Challenging global market and macro conditions, set against the backdrop of longstanding COVID-19 restrictions in China, have made for a challenging 2022 for Asia-Pacific’s private banking industry. But regional CEOs are confident that next year could bring renewed momentum.
While 2022 has been an extremely challenging year for the banking industry, it is particularly true for Credit Suisse given the slump in its share price and outflows across businesses.
After the strategic review announced in October, the recent debt and equity capital raising allow the bank to strengthen its capital and balance sheet position that will centre around its core wealth management business.
During a CEO panel at the Asian Private Banker 2022 Summit in Hong Kong on Tuesday, Rickie Chan, market group head Hong Kong for Credit Suisse Wealth Management, believes the current market sell-off can provide investors an opportunity to make “a lot of money” – provided they have the dry powder to take advantage.
In Hong Kong, Credit Suisse has seen “big inflows into alternative solutions this year”, such as private equity, hedge funds, and liquid and semi-liquid alternative strategies, as investors seek to protect themselves against the public markets’ meltdown. Clients have also been picking cash management products and principal-protected strategies, Chan said in the summit.
Amy Lo, co-head of wealth management Asia Pacific, UBS GWM, head and chief executive , UBS Hong Kong, stressed that diversification is key amid the challenges, with rising interest rates causing equity and bond markets to tumble. With an increasing appetite in alternatives, UBS has seen over 50% of its APAC family office clients invest in private markets, according to its latest global family office report.
“We will continue to see the shift of our clients’ assets into the alternatives space – it’s happening and will continue to happen,” Lo said, adding that while semi-liquid alternatives have been developing quickly in the past few years, illiquid strategies are also gaining traction.
Keep faith in mandates
Panellists also agreed that discretionary portfolio management (DPM) mandates have been capturing decent inflows this year.
“We are seeing a lot more interest from clients in investing in mandates,” Chan said. He highlighted that over the long run, the average DPM mandate has outperformed advisory mandates 70% of the time.
Lo added that a portion of the US$6.6 billion in net new generating fee assets (NNGFA) UBS’s global wealth management (GWM) business has garnered in 3Q22 this year has gone into DPM and funds.
“The number speaks for itself,” Lo asserted. “All along, we’ve been talking to clients about core-satellite investing. The core part is: leave it to the professional manager, whereby you can play with the satellite on tactical ideas to enhance the overall yield. So that has been working quite well.”
No standard model for onshore
One hot private banking topic in recent years has been onshoring. HSBC Global Private Banking (HSBC GPB) established its onshore China presence in six different cities this year.
“Expanding our onshore China presence is a core strategy for us towards achieving our ambition to be the leading wealth manager in Asia,” said Tan Siew Meng, regional head of HSBC GPB Asia. “Our ambition when we went onshore is very clear – we wanted to bring a disciplined wealth management approach leveraging off best international practices and aligned to local regulations into mainland China … and we are very single minded about that.”
BNP Paribas is focusing more on serving regional clients from its offshore platforms. Arnaud Tellier, CEO of BNP Paribas Wealth Management Asia, pointed out that you cannot have a one-size-fits-all strategy for going onshore in various markets.
“Once you are onshore, you depend on the regulations and the structure of the market,” he said. “Different onshore markets have different regulations and market structures, which may be very different from what investors enjoy in Hong Kong and Singapore.”
Tellier hinted that the bank is looking at new onshore markets, despite having exited markets in the past. “We are looking at all opportunities. I agree that clients have onshore and offshore needs, but we know we are not in the best position to serve both all the times. So, we will let the onshore needs being served by onshore banks [in some markets], and we will deploy our full platform and service model offshore for those that have cross-border needs.”
Despite the challenges that China’s zero-COVID strategy poses, private banks are still confident in this market’s potential.
UBS GWM launched a digital wealth management platform, WE.UBS, this year to serve China’s growing affluent segment.
“China is not an easy market, but it’s a very important market that you have to make a footprint. The three things I learned from doing business in this market are: commitment, patience, and agility,” said Lo. The government’s “Common Prosperity” strategy will lead to a rise of a significant middle class and affluent segment, of which WE.UBS are targeting at with its digital wealth management solutions platform.
For BNP Paribas WM, the bank will keep serving China entrepreneurs and families on a cross-border basis, out of Hong Kong and Singapore, including by adding more bankers. “We will keep investing significantly into covering China on a cross border basis.”
Credit Suisse is also making big plans for China, recently having made the commitment to acquire a full ownership in its securities joint venture – Credit Suisse Securities (China) Limited and own a locally-incorporated bank in China over the longer term.
Chan is confident that the city is still the key linkage to connect China to the world, and the world to China.
“I think the opportunity in Hong Kong is still huge and there is a lot of wealth creation that can happen in China – which will benefit in Hong Kong, so the opportunity is just huge. With China gradually opening up and Hong Kong opening up I think we can only see upside from here.”