Trillions of dollars of wealth in Asia is set to be passed down to the next generation over the coming decade, but how can private banks play a bigger role in capturing those flows with their discretionary portfolio management (DPM) propositions?

HSBC Global Private Banking and Goldman Sachs Private Wealth Management shared their strategies for doing so at Asian Private Banker‘s flagship DPM Leaders Conversation in Hong Kong, which was attended by around 100 key private banking decisions-makers.

Outsource your emotions

DPM has historically played a key role in private banks’ clients’ portfolios in terms of reaching long-term income goals. But for the second generation, the use of DPM depends on the sophistication of each client, according to Jacky Tang, head of portfolio management group Asia and co-head of portfolio management group Asia, Goldman Sachs PWM.

Tang explained that DPM can service three purposes: outsourcing asset allocation; outsourcing manager selection; or outsourcing the emotional decisions around investing to the bank. The latter point is especially pertinent, as regardless of how sophisticated clients are when it comes to investing, the emotions related to seeing markets move up and down can prompt them to make bad decisions.

“Emotions [are] actually the biggest enemy in investment, especially long-time investments. So for those clients, even though they are very sophisticated in terms of investment, they cannot conquer some of the emotions they have, especially when they have to report all these things to the family, to the first generation. So that pressure causes them to [do] some outsourcing to the banks.”

Family dynamics

Wealth continuum-focused HSBC has long emphasised the importance of proper wealth planning. A recent survey conducted by the bank, according to Lina Lim, regional & Hong Kong head of discretionary and funds, Asia Pacific, HSBC Global Private Banking and Wealth, found that only a small proportion of surveyed clients have properly planned for a transfer of wealth to the next generation.

She believes that this will naturally result in a lot more conversations around DPM as the Asia wealth transfer gathers pace and the next generation of clients suddenly find themselves responsible for the family business.

“Some of these [next generation] clients, they may not have time to be managing their wealth … and they tend to want to look at DPM,” she explained. “They might not be familiar in managing portfolios and … they are in the midst of a wealth transferring process where they have a lot of family dynamics. They would like to have a governance, or would like to park this money with professional managers.”

Performance versus alignment

Matching performance with alignment of values is also key to capturing next generation clientele, according to HSBC GPB’s Lim. The bank offers thematic mandates related to biodiversity and technology, two key themes that are high up on the next generation’s agenda.

“With our core multi asset portfolio, we launched a new enhanced version last year where it comes with a thematic sleeve,” Lim said, adding that the bank has identified five key structural trends over the next 10 to 20 years such as sustainability, AI and disruptive technology.

At Goldman Sachs PWM, Tang noted that the bank does not offer such thematic sleeves directly, but instead takes a risk-budgeting to DPM to try and ensure a solution is most appropriate to clients’ risk and return objectives.

“Our DPM team spend so much time discussing with clients about their appropriate asset allocation. There is never a best asset location – but a most appropriate asset location for the client. So once we identify that asset location, then the DPM team will continue to identify which managers or which funds or vehicles that can best represent that asset location,” Tang shared.

A stellar year 

Private banks in Asia saw strong inflows into DPM as clients rotated their cash positions back into investments such as fixed income in order to secure higher yields.

For HSBC GPB, one strategy that benefited from this trend was its core multi-asset portfolio, which aims to provide long-term wealth generation and preservation. The other is high quality fixed income, as clients try to lock in higher yields.

At Goldman Sachs PWM, Tang said that following a challenging period for DPM desks in Asia due to market volatility in 2022, and high cash rates in 2023, last year represented a return to form for discretionary solutions.

“In 2024, we started to see more inflows, and more optimistic conversations, because … you cannot park everything into cash. That’s why fixed income mandates and also some of the multi asset mandates started to rise.”