Kwang Kam Shing, CEO of J.P. Morgan Private Bank 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, investments, regulations, and technology in 2021, as well as providing their predictions for 2022.
The previous 12 months have proved that private banks can draw in significant amounts of net new assets and client accounts as the industry has adapted to widespread travel restriction due to COVID-19. With the potential easing of these restrictions in 2022, new variants aside, to what extent will private banks return to their pre-pandemic methods of sourcing clients and gathering assets?
Clients in the region have always been digital-savvy, which has only accelerated with COVID-19. Our continued investment in technology, digital tools and automation, has made the transition into the COVID-19 environment quite seamless, including having all-round remote working operations up and running wherever we are.
Pre-pandemic, we automated manual processes for our advisors and support functions; as well as new digital solutions to enable clients to “self-serve”; including DocuSign (first bank to provide this in 2018), WeChat two-way chats and enhanced functions for JPM online portal. With the pandemic, we have learnt that clients respond well to events that are held across time zones via a hybrid format — and a key takeaway is that in-person meetings are not always necessary. Be that as it may, in-person meetings with clients and prospects are still important and not fully replaceable — COVID-19 has just widened the possibilities of ways to connect with everyone.
Given the majority of Asian wealth is located onshore, how should international private banks best target and differentiate themselves in these markets? For domestic regional private banks, what is the most effective strategy for competing with international players?
Our clients – where they have businesses and families across jurisdictions – are generally global in nature and are keen to connect with like-minded people in other regions. We’re able to cater to this need because we can draw on the strength of our global investment capability and network to help connect clients with the right people — no matter where they are.
Taking one step back and looking at J.P. Morgan overall, strengths in other lines of business gives clients access to other J.P Morgan capabilities through partnerships, where we operate in 17 markets in Asia Pacific.
Our advisors and team operating in-market are equipped with world-class financial acumen and nuanced understanding of the local landscape, who are able to address unique market needs and ever-changing market dynamics.
The last 12 months have been volatile for investors in China, from the meltdown in the high-yield bond sector to regulatory actions targeting sectors such as technology. How are you advising clients to invest in the world’s second-biggest economy in 2022?
China is going through a number of structural changes to re-orient its growth drivers, away from the housing market and energy-intensive traditional manufacturing sectors, to higher value-add manufacturing, innovation, as well as domestic consumption.
We believe the long term direction is right and therefore are still constructive on the long term return opportunities in the economy. Nonetheless, it will take time for the economy, businesses and financial markets to adjust.
In 2022, we are positive on China Onshore equities (A-shares) as they provide more exposure to policy beneficiaries – including electric vehicle battery supply chains, clean tech supply chains, semiconductor localisation companies, as well as small and medium enterprises that benefit from common prosperity-related support. We are constructive too on China government bonds but more cautious on high-yield USD credit bonds
We remain cautious on China Offshore until we see more tangible signs of regulatory clarity that will help ease sentiment for offshore equities.
What will be the key investment themes that shape both global markets and those in the region in 2022 and how is that feeding into how you advise clients?
While growth is moderating from the post-COVID-19 peak, we think it will remain above its long-term average for two key reasons: (1) In developed markets, we see strong consumer spending and strong corporate balance sheets. We still recommend an overweight to equities but recommend a balance between growth and cyclical, and emphasis on earnings quality; (2) In emerging markets, we are more selective but still like growth drivers such as industrial upgrading, automation, and semiconductors. There may be some upside in EMs as well, due to more domestic and external re-opening.
With monetary policy normalisation, we see relatively more volatility in markets. In view of this, we will put more emphasis on flexible fixed income strategies, income-generation strategies in alternative assets such as real estate, infrastructure etc.
Genetic therapy, healthcare, innovation and sustainability focused investments will remain key megatrends for 2022.
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?
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.
Sustainability is higher up the agenda for investors than ever, with last year’s United Nations COP26 event underscoring the scale of effort needed to achieve global net zero emissions by the middle of this century. How are you helping your clients to remove ESG risk from their portfolios and embrace sustainability in their investment strategy?
Combined with UNCOP26’s expanded effort to achieve net zero, we have seen growing interest from clients in the region for sustainable investing strategies, particularly during the COVID-19 pandemic. Clients want to invest in something that is going to have a positive outcome. In the past year, not only have we onboarded more sustainable investing strategies for clients to choose from, we have also expanded our overall service offerings via two acquisitions – OpenInvest and Campbell Global. OpenInvest is a fintech startup that uses data to help advisors and clients build customised portfolios based on specific values. Campbell Global is a leader in forest management and timberland investing and can help with carbon capture.
