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Consolidation spells opportunity for UBP
CONSOLIDATION in the wealth management industry does not faze bankers at Union Bancaire Privee (UBP). At a time when larger private banks might be looking to shrink costs, UBP would likely have its feelers out, attuned to opportunities to grow.
Says Michael Blake, UBP chief executive for Asia: "UBP has been seen as a consolidator in Asia and Europe. We've done four acquisitions in the last six years, 16 in the last 45 years. We believe that the investments we have made in Asia are paying off… We've made significant investments over the last two years. The positive results give us confidence to continue to invest."
UBP is a Swiss family-owned private bank founded in 1969 by entrepreneur Edgar de Picciotto with a capitalisation of just eight million Swiss francs (S$11.1 million). Today, UBP has assets under management of 125 billion Swiss francs comprising private banking and asset management. In Asia, it manages 20 billion Swiss francs under both the private bank and asset management. UBP is also one of the most strongly capitalised banks with a Tier 1 ratio of 27.4 per cent.
Growth was largely achieved through astute acquisitions. Its most pivotal deals included the acquisition of American Express Bank in 1990 for 1.2 billion Swiss francs, at that time the biggest bank merger in Switzerland. More recently in Asia, it acquired Coutts & Co International from Royal Bank of Scotland Group in 2015, significantly expanding its foothold in Asia.
In Singapore's highly competitive financial services landscape, Mr Blake believes there is room to grow for pure-play private banks and for UBP in particular, whose unlisted status and family heritage are conducive for a long term, stable commitment, free from the market pressure to show short-term results. "Certain clients want a big brand. But there are many others who decide they want a more personalised service and are comfortable with one of the pure-play banks. The two are not mutually exclusive; this isn't a zero sum game. From acquisition to the point of transition, we grew our assets 10-fold. Since then, we've grown 20 to 25 per cent in the last two years. That's evidence that the awareness of UBP's presence is growing and clients respond well to it."
Mr Blake himself is a career banker who joined the financial services industry in 2000 after a brief stint with Britain's diplomatic service in Hong Kong between 1999 and 2000. That was a period, he recalls, of anticipation over the promise of the Pearl River Delta zone in China, seen as the "workshop of the world". Mr Blake also learnt Mandarin in Beijing. "That was the moment many realised the economic potential of that region. That's very much where my association and love for Asia came from."
In 2000, he joined UBS and became head of the UBS Asia Pacific Management Office in 2010. He joined Coutts in 2011 and became its chief executive in 2015.
Mr Blake says the industry has evolved through three phases from the go-go years of 2000s. "The early 2000s up to the 2008 financial crisis was a time when all Western or international banks recognised the need to establish a foothold in Asia. There was a huge amount of investment into the industry. Their belief was that establishing a foothold was enough. So there was more emphasis on investments than on return on investment."
Following the 2008 crisis, attention shifted to the US and Europe. But the focus quickly shifted back to Asia in 2010.
"The big difference between now and pre-crisis is that people now recognise the importance of ROI. In private banking, the consolidation of the past four to five years is very much (because) a large number of global players realise that private banking isn't their core expertise, so they divested. For firms like UBP, that's a very positive development … It enabled pure players to pick up market share, invest in new markets and establish a foothold in high growth markets like Asia."
He believes that all the talk about the critical mass that private banks need to achieve in order to thrive is too simplistic. The key, he says, is to deliver a proposition attuned to the needs of clients. This should include bespoke services. "There was a period when European private banks came trying to force-fit the European model into Asia, with Swiss booking centres and discretionary portfolio services with a vanilla mix of products, and providing a service as if you sit in Switzerland. We've seen a withdrawal of a number of banks whose model didn't get the traction that people hoped for."
In Asia, UBP's proposition is focused very much on its investment services, both advisory and discretionary. "We strongly believe in active management for a portfolio. We don't take a vanilla asset allocation with a standard deviation to the market, and adjust that by one to two percentage points. We believe in taking a view on markets, and following that through in portfolios. That is a strong part of the DNA of UBP, which had its origins in Mr de Picciotto who believes passionately in doing things with conviction."
Bespoke discretionary portfolios can be arranged for clients who invest at least US$5 million. For amounts above US$50 million, the bank may form a standalone investment committee to provide services. In Asia, assets in discretionary portfolios grew by between 45 and 50 per cent last year, and penetration has grown to around 12 to 13 per cent, from 10 per cent previously. Even stronger growth was seen in assets in advisory mandates which rose three-fold.
So far, the simulated track record for Strategic Asset Allocation portfolio models for Asian assets has been positive. For a balanced profile, for instance, the portfolio achieved a return of 14.5 per cent for 2017. The cumulative return for three years was 21.52 per cent; and for five years, 42.3 per cent.
One of the services that has taken off among Asian clients is its "direct investment" offering, which are opportunities to co-invest with the bank in real assets such as real estate and aviation. "This has been met with strong demand in the region. It comes back to the client demographic; many clients are business owners who recognise that such investments will not be a large proportion of asset allocation, but even a small allocation offers diversification and the ability to touch and feel an asset."
Private market specialist Geoffroy Troesch has relocated from Geneva to Hong Kong to help expand and source for investment opportunities for the Direct Investment Group in Asia. UBP's investment services team has also designed and launched investment products that offer targeted exposures. It has, for instance issued equity certificates, thematic structured notes which offer participation in a basket of securities and are also liquid instruments. For instance, the "Car of Tomorrow" certificate offers exposure to the development of autonomous and electric cars. The risk portfolio comprises 20 to 50 companies including semiconductors, battery suppliers, advanced AI firms and automotive suppliers. W