A cogent argument could be made that UBS Global Wealth Management is entering its most important phase since arriving in Asia over fifty years ago. Yes, it is the region’s largest offshore-focused private bank by a number of measures and it is probably private banking’s most recognised brand. But the coronavirus pandemic has amplified dynamics that are reshaping — and challenging — the industry, including regionalisation and the need to localise decision making and improve cross-division agility, digitisation, and the growing demand for sustainable investments. In their first interview together since being named co-heads of Wealth Management Asia Pacific at UBS GWM in 2018, Amy Lo and August Hatecke, both vociferous proponents of these trends, spoke with Asian Private Banker via video link to discuss how the business has responded to the crisis, the success of UBS’s earlier revamp, and the importance of the APAC franchise to the group.
Amy, August, congratulations on a strong set of Q1 results. You must be satisfied with how the business performed.
[AL] Yes, we are really happy with our Q1 performance. In my 25 years [with the bank], this was a record quarter. We posted a record transaction revenue in APAC with 93% year-on-year growth. The operating income in APAC hit a record high of US$795 million, reflecting the resilience of our business in the region.
We’ve since seen a slowdown in client activity. Uncertainty has crept back in. Do you expect things to get a lot tougher going into Q3 and Q4?
[AH] Despite the market volatility, our teams have been very proactive, and our CIO team has done a marvellous job at identifying opportunities and themes. In line with this, we have a fantastic product pipeline which is really resonating with clients. For example, the “Go For Credit” campaign that we have had in place for the past month has played out well. We see greater opportunities in credit markets which have the right risk-return approach for our clients.
[AL] All along our message to the bankers has been “stay close to your clients” and to draw on the strength of CIO analysis to map out different scenarios [for clients]. So for those clients who want to increase their exposure or to protect their wealth, we ensure that we have the right solutions for them. The most important thing is how you communicate this with clients and help them navigate the volatility.
Would it be fair to say that the 3Ls [liquidity, longevity, legacy] framework that UBS GWM APAC imported from its US business last year has demonstrated its value to client advisors during these times?
[AH] What we brought in last year worldwide is proving to be absolutely fantastic, because it precisely addresses how clients approach their wealth at the moment. Right now, they have the time to review their personal situation and discuss with their client advisor how these three buckets pertain to their wealth and goals. Clients are taking this opportunity to think more long term, have a wealth or succession plan in place, and plan their legacy — including portfolios for their children that may contain a stronger sustainability element.
[AL] In fact, we have seen a 20% increase in inquiries about wealth planning. Our clients really are focusing on wealth protection during this pandemic. As a result, our discussions with clients are going beyond investment solutions to the more qualitative topic of wealth planning. We are seeing stronger interest in ESG and sustainable investing. Our recent investor survey showed that over 60% of our clients in Asia are interested in sustainable investing, which is great for us because we have a strong sustainable solutions pipeline.
[We] have seen a 20% increase in inquiries about wealth planning
Do you think the COVID-19 crisis increased the profile and relevance of sustainable investing from an Asian private client perspective, and does it present an opportunity for your client advisors to get out there and proactively engage clients on the topic?
[AL] Yes, this is an optimal moment for us to do so. Globally, we have US$488 billion of client assets in sustainable solutions, which represents 13% of our total AUM. We were the first bank to offer a 100% sustainable discretionary portfolio. In Asia, we saw a 24% increase in clients invested in this solution in Q1 and total invested assets now exceed US$1 billion. More importantly, the portfolio has outperformed. With the COVID-19 situation, our clients are looking for better quality companies to invest in and, more so, companies that contribute positively to society.
[AH] Actually, as Amy mentioned, if we look at the performance of our balanced portfolios, the classic UBS Managed [portfolio] delivered about 6% in April month-to-date whereas the sustainable portfolio outperformed by about 1.5%. It outperformed in 2019 as well. So this is not a question of theory. Yes, during this crisis, everything dropped more-or-less by the same level, but when it comes to the correction to the upside, again, we are seeing outperformance by the sustainable portfolio. So the story is a good story, clients are buying into it.
But I would say too that investors are experiencing a number of challenges that go beyond what sustainable investing could address, and this is where UBS’s strategic strengths — which Sergio [Ermotti, Group CEO] has invested in over many years — come to the fore. We are viewed as a stable and reliable partner and with our strong and healthy balance sheet, we stand ready to help clients because we have been enhancing our lending solutions.
In fact, here in Asia, we had a record quarter for lending. A lot of our clients recognise the strength of our balance sheet and that our CDS spreads are the best in the market — so this is an area in which we have been really active in the past few months.