Last year we hired Dr. Sarah Kapnick, our very own Senior Climate Scientist and Sustainability Strategist, where she will support and advise on our sustainability and climate action efforts. Since joining, she introduced a framework of the three ‘R’s of climate investing — namely reduce, remove and retrofit. “Reduce” focuses on the reduction of fossil fuel energy demand. “Remove” refers to removing carbon from the atmosphere and the ocean — either through natural techniques such as tree planting or soil management. “Retrofit” refers to three main areas where infrastructure and technology both play a role: water, agriculture productivity, and the built environment. A lot of the innovation that is happening in this area exists in both early-stage companies in the private markets and in traditional public assets — all of which can be implemented comprehensively in client portfolios.
The past two years or so have accelerated the rate of technological and digital adoption at private banks across the region, given the restrictions imposed by the COVID-19 pandemic. From hyper-personalisation to digital onboarding and KYC, what will be the biggest focus in terms of tech deployment for the industry in 2022 and where do the gaps lie?
J.P. Morgan recently announced that its technology budget will increase by 26% to US$12 billion this year. Our private bank’s core technological and digital adoption focuses on enhancing the client and advisor experience.
The advisor experience will be key to digital adoption — especially as we plan to onboard a lot of new advisors. By having controls in place, we need to ensure all of these new advisors can seamlessly address clients’ needs and assimilate as our private bank business scales.
The next major focus for the industry is to apply AI / machine learning to strengthen clients and internal processes. That could mean a lot of things – but one key example could be how a private bank can mobilise some of the industry and market data points they already capture to drive better automation and a more personalised customer experience.
With all this said, private banks serving UHNWIs remain a high touch business but the more we can eliminate cumbersome administrative work for our advisors, the more value we can ultimately bring to clients.
Sourcing talent in the region’s private bank industry is becoming tougher than ever, pushing up hiring costs across the region. How can private banks ensure they have adequate access to the talented relationship managers and other front-line staff over the coming years? What is the key to attracting the right candidates?
Recruiting, training and retaining talent are always top of mind and remain a priority. Our Private Bank has more than 2,500 advisors globally, and it is indisputably our greatest asset.
We believe that world-class people build world-class, global businesses and that diversity, equity and inclusion is of utmost importance as we know that diverse companies outperform less diverse ones. The right talent is instrumental in building purpose, value and culture to thrive in the long term. And fostering the right culture in turn helps attract the right people.
For us the key to attracting talent is to be creative on who you hire – expanding the scope of the talent pipeline where appropriate.
Our external non-lateral hires and our internal mobility programme have been successful. Internal Mobility can be demonstrated through our bench of senior advisors on the leadership team, many of whom have garnered decades of experience at J.P. Morgan but are actually relatively new to their roles or to the private banking arm. We believe this allows everyone to offer fresh, different perspectives. Many of our senior advisors are home-grown talents, introduced via our structured global analyst and associate programmes.
Overall at J.P. Morgan Private Bank, we have first-class teams supporting our advisors and clients, including global and regional Solutions specialists, dedicated lending and wealth advisory teams – which altogether make our Integrated Team Model.
We have hired talent without prior private banking background, such as accountants, lawyers, corporate and investment bankers, or financial journalists. With the right training, their own unique networks, and our integrated team model operations, many of these external non-lateral hires have been able to contribute effectively.
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. less travel restrictions, more tax incentives, review/relax on a particular regulation)?
While support from the government is one of the more indisputably important factors to help ensure the Family Office industry prospers in the region, it will require industry bodies, academia and institutions working in collaboration to grow the family office industry.
A key driver to support the growth of the overall wealth management ecosystem, including the family office industry, is a talent pool that has equally sustainable growth and so collaboration from an academic, institutional and governmental level will be necessary to address fostering a sustainable talent pipeline in the region.
There’s a reason why both Hong Kong and Singapore are financial and wealth hubs of the region and the world. Both relevant government bodies have already done a lot to promote the wealth management and family office industry and in turn we are seeing increasing interest from our global clients to set up shops here in Asia. We are excited to work with the relevant government bodies and industry players to provide input and collaborate in the long term.
In the course of 2021, many private banks have grown their business presence in Singapore as the industry saw more business opportunities among Greater China clients in the city state. What is your private bank’s business split across Hong Kong and Singapore now compared to 12 months ago? Do you think the shift of gravity in business across Hong Kong and Singapore has reached an equilibrium?
Both Singapore and Hong Kong are extremely important financial hubs for Asia and they have different value propositions. We advise our clients to allocate their capital according to what each locations’ advantages can offer in terms of their business and personal needs.
Asia’s overall growth will mean that both Hong Kong and Singapore will grow at a fast rate and this symbiotic relationship will allow both hubs to remain competitive on a global scale.
We keep expanding our presence in both Hong Kong and Singapore, demonstrated by key hires made over the past year. In the long term, both markets are well poised for growth, and will remain extremely important to the world.
Meet 2021’s industry leaders in the full round up of of Asian Private Banker‘s The Final Word 2021.