when I say lower expectations, it doesn’t mean that they don’t want a 10 or 20 per cent increase per annum,” Mr. Lo said.
Mainland investors became accustomed to solid returns as domestic financial markets and industries boomed across the board, buoyed by double-digit economic growth. The expectation of ever-higher growth rates may have deluded less-seasoned investors into thinking that the bull market would continue.
“The problem with first-time entrepreneurs or first-generation wealthy is that it is all about making more money,” Mr. Jehle said.
“When you have suddenly accumulated reserves of US$10 million or US$20 million or more, you are still stuck in the same mode and say, ‘I have to grow that’.”
The current downturn is the first market reversal for many mainland investors, and with that new reference point, they may become more inclined to pursue wealth protection strategies.
“Someone who has gone through the 1997 pain will probably be better off during this current crisis than someone who has made his or her money at the beginning of 2003,” Mr. Jehle said.
Many private banks are counting on that, hoping mainland investors will start to develop an ingrained commitment to wealth protection.
With vast liquidity flowing from the mainland’s robust economic growth, private banks are eager to make a commitment to the region and pump more resources into their Hong Kong offices.
“Asia is the growth and China is the main engine for the growth of our private banking business,” Mr. Lo said.
Mr. Jehle added that his firm was looking for more senior relationship managers and had plans to increase the local headcount from about 30 staff to upwards of 40 in the next 12 to 18 months.
Barclays Wealth has doubled its number of bankers in Asia over the past 18 months and continues to hire because of the “tremendous potential” within the region.
That should pay dividends for Hong Kong’s private banking industry, which can offer global banks a mature and transparent platform with a link to the mainland markets.
“These factors are likely to prove highly influential in cementing its position as one of the key wealth centres in Asia over the coming decade,” said Didier von Daeniken, the chief executive of Barclays Wealth Asia Pacific.
Aside from the rewards of tapping the mainland demographic, private banks are also savouring the fact that many wealthy mainland investors are still in the open market and unaligned with a particular bank. Once investors tie up with a private bank, they generally develop relationships that could stretch across generations, making it hard for other banks to pry them away.
“The China market is attractive in the sense that there is a small base of local banks, and foreign banks have a very limited presence so far,” said Renato De Guzman, the chief executive of ING Private Banking Asia Pacific. “Most Chinese high-net-worth individuals have little private banking experience or existing arrangements.”
Bank Sarasin has also increased its presence in the region to capitalise on the potential business opportunities. In addition to doubling its headcount in the region over the previous two years, the Swiss bank also added a line of advisory services based in the region that it offers to clients outside Asia.
But Sarasin expects some consolidation in the industry over the next 5 years, warning that it would take more than just potential opportunities and a commitment of resources to develop steady profits.
“We’ve seen an irrational exuberance, because Asia is such a temptation. It was an easy story to sell, and an easy story to buy, so we have seen players pile into the market,” said Enid Yip, Sarasin’s chief executive for Asia.
“But many of them will not have factored a downturn into their costs, because they never had a credible long-term strategy.”
As wealthy mainland investors themselves have started to learn, it pays to plan ahead.
1 comment:
Flight to Safety Opens Door to Private Banks
Mainlanders seek secure havens
Nick Westra
29 December 2008
The global economic crisis may have pulverized financial markets, but it has also introduced mainland investors to the importance of wealth protection, and that could bode well for the future of the region’s private banking industry.
Well-heeled mainland investors have scrambled to find financial security this year after market volatility shredded their equity holdings and dried up traditional cash cows such as initial public offerings.
As a result, investment portfolios have become more conservative, swapping speculative investments such as structured products for cash and government bonds.
And that has played right into the hands of private banks in Hong Kong, which have made a living by packaging tailored wealth protection strategies.
“A lot of money has been lost, and so some wealthy mainland Chinese have matured quite rapidly toward our business model and are more receptive to us today,” said Philip Jehle, the head of the private-clients unit at the boutique private bank Lombard Odier Darier Hentsch (Asia). “Asset diversification has not worked in this current correction. What has worked is risk management.”
