Seeking out region’s stars

PWM’s second annual Global Private Banking Awards have seen a strong focus among wealth managers in most regions on operational strength, asset allocation and how these topics are communicated by client advisers to their wealthy customers.

Enough time has now passed since the onset of the financial crisis for banks to make some sort of decision on how their business model will work in the future.

Our researchers contacted 350 institutions across Asia, Europe, the Middle East and North and South America in the four-month period prior to the judging of the awards. The judges first examined quantitative data from the entrants, including three years of figures detailing capital adequacy requirements, assets under management, asset flow patterns, net profits, cost-income ratios, adviser-to-client ratios and performance figures for managed portfolios.

Following this, submissions on business and growth strategies, portfolio management, innovation, communication with clients, socially responsible investments, technology, use of third-party products and remuneration and fee structures were all observed and compared. The banks’ relative approaches to operations and the level of seriousness with which they tackled due diligence and counterparty risk measures were also crucial.

After the shortlists had been drawn up, the panel debated and voted on the winners. Quantitative data was verified and augmented by wealth management think-tank Scorpio Partnership, which also deployed a proprietary formula to compute – using a series of Key Performance Indicators – which bank had employed the Best Leadership team. The winner was Credit Suisse.

The concept of regional expansion, of being close to clients in their financial and cultural needs, drew particularly keen responses from the judges. “Providers who have local presences, especially in growing markets like Asia, the Middle East and other emerging regions, will increasingly feature as improving their rankings in these awards,” says Ray Soudah, chairman of MilleniumAssociates.

A series of strong entries arrived from developing market-based banks operating in China, Taiwan, Latin America, Turkey and Central and Eastern Europe. Among the legion of home-grown banks in growth economies rising through the rankings were Itaú, China Merchants Bank, DBS and HDFC, who took the respective honours in the hotly contested territories of Latin America, China, Singapore and India. HSBC retained supremacy in the Middle East and Hong Kong, while still contending globally, in Asia and in Turkey.

“Banks in Asia have benefited from economic growth that has led the world and lessons learned from the region’s own financial crisis more than a decade ago,” says Simeon Fowler, CEO, Fox Partnership in Singapore.

The judges noticed a slight falling back and complacency from several institutions active in the back gardens of Europe’s private banking heartlands. Also pleasing was the much larger range of institutions chosen by the judges, which reflects higher standards across the board and the willingness of many banks to create a regional niche for themselves, rather than trying to be all things to all people and having their efforts bulldozed away by the global juggernauts. It has become more difficult for smaller names, without global or deep regional presence, to fight their way through the system. Even the intense nature of the application process, with most banks taking several weeks to complete the questionnaire, immediately sidelines those institutions without the capability or desire to generate the type of market data and qualitative observations their clients, collaborators and counterparties would require.

Winner: Citi

• Best global private bank

Citi Private Bank’s change of business model, with a new concentration on clients in the $25m plus assets bracket has enabled it to reduce its key adviser to client ratio to an industry-beating 30:1. Having disposed of asset management and brokerage businesses, the bank is keen on integrating private banking with investment banking and offering FX, loan and other institutional style services to cross-border ultra high net worth individuals. Family offices increasingly get special treatment in their own division.

Now one of the few global banks working totally on an open architecture basis, Citi is currently trying to promote its HedgeForum services, through which it offers externally managed hedge funds in highlighted areas such as distressed US real estate with a keenly negotiated, simplified fee schedule. “I am excited about this chance to put new markets down on the table and drive it from the client’s interest, changing the way the private banking world works,” says Jane Fraser, appointed CEO of Citi Private Bank in 2009.

She has been hiring aggressively across all divisions. This includes operations, where due diligence teams have been significantly boosted across Asia, the US, Latin America and Europe. She is adamant that these research teams, while supporting private bankers, will be kept totally separate from sales people. “If you are going to give clients access to the best opportunities, you need to make sure you have the best due diligence teams out there,” says Ms Fraser. YB

Winner: HSBC

• Best private bank in Hong Kong

• Best private bank in the Middle East

HSBC says Hong Kong and the Middle East are “important contributors” to the $7bn of net new money reported by the Private Bank in the first half of 2010, with intragroup referrals playing a key part in the growth.

