Asia’s new generation of billionaires drive hard bargain with private banks

June 9, 2014 8:18 pm

Asia’s new generation of billionaires drive hard bargain with private banks

By Jeremy Grant

How do you meet a billionaire?

For the many banks and wealth managers chasing business from Asia’s ultra-wealthy, finding the answer to that question makes the difference between managing money for the region’s biggest business tycoons and merely aspiring to do so.

While the global population of billionaires – or ultra-high net worth individuals, in wealth managers’ jargon – has risen 60 per cent since 2009, say Singapore-based consultancy Wealth-X and UBS, the Swiss bank, the number in Asia has grown faster than anywhere else.

The region was home to 508 billionaires in 2013, marking a 3.6 per cent rise from the previous year, according to a survey by the two companies. China now has the world’s second-largest billionaire population after the US (although the survey adds that the combined wealth of German billionaires remains higher).

By contrast the number of Europe’s billionaires fell by the same proportion to 766. North America and the Middle East saw slight increases. The global total was 2,170, with combined net worth exceeding $6.5tn.

In spite of the disproportionately high growth numbers for Asia, tracking down this elite group of people and winning their business is arguably more difficult than it is elsewhere.

That is because billionaires in Asia tend to be a relatively new generation of entrepreneurs who have made their fortunes only in the past 20 years.

In Europe, extreme wealth tends to be in the hands of multiple generations of the same family, with wealth built up over a far longer period. Relationships are already established.

Asia’s billionaires are at the vanguard of a breed of family-owned companies that dominate the business landscape. According to a Credit Suisse survey, more than half the listed companies in Asia with a market capitalisation of more than $50m are family-owned, while 38 per cent of them have been listed only since 2000.

Singapore is arguably the region’s fastest-growing wealth management hub, capitalising on its role as southeast Asia’s trading entrepot.

“More and more of the wealthy are choosing Singapore as a base to do business, due to its financial hub status and ease of conducting business,” says Sandeep Sharma, co-head of private banking for southeast Asia at HSBC.

But it is a fiercely competitive business, and margins for many players can be thinner than in the west as a result, bankers say. Billionaires are also spoilt for choice when it comes to private bankers.

“These people are all quite overbanked. Everyone’s looking to do business with them,” says Munish Dhall, executive director at the global family office business for southeast Asia at UBS.

Nor, on the face of it, is banking for billionaires a business in which many banks are able to exercise much pricing power. Jay Jhaveri, Asia director at Wealth-X, says: “There is absolutely no billionaire who is paying ‘rack rate’ for a bank’s services. He will be dictating pricing to a bank.”

Yet managing the money of the ultra-wealthy – which includes a bracket of wealth below $1bn – is still of vital importance to the two biggest players in the sector, UBS and its Swiss rival Credit Suisse. “We are skewed much more to the upper end of the market,” say Mr Dhall.

One reason for this is that billionaires typically are business owners – indeed, about half in Asia have made their money in property. So there is plenty of advisory, merger and acquisition and capital markets business that can be won for other parts of the bank, if it is as large and diverse as the two Swiss institutions.

“Entrepreneurs are highly optimistic and focused about the business they run. Generally the first thing they ask a bank is to provide balance sheet [support] and partner with them early on to help finance their business growth,” says Francesco de Ferrari, head of private banking, Asia Pacific, at Credit Suisse.

Yet smaller Asia-based rivals are muscling in and could be big players eventually, bankers believe. DBS, Singapore’s largest bank by assets, in March bought the private banking business of Société Générale, partly because it had a strong ultra-high net worth presence.

One way to attract clients is to hold seminars and workshops at which billionaires and their family members can learn about philanthropic giving – an increasingly important element of the wealth management business.

“They [ultra-wealthy clients] increasingly seek targeted and measurable ways to directly address social issues, without having to go through middlemen, and they are willing to establish the necessary infrastructure to ensure this,” says Paul Patterson, deputy chairman of the ultra-high net worth division at RBC Wealth Management.

UBS runs a “young successors programme” in Singapore for the sons and daughters of the ultra-wealthy. Held at Command House, a former colonial-era British military headquarters, the two-week long event is described by the bank as a “mini-finance MBA”.

“At some point in time they are going to take over [from their parents]. Our average relationship with UBS is 46 years so it goes from generation to generation,” says Mr Dhall.

But for any other bank wanting to make connections more directly, the Wealth-X/UBS survey helpfully reveals key social events to which billionaires typically mingle every year. They include the Wimbledon tennis tournament, former US president Bill Clinton’s Clinton Global Initiative in New York and horseracing’s Melbourne Cup in Australia.