Mr. Jehle said his core investment strategy was a defensive one, anchored in traditional safe havens such as physical gold, government bonds, highly rated corporate bonds and cash.
After recording losses from huge stakes in complicated and untested investment products, some mainland investors are starting to come around to the idea of having a more predictable and transparent portfolio.
“Not only the Chinese but also Hong Kong investors have been keener to shift their investment products from structured products to plain vanilla products,” said Timothy Lo, THE managing director at CIC Investor Services. “People have become more realistic and pragmatic.”
Even as mainland investors have become more cautious after having their fingers burned while the market collapsed this year, some still hang on to memories of the good times when fortunes were made quickly.
Stock market participants seemed to have the Midas touch over the past two years, when the benchmark Shanghai Composite Index soared by more than 350 per cent. Last year, the mainland’s number of high-net-worth individuals jumped 20.3 per cent, the second-fastest rate in the world, according to Merrill Lynch’s Asia-Pacific Wealth Report.
“They do have lower expectations [now], but when I say lower expectations, it doesn’t mean that they don’t want a 10 or 20 per cent increase per annum,” Mr. Lo said.
Mainland investors became accustomed to solid returns as domestic financial markets and industries boomed across the board, buoyed by double-digit economic growth. The expectation of ever-higher growth rates may have deluded less-seasoned investors into thinking that the bull market would continue.
“The problem with first-time entrepreneurs or first-generation wealthy is that it is all about making more money,” Mr. Jehle said.
“When you have suddenly accumulated reserves of US$10 million or US$20 million or more, you are still stuck in the same mode and say, ‘I have to grow that’.”
The current downturn is the first market reversal for many mainland investors, and with that new reference point, they may become more inclined to pursue wealth protection strategies.
“Someone who has gone through the 1997 pain will probably be better off during this current crisis than someone who has made his or her money at the beginning of 2003,” Mr. Jehle said.
Many private banks are counting on that, hoping mainland investors will start to develop an ingrained commitment to wealth protection.
With vast liquidity flowing from the mainland’s robust economic growth, private banks are eager to make a commitment to the region and pump more resources into their Hong Kong offices.
“Asia is the growth and China is the main engine for the growth of our private banking business,” Mr. Lo said.
Mr. Jehle added that his firm was looking for more senior relationship managers and had plans to increase the local headcount from about 30 staff to upwards of 40 in the next 12 to 18 months.
Barclays Wealth has doubled its number of bankers in Asia over the past 18 months and continues to hire because of the “tremendous potential” within the region.
That should pay dividends for Hong Kong’s private banking industry, which can offer global banks a mature and transparent platform with a link to the mainland markets.
“These factors are likely to prove highly influential in cementing its position as one of the key wealth centres in Asia over the coming decade,” said Didier von Daeniken, the chief executive of Barclays Wealth Asia Pacific.
Aside from the rewards of tapping the mainland demographic, private banks are also savouring the fact that many wealthy mainland investors are still in the open market and unaligned with a particular bank. Once investors tie up with a private bank, they generally develop relationships that could stretch across generations, making it hard for other banks to pry them away.
“The China market is attractive in the sense that there is a small base of local banks, and foreign banks have a very limited presence so far,” said Renato De Guzman, the chief executive of ING Private Banking Asia Pacific. “Most Chinese high-net-worth individuals have little private banking experience or existing arrangements.”
Bank Sarasin has also increased its presence in the region to capitalise on the potential business opportunities. In addition to doubling its headcount in the region over the previous two years, the Swiss bank also added a line of advisory services based in the region that it offers to clients outside Asia.
But Sarasin expects some consolidation in the industry over the next 5 years, warning that it would take more than just potential opportunities and a commitment of resources to develop steady profits.
“We’ve seen an irrational exuberance, because Asia is such a temptation. It was an easy story to sell, and an easy story to buy, so we have seen players pile into the market,” said Enid Yip, Sarasin’s chief executive for Asia.
“But many of them will not have factored a downturn into their costs, because they never had a credible long-term strategy.”
As wealthy mainland investors themselves have started to learn, it pays to plan ahead.
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