One new development has been the Family Office Partnership between the bank’s Private Banking, Global Banking and Global Markets divisions. “Asia and the Middle East, where the private sector plays the driving role in business, are at the heart of this recently formed partnership,” claims Chris Meares, chief executive for Group Private Banking at HSBC. He has presided over a difficult period for the bank. Earlier this year, the head of his Swiss business “unreservedly” apologised to 24,000 clients, whose personal details had been stolen by a former employee. Luckily for Mr Meares, the Hong Kong business has started to deliver assets after significant investments.

The group has laid down expansion in Russia, Asia, Latin America and the Middle East as key private banking priorities and continues to build its hedge fund, private equity and real estate alternatives business, currently managing $30bn. YB

Winner: Standard Chartered

• Best private bank in Asia

Since the opening of its global hub in Singapore in May 2007, Standard Chartered Private Bank has experienced a rapid organic growth, which was strengthened by the acquisition in 2008 of American Express Bank. With 31 offices across Asia, Africa, and the Middle East, its key markets, as well as the Americas and Europe, the private bank employs 1300 people, including 400 relationship managers. Two thirds of its total $43bn in client assets are sourced from Asia.

“Over the past few years, we have outperformed the market growth considerably and we continue to do that. We are proving our strengths in a very short amount of time,” says Shayne Nelson, the new Singapore-based CEO & global head at Standard Chartered, previously CEO of Middle East and North Africa. “One of the secrets to our success is around our heritage and deep trust from our local communities.”

In Asia, Africa and the Middle East, the private bank can leverage its deep roots and the 150 plus year heritage of international banking experience. Formed in 1969 through a merger of two banks – The Standard Bank of British South Africa and the Chartered Bank of India, Australia and China – Standard Chartered’s international network now spans over 70 countries and it has a strong long-standing local presence in the emerging markets.

In 2009, the Private Bank’s AUM increased by 26 per cent in Asia and 12 per cent globally, and its client base grew by 25 per cent. Similar growth rates were recorded during the first six months of 2010. “Standard Chartered did attract money from other institutions through that difficult phase of the world economy, thanks to its brand presence and longevity and the bank’s capital strength, but as important was its capacity to leverage our existing client base,” says Mr Nelson.

A strong believer in the value of niche segmentation, Standard Chartered has built dedicated services for segments including global Indians, global Australian executives and global Korean expatriates. Having formed an alliance with Entrepreneurs Organisation, it is now preparing to launch the entrepreneurs segment too. “The markets we are operating in are generating a massive amount of entrepreneurs and new wealth for Asia, and through our network, we have the capacity to tap that,” says Mr Nelson. ET

Winner: China Merchants Bank

• Best private bank in China

Since opening its first private banking branch in Shenzhen in 2007, China Merchants Bank (CMB) has enjoyed an annual growth rate of 35 per cent, to reach 12,000 clients and Rmb250bn ($38bn) in total managed assets. The bank now operates from 20 private banking centres in 16 Chinese cities. “The rapid growth of China’s economy and the accelerated accumulation of wealth is a key driver for the development of private banking in China and a big opportunity for CMB,” says Jian Jun Liu, general manager, retail banking at the firm.

‘We can purchase products from the best domestic and foreign asset managers, but I believe what is key is asset allocation, not the different product lines’

Jian Jun Liu,China Merchants Bank

But the private banking industry can develop successfully only by drawing on the private banking experience of more advanced foreign countries and combining it with a deep understanding of the Chinese culture, while adapting to the domestic regulatory requirements, warns Mr Liu. “CMB strives to achieve the combination of local blood with a global perspective.” The most significant characteristic of the CMB private banking service is its ability to thoroughly understand the real needs of its wealthy customers, providing them with personalised service, while respecting their privacy, he explains.

