Fong Seng Tee, CEO, Pictet Wealth Management Asia shares his views with Asian Private Banker in ‘The Final Word’, a year in review by the region’s private banking leaders as they share their thoughts and opinions on key issues around industry trends, business performance, investments, regulations, and technology.
Industry Trends | In what ways has the COVID-19 pandemic irrevocably changed the private banking industry and your own bank’s approach to operations and service?
The financial industry has had to rapidly evolve and adapt under the new circumstances of the COVID-19 pandemic. This posed challenges as well as opportunities for the banking sector.
Challenges, as most industries, if not all, have seen a compression of revenues and increase in costs, which is likely to lead to more consolidation. The pandemic has also brought opportunities for the sector, accelerating the pace of digital transformation among private banks — to mention just one.
As far as Pictet is concerned, we have always been focused on organic growth, so we were not affected by this wave of consolidation. We have always believed in acquiring one client at a time, hiring one staff member at a time, a strategy that has been working very well for us.
At the same time, we have had to develop new ways of communicating with clients, through webinars or video calls, while most of our staff was working from home. We believe this digital transformation will pave the future for an industry that was, until not too long ago, relying almost entirely on face-to-face interactions.
Business Performance | NNA gathering and account opening have proven challenging in a pandemic-affected world. If we continue to experience lockdowns and travel restrictions in 2021, how can private banking businesses adapt?
In a post-pandemic world, we believe technology will be playing a key role, ultimately making bankers and financial experts more effective, precise and targeted in the way they work, hence benefiting clients.
But it is key to keep the highly personal nature of wealth and asset management in mind. It takes extensive discussion and interaction person-to-person to develop the relationship and nuanced understanding necessary to tailor solutions to each client’s specific needs. Technology won’t be able to replace that.
During the past few months, RMs have had to discover new ways to communicate and interact with clients to remain relevant. Set-up of virtual client calls, and thematic and macro presentations are now part of our RMs’ daily toolkit and help them keep clients informed on a large array of topics.
Investments | From a portfolio perspective, how important will (a) Chinese assets and (b) alternative investments be for delivering clients’ objectives over the next five years?
China’s size and growing role in the global economy, plus official encouragement, are set to ensure greater acceptance of the RMB in the five years ahead. Hand in hand with these developments is the growing share of Chinese bonds on international indexes. Chinese sovereign and corporate bonds alike will offer attractive investment opportunities. Chinese equities maintain their appeal thanks to visibility on economic and earnings growth. China’s latest Five -Year Plan, with its emphasis on tech innovation, on attracting foreign investment and on fostering the domestic consumer economy, points towards avenues worth exploring. Overall, we will undoubtedly be paying as much attention to the credit and financial cycle in China — and to economic policies there — over the next five years as we do to these factors in developed markets.
As for alternatives, our secular view that average annual returns are set to decline, especially for bonds, will mean the traditional 60/40 portfolio (60% equities, 40% bonds) will need to be diversified in the next five years. We have been expanding our footprint in private equity, for example private-equity real estate. We are increasingly interested in real assets, including infrastructure, which is becoming an asset class in its own right.
Investments | What key investment themes shape your bank’s 2021 outlook — and why?
Our key investment themes for 2021 are premised on the idea of a synchronised economic and corporate earnings growth. A big rebound in earnings for cyclicals and energy stocks, leading to a market rotation away from the winners of the pandemic.
We think smaller caps will do well in this broadening recovery and that M&A will pick up. At the same time, we continue to like big internet stocks, whose growth momentum we believe will remain strong. The shape of recovery plans means that infrastructure and environmentally themed investments will be in vogue. We believe that hedge fund strategies like Macro and Event-driven will shine again, as volatility and dispersion between and within markets rise again. Developed-market government bonds stand to deliver negative returns, but we still see select areas of interest in credit and emerging-market bonds.
We believe China’s robust recovery will continue in 2021, when we expect full-year growth to be 9.3% compared with 2.1% in 2020. But within a broad EM recovery, we believe country selection will be especially important, because not all economies are equal. We expect emerging-market currencies, including the RMB, to make headway against the US dollar, which is set to weaken.
Investments | What important steps did your bank take to drive the sustainable investing agenda and to increase access to sustainable investing opportunities in 2020?
At Pictet, we have adopted the term Responsible Investing, as it represents the breadth of the investment opportunity, while at the same time capturing its primary objective: to invest responsibly, regardless of what one’s personal definition of that may be. Responsible Investing presents a broad spectrum of investment options, from Environmental, Social and Governance (ESG) integration (where ESG factors are included in traditional financial analysis) to impact investing (where meeting a goal with social benefits is prioritised ahead of financial returns). Responsible Investing inherently includes the preservation and improvement of the world that our future generations will inherit. A rich life is one with not only financial means, but also family, health, security and stability, and we must ensure that future generations can enjoy life’s richness tomorrow as we do today.
We are seeing a trend amongst UHNWI to embed responsibility or ESG more holistically throughout the management of their wealth. We have responded to this need by launching a dedicated offering, which combines different approaches available on the market today spanning ESG integration & active ownership, sustainability themes and impact investing.
Regulations | Both Singapore and Hong Kong are placing a strong emphasis on cultivating a competitive and supportive environment for family offices. What further initiatives should each/either regulator undertake to nurture the development of a family office-supportive ecosystem?
Both Singapore and Hong Kong have developed attractive offerings for the set-up of family offices in the Greater Bay Area and Southeast Asia areas. Singapore can rely on its stable political environment and efficiency in the asset management industry, while an active stock market, rule of law and free flow of capital and information have made Hong Kong a natural choice for mainland wealthy families to set up offices there. Both financial hubs have carried measures to attract family offices to come to the region, from attractive tax exemptions on specific types of income in Singapore, to new ways for investment funds to be set up in the form of Variable Capital companies in Singapore and limited partnership structure in Hong Kong. We believe that streamlining regulations on family offices will be key for both Hong Kong and Singapore to continue attracting UHNWI. Less bureaucracy will also be a strong argument for both financial hubs.
Technology | Where do you see the best application of data analytics/machine learning in private banking?
AI and machine learning are the technologies leading to an accelerating digital advance, which will dislocate the financial industry and our relationship with clients. As data becomes ever more valuable, data science that uses these technologies will transform the way investment information is gathered, analysed, employed and presented.
However, technology is dual-use: for financial institutions, cyber is the new systemic risk. Resistance to cyber-attacks that seek to undermine the most basic banking services will become a cardinal test of resilience, as will the security afforded by a robust balance sheet. Client concerns about data privacy will only intensify. In the future, financial institutions, already trusted as data collectors, may find a new role as data custodians.
Technology will ultimately make bankers and financial experts more effective, precise and targeted in the way they work. But it is key to keep the highly personal nature of wealth and asset management in mind. It takes extensive discussion and interaction person-to-person to develop the relationship and nuanced understanding necessary to tailor solutions to each client’s specific needs. Technology won’t be able to replace that.
Technology | How is your bank optimising the utility of the relevant digital tools to prepare frontline staff for client engagement in a post-pandemic environment?
The pandemic has already proven it: digital contact with clients is a reality. Even when the crisis passes, digital interaction (through video calls or digital banking tools) is here to stay. Private banks that cannot handle or upgrade those new communication channels will have a tough time in the future.
Most important for Pictet is to have the capacity to deliver the banks’ knowledge and expertise to clients in an efficient, tailored and easy to understand manner through technology, as we believe digital tools will not replace the face-to-face interactions that are key in private banking, but rather complement it.
Meet 2020’s industry leaders in the full round up of of Asian Private Banker‘s The Final Word 2020.