Fund Management

Asia: A Gold Mine for Wealth Managers?

Lachlan Colquhoun, Sydney, 31 March 2005

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Asia’s wealth market has been growing faster than other regions of the world, presenting major opportunities to the private banking and weal...

Asia’s wealth market has been growing faster than other regions of the world, presenting major opportunities to the private banking and wealth management industries.

China and India are the major prizes, but with little history of wealth management and a plethora of regulatory and competitive hurdles, which are only slowly being dismantled, the wealth industry is not yet fully able to tap these markets.

The immaturity of the market has created a “wealth race” in those two key emerging markets as global players rush to position themselves for the new opportunities.

Singapore and Hong Kong might be the two main private banking hubs, but they are mature markets with tough competition between international and sophisticated local banks, virtually all of which have rolled out premier banking offers targeting the wealthy.

According to a recent Boston Consulting Group study, the Asia-Pacific wealth market grew by 14.6 per cent in US dollar terms during 2003. This compares with 13 per cent growth in the US, and 4.4 per cent in Europe over the same period.

The BCG report hones in on China and India as the most important new markets for wealth managers. Japan is the wealthiest in Asia, with assets under management of $12.4 trillion, but the market is at a different state of maturity, presenting different challenges to foreign players, such as Merrill Lynch and UBS, who are entering the market just as Citigroup makes its exit.

“If Japan is excluded, greater China accounted for $3.29 trillion of Asia’s $6.4 trillion in assets under management from wealthy investors and just more than half the $54.3 billion of Asian wealth management revenues from wealth investors in 2003,” the BCG study said.

“Although Indian investors with more than $100,000 in assets under management are one third that held by Chinese investors, Indian investors’ wealth grew at a 21.4 per cent annual clip compared with 8.3 per cent growth for the Chinese.”

Unsurprisingly, other global institutions are also keen to quantify the new Asian opportunity.

A 2004 Cap Gemini-Merrill Lynch report estimated that private wealth in the Asia-Pacific grew by 10 per cent over 2003 and, excluding Japan, greater China accounts for 51 per cent of Asia’s high net-worth individuals.

The number of such people in China grew almost 12 per cent in 2003 to 236,000, up from 211,000 a year earlier. Their combined wealth totalled $969 billion in 2003.

But while these emerging markets offer a tantalising future opportunity for wealth managers, they are difficult markets in which to make headway in current conditions. Not only are foreign banks restricted in their operations in both China and India, but the holders of the wealth have little experience in using professional managers.

“Much of that Chinese and Indian wealth is tied up in companies that are developing and growing very quickly,” Andrew Dyer, a director and vice-president at BCG, told WealthBriefing.

“The wealth management service in these countries is much more about serving and helping the individuals who own these corporations.

“In China, much of the wealth is sitting in private businesses rather than in public companies, and my guess is that it will be some years before that gets unlocked through the IPO process.”

China’s World Trade Organisation membership and new policies to reform the banking sector has seen a warm welcome extended to foreign banks, who are salivating at the thought of the $1.5 trillion its citizens have in savings.

HSBC, for example, announced in January that it would soon upgrade representative offices in Chongqing and Chengdu into full branches, which would bring their mainland total to 12.

Affiliate Hang Seng opened its first branch in the affluent southern city of Shenzen in January, joining a branch from the Bank of East Asia, while Standard Chartered plans to roll out wealth management services to small and mid-size business clients in Beijing and Guangzhou. ABN Amro and Citigroup are also planning Shenzen branches.

Other banks are taking the equity investment route. ING, for example, recently took a 19.9 per cent stake in the Bank of Beijing for $262 million, and plans to use the bank – China’s 13th largest – as a channel to distribute wealth management products.

Merrill Lynch has also marked its return to the emerging markets by opening an investment banking joint venture in China, which will give it a foothold in the high-end private client market.

India has many similarities with China, and the wealth market there is a major opportunity. According to UK research house Datamonitor, affluent wealth in India has grown at an annual rate of 17.6 per cent over the last five years, with 618,000 affluent individuals at the end of 2003.

Datamonitor is forecasting that by 2008, one million Indian individuals will have a collective wealth of $200 billion.

A Reserve Bank of India “roadmap” for the reform of the banking sector is set to open up the market to foreign banks by 2009. Some, such as Merrill Lynch, are considering joint ventures with non-banking finance companies as a way of getting a foothold in India.

“In India there is a vibrant service business being built, centred on the larger group of affluent customers,” said BCG’s Andrew Dyer.

“But it all comes back to the fact that the banking system is in a different stage of development.”

But even in Asia’s developed markets, competition is still tight. UBS, Citi and ABN Amro might be the main players in Singapore’s private banking and wealth management market, but they are facing renewed competition from the likes of SG, which hubs its regional SG Private Banking operation out of Singapore.

SG recently appointed a new Singapore based executive to target the Indian diaspora from Singapore. In response, ABN and Citi both opened new branches in affluent Singpaore suburbs last year.

Hedge funds are also setting up in Singapore, with the number of start-ups increasing from 35 at the end of 2003 to 55 by early 2005.

Local bank OCBC is also out to woo more affluent clients, a market it defines as people with more than S$200,000 in investible assets. Only one per cent of the bank’s customers are described as “affluent,” but they comprise 10 per cent of the consumer banking division’s profit.

OCBC plans to increase the number of relationship managers targeting this segment from 11 to 40 by the end of the year, and increase the number of its premier banking centres from five to ten over the next two years.

Rival DBS has 150 relationship managers and four dedicated centres for premier banking, while UOB opened two new wealth management centres in Singapore’s business district last year.

Hong Kong, meanwhile, has rebounded from its lengthy economic decline, and has reconfirmed its status as one of the region’s current premier wealth markets. Citibank’s 2004 Hong Kong Consumer Wealth Review, for example, found that the number of US dollar millionaires in the territory increased from 260,000 in 2003 to 274,000 in 2004. Total liquid assets grew from $800 million to $932 million over that time.

Even more encouraging, perhaps, is the fact that the number of these millionaires using priority banking or wealth management services increased from 52 to 57 per cent over the same period.

With that in mind Citi plans to open four new CitiGold centres over 2005, and increase its staff headcount in CitiGold by 40 per cent.

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