Although the main sources of the private bank’s revenue derive mainly from the margin income from deposits and loans, as well as the sales proceeds from financial products, the bank boasts a broad product platform, mainly focused on low-risk investment products, as well as medium/high risk equity products. It also includes a small offering of alternative investments, such as private equity, real estate investment funds, as well as the more exotic art and wine investments.

“We can also purchase products from the best domestic and foreign asset managers, but I believe what is key is asset allocation, not the different product lines. The real differentiator of the private bank is its unique investment advisory service,” says Mr Liu. ET

Winner: DBS

• Best private bank in Singapore

What sets DBS apart from its peers is a strong focus on its Asian connectivity, Asian insights and Asian relationships, according to Su Shan Tan, who joined the firm as group head of wealth management in July last year. “Our roots are deeply entrenched in Singapore, as we continue to seek growth in the region. The wealth creation story in Asia is strong and we want to be a major player in this space.”

DBS’ 28 per cent ownership stake by Temasek Holdings, Singapore Sovereign Wealth Fund, the bank’s strong balance sheet and pedigree have proven to be key in providing clients with piece of mind and security, says Ms Tan. The bank reported S$1.5bn ($1.2bn) in net new money during 2009, as individuals moved their wealth from troubled foreign banks back to safety.

“We are a solution-driven private bank with excellent Asian connectivity and clients come to us for cutting edge Asian solutions,” she says. For example, DBS was the first private bank to launch an RMB fund, the China Rail Network Opportunities Fund, exclusively for its clients earlier this year, she explains.

With regional booking centres in Hong Kong, Singapore and China, DBS is a global bank with an extensive corporate and commercial banking franchise in the region, which prides itself on offering holistic solutions to the wealth management needs of its Asian-based customers. The bank has also established a foothold in the Asian global capital markets business: private banking clients are introduced to equity, or debt capital market opportunities, as well as private equity, M&A and structured finance solutions. ET

Winner: HDFC Bank

• Best private bank in India

Despite the recent financial crisis, HDFC Bank’s private banking business grew three-fold in the past three years. Nitin Rao, executive vice president, Private Banking and Third Party products at HDFC Bank, the second largest private sector bank in India, says that this growth reflects the bank’s consistent focus on providing good advice to their customers. “Following the strategy of giving good advice from even before the financial crisis, resulted in more customers coming to us at a time when markets had collapsed and customer confidence was low,” he explains.

In the coming months, Mr Rao says the bank will be focusing on improving transparency and is continuing with its traditional conservative approach. “We refrain from high risk asset categories and funds which tend to offer abnormally high returns. We build long term portfolios rather than encourage short-term churn.”

The bank’s proposition revolves around integrating values of the HDFC Group and asset allocation, with a focus on equities and product innovation across banking and investments. Unlike most Indian private banks which focus primarily on the top few cities, a unique aspect of HDFC Bank’s strategy is to tap the wealth beyond these Tier-1 cities. It has adopted a hub and spoke model where the offices in the larger cities are used to target the nearby smaller centres.

While HDFC Bank’s private banking team is fairly stable with senior advisers being around for more than five years and an attrition rate of less than 10 percent, the bank faces the same problem that dogs the rest of the industry – talent.

Since the wealth management and private banking industry is still relatively young in India, there is a marked shortage of experienced relationship managers. One of the biggest challenges in the coming months, says Mr Rao, is to ensure advice is consistently delivered to customers. He says the challenge is to train relationship managers with a long term vision to understand the cyclical nature of the economy and give suitable advice that benefits clients in the long run. RM

Su Shan Tan DBS

‘The wealth creation story in Asia is strong and we want to be a major player in this space’

Su Shan Tan, DBS

Winner: Chinatrust Commercial Bank

• Best private bank in Taiwan

Since entering the wealth management space in 2001, Chinatrust Commercial Bank (CTCB), a subsidiary of heavyweight Chinatrust Financial Holding in Taiwan, has gained a dominant position both in terms of wealthy individuals – the bank serves 130,000 “VIP” clients, defined as those holding more than NT$3m ($100,000) with the bank – and sales volume of wealth management products. These include mutual funds, collective investment accounts, foreign structured notes, personal trusts and bancassurance.

