UBS family office unit targets Asia's new billionaire dealmakers

Zurich

UBS Group AG expects most new family-office clients to come from Asia as global banking rivals compete to manage funds and broker deals for the world's wealthiest clans.

"The number of family offices being set up in Asia far outpaces" the rest of the world, Anurag Mahesh, head of the bank's family-office operations in Asia, said in an interview.

"Wealth here is getting more and more sophisticated and being created at a rather unprecedented pace."

The collective fortunes of China's richest people grew by a staggering 65 per cent, or US$177 billion last year, according to the Bloomberg Billionaires Index, a ranking of the world's 500 richest people. Asia is now home to 27 per cent of the people on the list, second only to North America.

Asia's ultra-rich are increasingly looking for more complex and global investments as a record number of patriarchs cede control to the next generation. Younger family members whose wealth came from traditional industries such as real estate and natural resources often seek to diversify into biotech and digital businesses, with Silicon Valley of particular interest for those seeking to invest directly, Mr Mahesh said.

Last year, Zurich-based UBS secured a private-funds licence in China, allowing the investment unit to start managing money for mainland institutional and high-net-worth investors in Asia's largest economy.

"In Asia, the clients are less-advanced in terms of the sophistication of the family offices structures," said Sara Ferrari, head of the Global Family Office. "We're moving as they are moving."

The firm may add to its team of about 100 family-office bankers in the region, Ms Ferrari said. In Europe, by contrast, she said it expects to grow by increasing revenues with existing clients.

UBS started the Global Family Office unit about seven years ago to sell the firm's funds and investment-banking advice to the largest and most active wealth clients, partly to prevent bigger investment banks from siphoning off revenue from billionaire families. It has a strong presence where most of the world's wealth is stored - in places like Switzerland, Hong Kong and Singapore - though it lacks the investment-banking clout of JPMorgan Chase & Co and Goldman Sachs Group Inc.

Competition is intensifying, with Credit Suisse Group AG tilting toward wealth management and Goldman aiming to add more than 200 private wealth advisers over the next two years. JPMorgan offers its large family-office clients an array of services, from access to direct private equity and real estate deals to M&A and brokerage advice.

Invested assets at Global Family Office, which cross-sells equities trading, derivatives and deal advice, have doubled over the past five years to 120 billion Swiss francs (S$163 billion). But UBS feels it could do more for family-office clients, which became a renewed target for growth after chief executive officer Sergio Ermotti combined the bank's disparate wealth management units into one, according to a person familiar with the matter who asked not to be identified discussing private deliberations.

Over the next two to three years, gross margins in wealth management "will continue to be under pressure" Mr Ermotti said at a May 30 investor conference, adding that it would be wishful thinking to expect margins on deposits to return to levels seen before the financial crisis.

That means banks can't rely on revenues from sitting on customer cash - even if it amounts to billions of dollars. In the US, there's a "big opportunity" for UBS from closer cooperation between the investment bank and wealth management to serve ultra-high net worth and Global Family Office clients, Mr Ermotti said.

Family offices have mushroomed in recent years as private wealth surged and more people took an interest in actively managing their affairs, said John Matthews, head of private wealth management and ultra-high net worth for UBS Wealth Management Americas. Newer, more flexible iterations of the traditional model - such as family offices that are virtual or manage money pooled from several families - mean family offices can make sense for a wider range people. "Years ago, you had to have around US$500 million to have a legitimate family office," Mr Matthews said. "That number is going down now, to around US$200 to US$150 million."

The family-office concept is relatively new in Asia, despite rapid wealth accumulation there. An estimated 17 per cent of the world's 5,300 single-family offices are based on the continent, according to Campden Wealth. The nascent market offers banks a chance to get in early when families most need outside help. For clients in North America - where almost almost half of family offices are found - UBS's role skews more toward helping established family offices to access different types of investment products across the bank or helping them develop specific strategies around issues like capital preservation or philanthropy.

One area of mutual interest for Global Family Office clients is meeting other families. Such connections may yield co-investments or simply offer a chance to swap information on issues unique to the world's richest people.

When the bank was recently invited to pitch to a US family office in its third generation, competing against rival banks, the request was for a specific mandate in the markets, Mr Matthews said. "But the conversation actually turned to two key elements," he added. "Can you make introductions to us to like-minded families in Asia? And the second piece was non-investment issues - like trust and estate work, governance. They rewarded us with a fairly large mandate." BLOOMBERG