BNP Paribas Wealth Management’s chairman and CEO in Asia, Mignonne Cheng, sits down with Asian Private Banker to discuss the private bank’s current state, her plans for the über-ultra high net worth segment and Asia’s onshore future.
Mignonne, you’ve had 4-5 years to put in place your strategy for BNP Paribas’ wealth management business in Asia. Have you achieved what you set out to achieve?
I think as far as the growth plan is concerned, we’ve done pretty well! Based on our initial strategic plan (which ends this year), we are about to double our AUM, and have increased revenue by more than 50% despite tough market conditions over the last 18 months.
What is your Asia AUM at present?
Today we have approximately US$67 billion in AUM [Based on Asian Private Banker’s data, that represents a 3.9% increase since the end of 2015].
As of today, how important is BNP Paribas WM Asia to the Bank?
When I first joined, we were below the radar. While our AUM and revenue are growing strongly, the overall contribution of Wealth Management Asia to the Bank is increasingly important. This is obviously helped by the rapid accumulation of wealth in the region.
The past two years have been difficult to say the least, and transactional business, which remains a core revenue driver for the private bank in Asia, is on the wane.
Yes, transactions account for about 75% of revenue. Transaction activities have traditionally been important for Asian clients. That being said, the industry is facing many challenges and volatile market conditions.
Given the significance of transactional business at BNP Paribas WM, do you have a strategy in place to increase discretionary revenues to mitigate overall revenue volatility?
We are working towards this and we clearly need to increase the penetration rate in the managed asset area, including discretionary portfolio management (DPM), which will help to grow our client advisory in a prudent and sophisticated manner. We have a long history in offering DPM in Asia, with many clients using our services for more than a decade. I envisage client demand for DPM will increase.
It wasn’t that long ago that BNP Paribas WM’s cost/income (CI) ratio in Asia hovered around 90% and, as I understand it, you set about containing back and middle office expenses while onboarding frontline talent to contain this figure. Is this still your strategy?
When I first joined WM, the CI ratio was at 90%. I realised that the model we had in place was not sustainable. CI ratios for the industry overall remain a challenge. Our strategy has always been (1) maintain an efficient operating platform, and (2) onboarding new talent while upgrading existing resources and going for quality rather than quantity. Asia is an environment of high operating costs and this will continue to be our focus.
You’ve just launched an RM training programme, so are you putting more emphasis on ‘organic’ talent growth?
We continuously upgrade existing resources to achieve organic growth. The RM training programme will help ensure that our frontline teams have the right skills in place for effective client coverage.
This is especially pertinent given that bidding wars are pushing up the price of talent exponentially.
We don’t want to enter into these wars but, at the same time, we remain competitive in our remuneration. I started with around 180 RMs, and now we have around 250.
We are also mindful of other areas requiring reinforcement, for example compliance, which obviously will bring additional costs. So to meet these challenges, we have launched a number of innovative products and our credit offering has played a significant role.
Credit remains a big part of your business here.
Yes, we have 50 people dedicated to working in credit because Asian clients often need leverage. Thus, offering a credit solution is essential.
You are in the process of launching a mega-wealth initiative that targets clients above your key client group segment – essentially those who are ultra ultra high net worth. What is the impetus behind this play?
Four to five years ago, we were covering clients in a fairly homogenous manner regardless of their size and needs. When we reorganised our teams, we decided to introduce a better coverage model. That’s how we came up with the Key Client Group [clients with a minimum of US$30 million in AUM with the bank, or a net worth of US$60 million].
After several years, we realised that we have not only onboarded key clients, but also clients with even greater wealth who we now label as mega-wealth clients.
What is the threshold?
These clients must have a minimum of US$100 million in AUM with the bank and a minimum net worth of US$1 billion.
How many of your clients meet these criteria?
We have around 100 mega-wealth clients.
Who will lead the initiative in Asia?
This is a collaborative effort. Our head of Hong Kong market and head of key client group Asia Pacific will lead it. We will put in place a Mega Wealth Council across disciplines which will consist of Mega Wealth RMs, Investment Banking Asia and Global Markets representatives, members of WM management and other offering partners.
The goal is to bring to these clients, on a consistent basis, the type of sharpened insights, ideas, opportunities, services, as well as international networks and events designed exclusively for the segment.
Let’s look further into the future, and where you see BNP Paribas Wealth Management in Asia in the next five to ten years, particularly given current shifts in industry tectonics and the growing ‘onshoring’ trend.
Early on we identified six to seven onshore locations that we would like to cover. Traditionally we have relied on the offshore booking centres of Hong Kong and Singapore to cover our clients across Asia. We are also exploring opportunities presented by onshore centres such as Taiwan, Indonesia and China.
I’m not downplaying Hong Kong and Singapore; but I am saying that we need to consider seriously how we should tap into onshore markets.
What I can say is that those domestic onshore markets – whether Taiwan, Indonesia or China – will be the new focus. There is going to be a transformation.