Private banks continue to expand amid challenging markets

Roundtable participants

• August Hatecke, Co-Head Wealth Management Asia Pacific, UBS Global Wealth Management
• Pierre Masclet, Indosuez Wealth Management Asia CEO and Singapore branch manager
• Arnaud Tellier, Head of Wealth Management, Southeast Asia, BNP Paribas Wealth Management
• Philip Kunz, Head of Global Private Banking, Southeast Asia, HSBC Private Banking
• Steven Lo, Region Head - Asia Pacific, Citi Private Bank
• Benjamin Cavalli, Head of Private Banking South Asia and CEO Singapore, Credit Suisse

Moderator: Siow Li Sen, The Business Times

IT was tough last year but the private bank industry continued to grow with some performing above expectations and posting double digit revenue growth. The Business Times asked private bankers how they navigated the choppy waters and their outlook for 2019.

BT: How was the business in 2018?

August Hatecke: In Asia Pacific, UBS is the largest wealth manager with 357 billion Swiss francs (S$480.7 billion) in invested assets. We are committed to delivering superior investment performance for our clients and are encouraged by our clients' confidence in us. Our footprint in the region is extensive, and our commitment to continue growing in it is robust, with 12 wealth management offices in 10 locations across Asia as well as three trading outlets in Beijing, Shanghai and Guangzhou offering wealth management services.

Pierre Masclet: Despite the difficulties the markets posed for our industry, 2018 was a solid year for us. In fact, we performed above expectations. We finished 2018 with positive momentum, both in terms of developing new relationships and revenue growth, partly thanks to the successful integration of Credit Industriel et Commercial's private banking businesses in Singapore and Hong Kong which we had acquired at the end of 2017. We prepared very well for this integration and were able to reap the fruits of this effort throughout 2018. As a result, our team in Asia has been the best performing within the group underlining the success of our approach to both organic as well as inorganic growth which is paying dividends.

Arnaud Tellier: While 2018 was a challenging year for the industry, our pace of development and our transformation are on track. Our well executed strategy has helped to deliver consistent and sustainable value for our stakeholders. Our advisory platform saw significant growth in assets and we noticed a growing demand for sustainable and impact responsible investment, which is one of our strategic areas of development. Lastly, we made concerted efforts in enhancing client experience via new tools, innovative ideas, and new products. Southeast Asia is one of the growth engines for BNP Paribas Wealth Management in Asia. We are committed to growing our presence and client franchise in the Southeast Asian market.

Steven Lo: We did well in 2018 and was able to grow our revenue in double digits despite a challenging environment. The driver of our business continues to be client acquisition. Year on year we have been able to attract new clients even when we raised our target market criteria (from US$5 million to US$10 million minimum to open an account). Working closely with new clients in helping them to understand how to leverage Citi and make use of what our franchise can offer on such an extensive platform has been and will continue to be key to our continued success. We also ensured that any new bankers joining us would not be lost in the shuffle and that they received the proper training and oversight to made them productive early on.

BT: Markets ended badly in 2018, but AUMs still rose. How did your bank manage the challenges?

Benjamin Cavalli: A key focus for us remains in driving managed solutions spanning discretionary and advisory mandates (ie Credit Suisse Invest) and funds and alternative fund solutions. Credit Suisse Invest, launched in mid-2017, is a human-led, digitally-enabled advisory solution, offering our clients access to retrocession-free share classes of funds, and is one of the key differentiators to help our clients improve performance. We have seen substantial client demand with assets tripling since launch, as clients are acknowledging the tangible benefits of a systematic investment process supported by the Credit Suisse House View and leveraging technology and digitisation to enhance their investment experience. Assets of our bespoke discretionary mandates, which represent more than 80 per cent of our discretionary mandate business, have also grown by more than 20 per cent per year in the past few years.

Mr Tellier: 2018 was indeed a challenging environment for investors as most asset classes were down across the board. We are recognised to have high quality equity advisory and execution service offerings and therefore our clients in Asia tend to have a high concentration in the asset class, particularly Asian equities. However, we observed a shift in investors' asset allocation strategy to non-traditional investment products. We also saw increased interest in discretionary portfolio management as well as strong inflows into alternative investments such as private equity and real estate. Demand for structured products also increased as these products offer investors protection from down markets but also opportunities to benefit from higher volatility.

Philip Kunz: Volatility creates uncertainty both on the personal wealth and business front. Investors might be keen to hold on to more cash, or business owners reluctant to expand because of bearish global sentiment. What's important to remember is the Asean context which remains a beacon of positivity. HSBC research from October of last year suggested that even with market swings, Singapore businesses have a positive trade outlook - stronger than the global average of 77 per cent. Businesses are keen to continue their Asean expansion and China is increasingly looked to as the next opportunity. Yes, it will be a difficult year. We will stay close to our clients and continually re-evaluate their investment portfolios and where needed, help them hedge against risk.