“What differentiates Chinatrust from the competition is our advisory system, team and also our product platform,” emphasises Peter Wei, senior vice president, general retail banking group at the bank.

In late 2009, having learned the lessons from the financial crisis and the Lehman tsunami, the bank upgraded its client risk prediction platform and advisory system. Client segmentation is at the heart of the advisory process, says Mr Wei, as it enables the bank to identify customers’ needs and provide the most appropriate investment solutions. The bank offers four different model portfolios, depending on the client risk profile, as well as more customised solutions.

Based on factors such as client sophistication, source of wealth and assets held with the bank, the sales planning team matches each client with the appropriate adviser. Customers who hold most of their assets in deposits, for example, are not assigned a sophisticated adviser. The bank has developed a detailed scoring system to classify customers according to their potential and offers trial packages, including professional financial planning, market information and free branch transaction service, to new clients.

“At Chinatrust, we continuously improve our service model to fulfil our customers’ needs. We are further improving our risk management, compliance and advisory systems, and we have a strong commitment to our private banking business,” says Mr Wei. ET

Winner: Julius Baer

• Best private bankking strategy for growth

• Best private bank in Switzerland

Naming Asia as its second home market after Switzerland has finally marked the transition of Julius Baer from cosy Swiss boutique, with limited growth capacity of ten years ago, to the globally ambitious player we see today.

Although the key stage in the transition was the acquisition of three former SBC-owned private banks in 2005, in terms of size, firepower and culture, the vibrant leadership and ambitious growth strategy laid down by chief executive Boris Collardi, following the tragic death of his boss and mentor Alex Widmer in 2008, has also been significant.

At 36 years of age, he is sometimes seen as too young and radical to be fully convincing to private clients. But he is never afraid to delegate to expert minds around him and has installed key product design and investment brains in Asia.

Having worked in Asia for Credit Suisse, Mr Collardi is ideally placed to lead the expansion strategy, with contacts in the major regulatory authorities, as well as a feel for client needs. That’s why Asian expansion, currently centred on Singapore with 300 employees, but likely to focus on Hong Kong, with 100 bankers, in the near future, is perceived by management as a “low-risk strategy.” The aim is to build private banking hubs in Singapore, servicing cross-border Asian clients, and Hong Kong, serving Chinese customers.

Acquiring Banco de Lugano in 2005 gave the bank a licence in Singapore, as well as significant potential in Italy and Switzerland, with Julius Baer having now expanded across 15 Swiss locations. The recent buy-out of ING’s Swiss-based private bank has helped Baer boost its Geneva operation to 400 people in a bid to compete there with the likes of Pictet and Lombard Odier. YB

Winner: Garanti Masters

• Best private bank in Turkey

In the nascent private banking industry in Turkey, Garanti Masters Private Banking emerges from the competition for its thorough client risk-profiling process, financial planning advice and strategic model portfolio offering.

“Our wealth management approach is in the tradition of our Western European peers, there is no other private bank in Turkey with such a model,” says Demet Apak Sermet, senior vice president at Garanti Masters Private Banking.

Wealthy individuals, who must hold at least $500,000 with the bank to be considered private banking clients, are catered for in separate dedicated offices, as opposed to many competitors, who just place “private bankers’” corners in their retail branches and try and attract wealthier customers with better deposit rates. “Confidentiality is very important, you don’t see our branch name anywhere in Istanbul,” says Ms Sermet.

The majority of assets are still held in deposits, but Garanti is at the forefront of product innovation and design of customised investment solutions for high net worth clients. Although third-party products have a very low penetration in the country and are not yet part of the bank’s advisory offering, Garanti has expanded its product range to meet client demand for capital guaranteed solutions.

