Will wealthy Asians go Swiss or stay local?

Wealthy Asian investors may be prepared to go to Swiss wealth managers, because they offer an international cachet and some kind of identification with European luxury brands, which many rich Asians currently crave. But how can these banks convert the interest in investing from trade and IPO-happy, advisory-based clients, to the drip feed fees of a discretionary mandate needed to fuel a growing private banking business in emerging economies?

Sarasin is bravely introducing its Swiss-designed sustainably-oriented discretionary portfolio to Asian clients in September. Other banks such as Lombard Odier and Julius Baer are also working hard to increase discretionary portfolio penetration, but all admit that this is an uphill struggle.

How to diversify customers’ portfolio returns has also led to much soul-searching amongst the banks, with the Swiss struggling to engage clients on alternative investments. Hedge funds, as the chief investment strategist for private banking at HSBC puts it, remain firmly “on the back foot”.

Sure, many clients in Hong Kong and Singapore are buying up commodity funds and futures instead. But these are so tied in to economies, GDP growth and equity markets that they are no longer such an “alternative” play.

The role of hedge funds in portfolios, particularly in the latter stages of an economic cycle, could play an increasing role for Asian clients. But in a liquidity-obsessed region, the very mention of the words “side pocket” can send clients running for the cover of local banks they know.

London’s burning but Singapore’s boring

China is used to foreign criticism. Lack of freedom of speech, the raw deal received by Tibetan monks and the grievances of Muslim Uighurs in Xinjiang have received much coverage in European and US media.

Now the boot is on the other foot. With Western share markets slumping and large parts of London temporarily abandoned by police to the whims of a lawless mob, the Chinese press has not been slow to retaliate.

Xinhua, the official Chinese state news agency, berated the liberal British authorities for their toleration of social networks and their apparent role in spreading information about disturbances. China suffers 100,000 public order incidents each year, yet the authorities believe these can be dealt with by suppressing mass communication.

Also, fiercely proud of China’s performance in putting on the 2008 Olympics in Beijing, Xinhua is beginning to cast doubts on London’s chances of successfully hosting the 2012 event. “After the riots, the image of London has been severely damaged, leaving the people sceptical and worried about the public security situation during the London Olympics.”

Of course there is more than a touch of Schadenfreude to this commentary. But a serious point is being made. For London’s Metropolitan Police, the successful staging of next year’s games is priority number one. Sources within the squad are concerned about further unrest, damage to infrastructure and potential terrorist threats during next year’s Olympic summer.

Many Londoners feel embarrassed about the events in their city. More than £100m ($160m) in immediate damage has already been done to the UK economy and brand Britain has taken a severe battering. Might private bankers prefer to be housed in safer, Asian locations?

Private bankers are a savvy bunch. They have little loyalty to a location or employer. They may not be put off coming to London, but will try to arbitrage the situation and demand a “hardship posting” premium.

Locations such as Singapore, in desperate need of talented wealth managers, may look potentially more attractive. But even the top bankers of the city state’s leading homegrown institutions complain that Singapore is safe but boring, the Switzerland of the Far East. Most can’t wait for their trips to London to visit the capital’s theatres and swanky shops – hopefully not during looting season – and watch Premier League football.