Changing market conditions and regulational developments focusing on transparency has led to Asian investors preferring to stay close to their wealth. This presents a bright opportunity for wealth managers to ramp up their onshore capabilities, says Vincent Magnenat, limited partner and Asia CEO for Swiss private bank Lombard Odier.
Aside from tightening regulations, the rapid growth in the Asia onshore markets is also driven by the new generation of wealth who wants to have a high portion of their wealth close at hand, says Magnenat in a recent interview with The Edge Singapore.
“In this region, the middle class is growing their wealth at a very fast pace, which is leading to an increased demand for wealth management and private banking services. About 80% of wealth is onshore, managed by the region’s local banks and supported by the new era of transparency in Asian wealth management.
“This is not to say that offshore is going to be irrelevant, but the equilibrium is changing and so are our strategies in response to it,” says Magnenat.
According to the Asia Wealth Management Post-Covid-19: Adapting And Thriving In An Uncertain World Report released by McKinsey & Co in June last year, the shift has been accelerated by diverse regulations, including common disclosure requirements and tax amnesty programmes.
The report said onshore assets under management (AUM) increased to 46%, from 43% of the total Asian high net worth AUM between 2016 and 2019. Clients are expected to be increasingly inclined to keep wealth close at hand while balancing their offshore diversification, as a consequence of the pandemic.
Another metric underpinning Lombard Odier’s focus on Asia is that pace at which new wealth is being created. Worldwide, the number of so-called “ultra high net worth individuals” (UHNWI) over the next five years will jump by 27%, according to property consultancy Knight Frank. For Asia, the corresponding figure is 39%.
UHNWI refers to ultra-high-net-worth individuals or people with investable assets of at least US$30 million ($40.4 million).
For some private banks, the way to capture a bigger share of the market is to beef up the number of client advisors and open more new offices. If talent is not readily available or can be groomed in time, the inevitable way of doing so is to poach from other banks.
But Lombard Odier has a different strategy: It has formed strategic alliances with local financial institutions around the region to holistically serve the wealth management needs of the clients onshore.
“Our alliances include Kasikornbank Private Banking in Thailand, Indonesia’s Mandiri Private, Mizuho Securities Singapore, Taipei Fubon Bank and UnionBank Private Banking in the Philippines. We also have a very strong relationship with JBWere in Australia,” says Magnenat.
Lombard Odier sees these strategic alliances as a “win-win” for all parties. Clients can engage in private banking services with a reputable, familiar bank in their home country, while also gaining access to Lombard Odier’s global investment management platforms and family services practice.
The alliance partners benefit as well: They can tap into Lombard Odier’s expertise in family services and wealth management. By doing so, they can possibly gain a differentiating factor in their own home markets setting them apart from other banks.
Trends in Asia
Founded in 1796, Lombard Odier has served its clients through 40 financial crises. Last year, the group generated an additional CHF12 billion ($17.5 billion) in client assets, resulting in a total client asset worth CHF316 billion at the end of the year. This is a 6% increase from the previous year. Lombard Odier Investment Managers’ AUM reached an all-time high of CHF63 billion at the end of last year, boosted by strong new money.
Lombard Odier first established its presence in Asia in 1987. Today, the Swiss banking group has three offices in the region — Hong Kong, Singapore and Tokyo. Magnenat says as Asia’s wealth continues to grow, the firm is seeing a very clear upward trajectory in the demand and appetite for both private clients and sophisticated institutional investors, in light of four major trends.
The first such trend is technology. Citing a study conducted by the firm, Magnenat says the majority of its private clients believe that more digital and less physical interactions will be the norm. Lombard Odier has improved its technology platforms, while also ensuring that it does not overlook its personal approach.
This is done by introducing its single global technology platform My LO which provides its clients fully customisable portfolio analyses and reporting. “Our clients are getting increasingly sophisticated and they would want to have secured communication with their bankers as well as access to our research. This is something that they can do via the platform,” he explains.
The second trend involves the investment side of the business, says Magnenat. The lower-for-longer interest rates environment means that investors with a traditional balanced portfolio will have to accept having a lower return or increase their risk. Otherwise, they will not be able to achieve a substantial return of 6% or more, he adds.
This leads to an increased demand for a combination of advisory and discretionary portfolio management services, which is an area with high growth potential, says Magnenat.
The third major trend is the need for family services. As families in Asia grow bigger and more complex, a proactive approach is needed to tackle the problems associated with succession and intergenerational wealth transition.
Family services span family governance, business governance, philanthropy, succession planning and wealth planning combined with investment solutions, explains Magnenat. He asserts that there is no one-size-fits all solution for family services, as different families have different objectives and needs.
“In certain markets like Singapore, Hong Kong and Japan, family businesses spanning more than five generations may be normal, but in many parts of Asia the business may still be in the first or second generation. The Covid-19 pandemic has accelerated the need for these founders to start preparing for the next generation and clearly define the family values,” he notes.
The last major trend is the focus on sustainability. The greater awareness of the need to incorporate environmental, social and corporate governance (ESG) into investments globally is becoming a prevalent theme among private clients in Asia as well. In Lombard Odier’s 2020 UHNWI survey, 89% of the participants believe that the sustainability trend is here to stay.
He adds: “Previously, there has been a perception among some people that ESG investing is a cost, but we believe in the exact opposite. We think focusing on sustainability will provide investors with superior returns in the future — one reason being the changing regulatory environment, which would gradually pressure companies to change the way they operate, among others.”
Magnenat also says that sustainability is very important to Lombard Odier, being the first B Corporations certified global wealth and asset manager. B Corporations certification is achieved by companies that meet the highest standards of social and environmental performance, accountability and transparency, measured across different stakeholders and areas.
The firm had also introduced the CLIC (Circular, Lean, Inclusive and Clean) framework, which promotes sustainable and forward-looking business practices. Through the framework, Lombard Odier aims to meet the long-term objectives of its private banking clients through strategies that are aligned with the United Nations Sustainable Development Goals.
“Many years ago, when we managed the money of our clients, we would provide them with reports including performance and risk reports. Today, we also provide them with a sustainability report, which measures the impact of their portfolios,” he continues.
“When we speak to our clients, we also try to identify causes that matter to them within the sustainable development goals — it could be climate transition, quality education or gender diversity, and then we can build a portfolio that takes this into consideration. This is something that our clients really appreciate.”