Since its opening in 2004, Garanti’s private banking division has seen assets under management grow to $4.5bn. “Our main focus is to increase the share of wallet of existing clients and attract new clients,” says Ms Sermet. ET

‘Our wealth management approach is in the tradition of our Western European peers, there is no other private bank in Turkey with such a model’

Demet Apak Sermet, Garanti Masters Private Banking

Winner: Bank Sarasin

• Best private bank for socially responsible investing

Switzerland’s Bank Sarasin, which has implemented sustainability though all private client asset management mandates, with a minimum of 75 per cent of screened assets even in more traditional portfolios, is also looking over its shoulder at the local competition, which is desperately trying to re-invent itself and jump on the socially responsible bandwagon. “There is still a big difference between us and them,” insists Andreas Knoerzer, head of Sustainability at the Basel-based bank. “Sustainability is fully integrated within our Sarasin offering and not just a sideshow.”

The bank can use its screen to help clients invest in emerging markets, US equities, real estate equity and alternative solutions. The previous year has seen a significant increase of coverage of companies in developing economies, through deepening relationships with local data providers in the sustainability sector. “We don’t greenwash companies,” insists Mr Knoerzer. “We still say on average emerging market companies are behind their counterparts in the developed markets, but they improve very quickly.” YB

Winner: Credit Suisse

• Best leadership team in private banking

The achievement of Credit Suisse Private Banking under CEO Walter Berchtold in terms of holding up inflows – with SFr41bn ($42bn) of net new business in 2009, compared with SFr44bn in 2008 and SFr53bn at the pre-crisis 2007 peak – has been partly the result of a two-pronged intervention by the management team and partly due to rivals’ weakness.

Portfolio management for clients has been revamped, with a much stronger role now played by the group’s asset management division. The group’s global chief investment officer Stefan Keitel and his deputy Patrick Bucher have taken responsibility for investment strategy.

Bankers, once allowed to travel well off-piste with clients into their own product and investment strategies, are now reigned in by a group-wide allocation policy. “We are quite strict in trying to get people to follow this approach,” says Mr Bucher. “Asset allocation is now at the centre of everything, in terms of both discretionary and advisory mandates.”

The asset breakdown benchmark for private clients has been redesigned, with more of a concentration on real rather than nominal assets, based on the bank’s strategists’ worries about medium to long-term inflation. Allocations to bonds have been reduced, although emerging market debt is strongly favoured, with commodities and gold increased.

The second key ingredient has been the increased activity of Solution Partners, a highly motivated Private Banking team, acting as an interface with Investment Banking and Asset Management, and one of the best examples of the One Bank strategy, first mooted in 2005, now a reality rather than a dream. This 90-strong global unit of predominantly former investment bankers has been tasked with finding the best solutions from the entire Credit Suisse spectrum for private client relationship managers. YB

Winner: Blackrock

• Best fund management group

Winning the award for best fund manager for a second year, BlackRock’s size has been swelled even further by the purchase of Barclays Global Investors in December 2009. The group now has $3,300bn in assets under management and maintains offices in 24 countries around the world.

“The acquisition of BGI has doubled our capabilities,” says James Charrington, the firm’s head of International Retail Business. “They were more of a passive manager, we were more active, and the integration of this and what it means for our fund range is still a work in progress. But it is not about turning us into a bigger firm, that’s not the motivation. It is about trying to be better for our clients.”

Although the acquisition of BGI gave BlackRock control over iShares, the leading ETF provider, this has not changed the group’s approach to these passive vehicles, according to Mr Charrington. “We used ETFs for a number of years before acquiring iShares, and we continue to use them now. But I wouldn’t say our use of them has increased because of iShares. We use them when we do because they are the right tool for that investment.”

One recent area of expansion for BlackRock has been in European equity, where they brought in a new team, led by Nigel Bolton, just over two years ago. “At that point we had less than a 1 per cent market share and we now have about a 12 per cent share,” says Mr Charrington. “Although the European equity space has been in net outflow, over most of that time we have had very strong inflows.” ES

Winner: Franklin Templeton

• Best emerging market fund management group

Franklin Templeton Investments is one of the largest dedicated independent asset management companies in the world. As one of the first groups to develop a dedicated emerging markets (EM) team, Templeton was something of a pioneer in EM investing back in the early 1990s, banging the drum for developing economies long before it became fashionable. The house style has remained true to its roots in value-oriented bargain hunting, with managers attempting to buy at the point of maximum pessimism and sell at maximum optimism, looking for stocks that are on the greatest discount to their five-year value potential.