Mr Hatecke: 2018 was a tough year for Asian investors who had to grapple with a new world order and rising interest rates. In early 2018, we started to prepare our clients for volatility in markets by performing health checks on their portfolios and advising them to stay diversified. With volatility back in markets, some clients chose to delegate their decision-making to our discretionary portfolio management teams instead, benefiting from the automatic implementation, strategic discipline and asset allocation of our Global CIO office.

On a brighter note, we are proud to share a UBS innovation with you. We launched a sustainable investing mandate and asset allocation fund, based on our unique 100 per cent sustainable Strategic Asset Allocation. For the very first time, private clients can access a 100 per cent sustainable cross-asset portfolio, which implements ESG (environmental, social and governance) principles across all equities and bonds strategies, allowing them to invest in a portfolio based on their personal risk and return expectations. With over US$3 billion invested since the launch, our clients have clearly shown their commitment towards supporting the UN Sustainable Development Goals. They understand that global challenges bring unique investment opportunities and they can do well by doing good. In 2017, UBS committed to allocate US$5 billion to impact investments in support of these goals.

Mr Masclet: It is important, especially in times of heightened volatility and increased uncertainty, to see the wood for the trees and to stay calm. In fact, it is in such times that an experienced wealth manager can really make the difference and add real value to clients. We tend to advise our clients for the long term and apply strong risk management in our advice. In an environment where markets are volatile, it really helps that our model is set up in such a way where clients not only have access to their Relationship Manager but also to a wide range of product specialists, risk management and top management. So we see moments like this as "moments of truth" and we have weathered the storm well.

Mr Lo: The main challenges in such an environment are the market noise and ensuing panic that often drives investors to make rash decisions. So it becomes even more important to stay close to our clients on an ongoing basis no matter where the market is. Being proactive gave us an advantage in positioning many of our clients to actually do quite well in 2018. Lowering equity risk in 2Q18 and transferring extra liquidity to fixed income allowed us to help clients preserve capital. Clients also took the opportunity to look at longer term investments in our private equity and real estate products. We were also the recipients of AUM inflows when competitors did not stay close to clients during the volatile periods in 2018.

BT: What is your 2019 outlook?

Mr Masclet: We like high yielding stocks with high earnings visibility like the Chinese gas sector, telecom-related companies, Asian Reits, Hong Kong utilities and selective Chinese banks.

In terms of specific sectors, in the US we continue to allocate both to value and to secular growth stories. These can be found in disruptive technologies such as artificial intelligence, cloud computing, communications equipment with 5G, or in secular long-term themes such as ageing populations. In Europe, we retain our positive bias in favour of defensive sectors, such as healthcare, and are underweight on financials. We are globally neutral on consumer staples, telecoms, and utilities.

Wider spread levels bode well for investors in 2019 if our base scenario of a slowdown, not a recession, holds. US investment-grade spreads are approximately 60 bps wider than one year ago, whilst in Europe the widening is more pronounced at 100 bps. Nevertheless, investing in credit remains tricky. We remain selective but see new opportunities, especially among the Chinese property segment and USD denominated high yield bonds. Last but not least, in order to at least partially protect portfolios from increased volatility, we think gold should form some part of our clients' investment portfolios.

Mr Tellier: Our view is that there will be a synchronised deceleration in economic growth across major economies in 2019, but not a recessionary lapse. We believe that there is little evidence that the components of the aggregate demand are well past their peak. Rather, consumption continues to support growth especially in the US, investments in the eurozone and Japan are still rising, and trade tensions may lessen this year. Furthermore, real rates remain low and fiscal stimulus is picking up to partially offset tightening financial conditions. Overall, BNP Paribas Wealth Management believes that global economic growth will likely remain above 3 per cent. Emerging economies will not be immune to the global slowdown, particularly given the domestic slowdown in China and the devaluation of the Chinese yuan. Despite this, we look to emerging markets to take up the slack and believe that they could then see their growth differentials expand relative to developed markets.

Mr Kunz: When it comes to our business, we are optimistic on our five-year Asia Wealth Plan to invest and double the business in Singapore. Bringing on talented colleagues hasn't been a challenge and strong collaboration with Commercial Banking is a testament to supporting entrepreneurial families. Market fundamentals in Asia are strong. We don't expect our entrepreneurial clients to make a U-turn away from expansion. GDP growth for Singapore looks good too and Asean continues to hum.

Mr Lo: Our general view is cautiously optimistic. We expect moderate slowdown in the global economy, but do not see a recession. However, when it comes to our business, our model does not change all that much.

Mr Cavalli: In view of current tensions between the US and China, we favour short duration government bonds in the Eurozone vs the USA. In addition, population ageing is continuing, and the baby boomers will soon start focusing their spending mostly on healthcare. We suggest owning select parts of the healthcare sector, which should benefit from increased demand as the baby boomers age, as well as parts of the tech sector that aim to automate and lower costs in healthcare as well as improve the patient experience in old age. Our Silver Economy Supertrend is a good way to position for this shift.