Domestic economic and regulatory pressures, coupled with on-going fallout from the eurozone crisis, are pushing global wealth and asset managers to explore new opportunities overseas, especially in emerging markets.
The global shift of economic power from West to East however, along with increased costs of compliance and doing business, is constraining serious offshore expansion drives from private banking hubs in Zurich and Geneva.
These factors led fast-expanding Swiss group Julius Baer to buy Bank of America Merrill Lynch’s wealth management arm. As a result, the private bank doubled its presence in Asia, with Western European client assets now making up just one third of funds, compared to 40 per cent previously.
Research from Julius Baer predicts Asia’s wealth market will more than double by 2015, as the number of high net worth individuals in the region surges towards the 3m mark. China is set to dominate in terms of numbers of potential clients, followed by India and South Korea.
Cross-border investment management mergers and acquisitions have reached more than €1.2bn in deal value since January 2011, according to consultancy Deloitte. And a further €1.2bn worth of deals are in the pipeline, expected to be soon realised.
But this journey is fraught with challenges, and numerous failures have resulted. Global wealth managers find competing with local domestic players, who know the home market well, is an arduous task. That is why entering fast-growing foreign markets through a series of joint-ventures or partnerships is becoming an increasingly viable option.
Boris Collardi, chief executive of Julius Baer, called Asia a “very important market”, referring to the Eastern Continent as the Swiss private bank’s “second home”.
The demand for client relationship managers will surge twice as fast in Asia Pacific, compared to the rest of the world by 2013, according to a PricewaterhouseCoopers survey.
“Growth in developed markets has slowed down,” says Tom Meier, head of Julius Baer’s Asian operation. “If you are not in Asia, the question is: do you want to leave these markets untapped?”
If a private bank wishes to grow seriously, emerging markets have to be included, he says. But wealth managers need to ask themselves: “How do you access these markets?”
To venture into the Chinese mainland, the bank formed a strategic partnership with the Bank of China (BOC). “This made regulatory sense, as the banking regulatory environment is different in China,” Mr Meier says.
The partnership involves client referrals and joint marketing initiatives. When Julius Baer clients require banking services, these are referred to BOC, while BOC refers clients with international private banking needs outside the Chinese mainland to Julius Baer. The banks also cooperate on product distribution, financial market research and initiatives related to investment conferences. As part of the deal, the units of Bank of China (Suisse) were also integrated into Bank Julius Baer.
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“The mainland China market is very different from Singapore and Hong Kong,” says Mr Meier. “We found that the most efficient way to tackle the onshore difficulty was through the tie-up with BOC. If you cannot service clients because you don’t have offerings, it makes sense to direct them to a partner that can offer complementary offerings,” he says.
Similarly, Geneva-based private bank Union Bancaire Privée (UBP) last year launched an asset management joint venture with Taiwan’s Chung Wei Yi, based in Hong Kong and Taiwan, in an attempt to target Asia for growth.
The Hong Kong business, UBP Asset Management (Asia), focuses on Asia ex-Japan and serves both local clients and UBP's global client base seeking access to Asian markets.
The partnership between UBP and Chung Wei Yi is established on the sharing of a common vision, which is to build a successful asset management operation in Asia, says Kai Lawrence Lo, chief executive of UBP Asset Management (Asia). “The complementary strength between UBP and Chung Wei Yi makes the foundation of the relationship,” he says.
While UBP has the technical know-how, Chung Wei Yi, through its local market knowledge, can assist in the distribution of products and services. Indeed, while Chung Wei Yi requires strong investment expertise for managing its insurance funds, which UBP is able to provide, UBP counts on Chung Wei Yi’s support to raise its profile and generate new assets through its local network.
WORKS BOTH WAYS
However, the increasing tie-ups are not just between global and domestic players. Last year, Julius Baer took over Macquarie’s Asian private wealth portfolio. Under this arrangement, it was agreed that Julius Baer would refer investment banking clients in North and Southeast Asia to Macquarie, while Macquarie would refer private banking leads to Julius Baer. This way, Julius Baer, mainly a portfolio manager, is able to utilise Macquarie’s expertise in investment banking, while Macquarie is also able to focus on its key strengths.
