The Switzerlands of the East

Asia has become the rising star of the private banking industry. Singapore and Hong Kong are vying with Switzerland to become the offshore destinations of choice for the super-rich.

Together, Singapore and Hong Kong make up around 10 per cent of the estimated $7.3 trillion global offshore fund management industry and are becoming seen as increasingly important strategic hubs for wealth managers.

Private banks including HSBC, RBS Coutts and JP Morgan have relocated high level staff to the region in the last year, while others have announced aggressive hiring plans.

Chris Meares, head of HSBC Private Bank, is the most high profile private banker to make the move to Asia. He confirmed in October he is to relocate to Hong Kong after months of speculation about a potential switch. In February Douglas Wurth, JP Morgan’s head of private banking, and Nick Cringle, chief investment officer at RBS Coutts, also relocated to the city-state.

Richard Harris, head of wealth and asset management at Quam, a Hong Kong-based independent fund management business, said it was a case of banks following the money.

“I feel that if you look at Hong Kong, and you ask yourself first what the biggest and fastest growing place on earth is and then what the financial capital of that is, the answer is undoubtedly Hong Kong,” he said.

“What city is going to be the leading financial centre in the world in as little as five years’ time? The answer is Hong Kong. It may sound surprising to say it is rivalling London and New York, but you just have to look at the number of IPOs here as opposed to anywhere else.”

Hong Kong’s rise to prominence comes on the back of the success of the Chinese economy and north Asian economies. Singapore is more closely linked to the other emerging Asian superpower, India. It is also establishing itself as an important hub for commodities and resource companies, a reputation which is likely to expand if the Singapore stock exchange’s attempts to merge with Australia’s go ahead as planned. Australia Stock Exchange and Singapore Exchange agreed to a merger in late October, creating the second-largest listing venue in Asia Pacific and the second-largest cluster of companies in the resource sector, with more than 900 listings.

As well as the relocation of heads of private banking businesses out to Hong Kong and Singapore, private banks have sought to expand their adviser numbers in the region. UBS wants to hire 2,200 staff in Asia-Pacific by 2013, taking its total number of employees to 9,500. It threatens to add more fuel to the “war for talent” witnessed in Singapore and Hong Kong over the last five years. The industry remains young in the two city-states and the pool of talented and experienced relationship managers is still small.

Expanding too fast
Some in the industry have even started to question whether banks may be expanding in Asia-Pacific too quickly, creating a potential private banking bubble in the region.

“The people who do best out of this are the headhunters,” said Harris.

“Banks are trying to move in which don’t really have any natural advantages in the area. They hire people expensively in the hope they may bring some clients with them from another bank, although typically the number is low because it’s very difficult to steal clients away from a particular bank.

“There is a big talent issue in Asia in general, and that’s nobody’s fault. It’s just that you don’t have the legacy of  people who have spent 20 or 30 years learning the trade, as they often have in Switzerland, London or New York, at the feet of somebody who was in the industry for 20 or 30 years before them. It’s all very much first generation and there are issues.”

Switzerland, with 27 per cent of the global market for offshore fund management, according to Boston Consulting Group figures, has been weakened by attacks on banking secrecy and lower levels of wealth creation in Western economies. Faced with the threat of being blacklisted as a tax haven by the OECD in 2009, the Swiss government agreed to sign tax exchange agreements with at least twelve other countries.

End of secrecy
The agreements were billed as the end of banking secrecy and clients with undisclosed funds have been going through processes to become compliant over the last 12 months.

Analysis from Bloomberg suggests Switzerland is continuing to attract clients, with CHF50 billion in asset inflows since 2007. Credit Suisse, Pictet and Bank Sarasin had the biggest inflows, bringing in nearly CHF196 billion between them.

There are even signs of improvement at UBS, the country’s largest private bank, which has been hit by CHF248 billion in outflows in the last two and a half years. In its most recent set of results, the bank ended a terrible run of results with its first inflows of client assets into its wealth management businesses since the start of the financial crisis.

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