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IBs aren’t meeting ultras’ demand for prime brokerage services

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Ultra high net worth individuals and family offices in Asia that are more trading-oriented are increasingly looking beyond plain vanilla products and trading activities, but are still under-serviced by investment banks, according to Credit Suisse.

Raza Jafree, head of prime services for private banking (PS4PB) at Credit Suisse Asia Pacific, told Asian Private Banker that the bank’s PS4PB business — a more capital-intensive unit offering securities financing and trading, custody, and other services to their private banking clients — has grown around five-fold in Asia over the past four years.

“There are more family office clients in Asia who want to set up structures in a way that they can be treated as institutional clients, and they are increasingly looking for guidance in how to optimise the interaction with institutional counterparties such as investment banks,” he said.

“However, due to technical reasons or licensing restrictions, clients direct their trading to small local brokers or e-trading platforms, which may present other challenges,” Jafree said, offering the example that most private banks in the region don’t provide the option of trading certain derivative products, such as futures.

He also noted that family offices in the region are increasingly hiring talent with investment banking or hedge fund backgrounds.

“These individuals have been accustomed to dealing with investment banks and prime brokers, and would expect similar levels of service and platform capabilities when they join family offices.”

According to Jafree, family offices typically group their capital into three main segments: private equity investing, third-party managed funds, and a portion of liquid capital which they manage in-house.

Family offices are generally familiar with private equity investing as wealth in Asian families is generally dominated by first-generation entrepreneurs, he explained. The second segment — third-party managed funds — can be managed by private banking DPM services, hedge funds or mutual funds, while the third segment not only generates alpha but can also provide liquidity in certain stress scenarios. This is where investment bank services could fill the void.

Client appetite
In terms of client appetite, Jafree said that the PS4PB platform, in broader terms, is suitable for less than 3% of all private banking clients.

“It’s a niche product offering for a niche client segment. We only target those really sophisticated UHNW clients,” he said.

On trading activities, he noted that hedge fund clients in Asia tend to run equity-focused strategies, but the bank sees increased demand for fixed income trading among family offices.

“At the end of last year, we launched the Repo desk which is more focused on bond financing and hedging and I expect to see further growth in demand for this service among our private clients this year.”

Interestingly, Jafree added, family offices have to some extent more flexibility in terms of their portfolio management investment style compared to hedge fund clients.

“For example, if you’re a market neutral hedge fund manager, you will be restricted to taking matching long and short positions in a given industry sector. But if you’re a family office, you will have the flexibility to shift among different strategies easily when the opportunities present themselves,” he explained.

Historically, the PS4PB platform has been offered to Credit Suisse’s private banking clients. Yet, what Jafree said is “more interesting and exciting” is that relationship managers from the bank’s private banking segment are now proactively seeking new business with new money brought into the bank owing to the capabilities of the prime brokerage platform.

“That is the most rewarding part of my job,” Jafree concluded.

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