[The] classic UBS Managed [portfolio] delivered about 6% in April month-to-date whereas the sustainable portfolio outperformed by about 1.5%
One could reasonably argue that UBS APAC, while not conservative to a fault, could do more in terms of its lending activities.
[AL] Certainly, the lending part is one of our core pillars here. Right now, we are focusing on how we can work more closely with our investment bank to deliver more structured financing solutions to our sophisticated clients, including those GFO clients [Global Family Office clients], helping them to monetise and provide liquidity in this kind of environment. Yet, as the largest wealth manager in the region, we do not need to use credit as a calling card to gain clients and we have to be able to justify our cases from a commercial perspective.
[AH] To build off this, here in APAC, we see a lot of interest from clients who want to be covered from both sides [WM and IB]. This is where we can make a difference by coming together as one bank to seek out optimal solutions for clients, especially in this environment where we see our clients doing block trades, and to capture all the opportunities out there, including mega-large transactions. Especially for Amy [Lo] in Hong Kong, where you see extremely large clients, not a lot of banks can go beyond one or two billion in loans.
Did you use the opportunity presented by the revamp earlier this year to evolve your co-coverage model?
[AL] Our co-coverage approach has evolved, across the front, middle and back. To give you an example, we have an initiative called the Tech Connect, which brings our One Bank cross-business capabilities to identify interesting opportunities in technology, help them grow, and ultimately grow our own wallet. And this type of cooperation is happening more and more as a result of the revamp we announced earlier this year.
But more broadly, there were three main reasons for this revamp. First, we wanted to have dedicated client coverage to provide focused distinct offerings and stronger regional ownership. The second was to increase productivity and streamline the organisation to expedite decision making and turnaround times, time to market, and time to client. Already we are seeing the benefits, insofar as our decision making has become more regionalised. And the third was to improve our ability to bring into play the entire bank to deliver holistic solutions to our clients. Again, this revamp has worked extremely well — the numbers speak for themselves, it’s why our performance has been so resilient in the midst of this outbreak.
[This] revamp has worked extremely well — the numbers speak for themselves
Is it reasonable to expect UBS APAC to become more regionalised in terms of strategy and decision making, especially if the changes made earlier this year prove effective?
[AL] I believe that is the way we are heading — and not just in Asia, but globally. The pandemic has shown us that the world is becoming more digitised and localised. And because speed to market is critical, we need to become more regionalised in our decision making. I truly believe this is a defining moment for all banks: the ‘winner’ will be the bank with the fastest turnaround, that delivers seamless execution, and stays the closest to its clients. We still need to make the most of our global network and practices, but I think it speaks for itself that regionalisation is the trend.
[We] need to become more regionalised in our decision making
[AH] You’ve seen the results. APAC across all divisions contributed 31% of the group’s PBT in Q1. What we see happening as well — especially in the digital space — is that a lot of our innovations are coming out of Asia and being shared with Europe and the US. So I think APAC is seen as a leader now at the global level. Even if we were to look at our loan performance here in the region, I think we can state with some pride that we have had relatively minimal losses on the loan book, which shows the quality of our team in APAC.
[AL] I would also point out that during this COVID-19 situation, we accelerated the rollout of a new technology platform in Asia that enabled 90% of our colleagues in the region to work from home. I think this demonstrates the importance of the region on one hand, and our ability to work together to solve pressing problems. Actually, August and I worked together a long time ago when I covered UHNW APAC and he covered UHNW Switzerland. The chemistry between us is great, we divide to conquer, but we also work closely together to strengthen the regional franchise as a whole.
The chemistry between us is great, we divide to conquer, but … work closely together
How will this experience transform your business and the private banking industry as a whole?
[AL] It will transform the way we engage and serve clients, both face-to-face and via digital channels, and will accelerate our development of digital banking capabilities. It will influence how we work together as a team. We will accelerate digitisation and automation to help us work more seamlessly and efficiently across divisions and regions. Even if things more-or-less stabilise, we are unlikely to return to a situation where everyone is working from the office, so we are looking at how we can accelerate our high-touch and high-tech operating model even faster.
[AH] This evolution speaks to clients’ evolving needs. For example, our next-gen clients want efficient meetings that are well-organised and attended by our top specialists. In the future, we — as a firm — and our clients will travel less and travel more efficiently. You wouldn’t usually show up in a different country, for example, with a team of 20, but you can have a Skype call with 20 specialists, so I think this situation opens the door to a number of opportunities.