Templeton’s emerging market funds range from the grandfather of EM equity funds, the vast $3bn Templeton Emerging Markets investment trust, and the Templeton EM Bond fund, both launched 20-plus years ago, to the Templeton Frontier Markets and Asian Smaller Companies funds which were launched in October 2008.

Franklin Templeton Investments has grown organically and by strategic acquisition and now offers investors access to a number of distinct, yet complementary investment groups, including Franklin, Templeton and Mutual Series. These groups invest independently, adhering to their own disciplined investment philosophy and process, but each has original company research at its foundation.

The Templeton name is synonymous with Mark Mobius, who has been managing its money for over 40 years and predicted the bull-market rally in emerging markets in March 2009. He believes the global economic recovery is still in place and remains convinced the Bric markets of Brazil, Russia, India and China, will continue to drive the recovery. However, he currently expects ‘frontier’ markets to outperform wider emerging markets in the next decade, with Nigerian banks and resource firms in Kazakhstan his top picks. CJ

Winner: Ishares

• Best ETF provider

A recent article in the Financial Times says it all: “For as long as exchange traded funds (ETF) have existed it seems providers have been trying to loosen iShares’ grip on the market.” Seventeen years after the launch of the first ETF, iShares still controls more than two-fifths of the global market. That strength is particularly pronounced in the fixed income space where iShares still controls 50 per cent of Europe. Fixed interest has been in huge demand in the last few years, and as investors shake off their caution, high-yield and investment grade corporate debt ETFs are doing well. iShares continues to grow its presence in this area: its new Markit iBoxx Euro High Yield ETF gathered nearly E90m in its first month since launch in September, while the firm recently launched a Hybrid Bond Index Fund in Canada.

Precious metal ETFs are very popular, with iShares Silver Trust taking $345m last September, and iShares Gold Trust attracting $178m, the largest inflows of all gold ETFs, having taken steps to cut its expense ratio. The company also plans a range of commodity ETFs, an area where its offering is sparse compared with some rivals.

“An increasing number of institutional investors are using ETFs as they look for low-cost ways to build and manage portfolios and gain exposure to a range of asset classes,” says Dee Brown, head of UK wealth sales at iShares. “Investors also like to have simple, transparent tools to act quickly in changing situations in this difficult environment.”

A report by Greenwich Associates shows 55 per cent of institutional investors plan to increase their exposure to ETFs over the next three years. In the first nine months of 2010, 129 new ETFs were launched into the market, but on the other hand sponsors have closed 37 portfolios, with some small and new players unable to break even on their funds. CJ

Winner: UBS

• Best structured product provider

UBS has long been highly regarded for the breadth of its structured product provision, and recognised early on that structured products can meet investor appetite at both ends of the risk spectrum, both for those prepared to accept higher risk for attractive potential returns, and for those who would prefer a return that is smaller, but guaranteed.

“We’ve seen a recovery in volumes, inside UBS and throughout the industry and I think demand will continue to improve for two reasons, firstly that these products can be structured according to a client’s individual risk appetite, and secondly, in a fashion that best reflects the clients’ market expectations,” says Vito Schiro, head of Derivatives Capital Markets, Investment Products & Services at UBS.

“Those features were always there even in the most difficult days, and so we positioned ourselves for the comeback. Clients are now slightly more cautious than pre-crisis and particularly like simplicity and transparency,” he adds.

One of UBS’ key competitive edges is it offers tailor-made structures for relatively small portfolios – in equity-based products for example this might be as small as SF20,000. A client adviser can use the convenient and flexible UBS Investor Platform to devise a plan on the spot, choosing the underlying asset class and the terms. The trade will be good for a few seconds on the screen and he can simply click to proceed.