Asia’s secret millionaires

By Yuri Bender

Banks in southeast Asia are limbering up for a protracted tussle with their Swiss and US rivals for a slice of the growing regional wealth market. Leading players, including DBS, Standard Chartered and OCBC in Singapore, Malaysia’s CIMB and Maybank, and Hong Kong-headquartered HSBC are particularly well placed for the battle ahead, says management consultancy Oliver Wyman.

Indeed, many banks keen to take advantage of the rapidly expanding markets are developing wealth management services under the watchful eye of the governments in the Association of South East Asian Nations, desperate to lock the wealth within their borders. For the time being, Asian banks have their sights on the wealthy family businesses on their doorstep, rather than looking north to China, the ultimate private banking prize.

“While more than 35 per cent of Asia’s onshore wealth is in China – and this continues to grow – southeast Asia is a lot more accessible for international players,” says Toby Pittaway, head of Oliver Wyman’s Asia-Pacific financial services practice.

“Southeast Asia is definitely where the action is,” adds Jay Jhaveri, a consultant with research group Wealth-X in Singapore and a former private banker with Standard Chartered and Coutts. “But private banking needs to adapt to this region. It has to be about boosting assets through effective investment management, as opposed to ‘you keep quiet, we keep quiet and no one will ever know you’ve done these deals’.”

Indeed, attracting wealthy Asians to bring their business, family money and investment portfolios to regional banks is not straightforward. Tightening regulation across the fast-developing Asean bloc is making private banking a far more complex and expensive activity. “In the old days, as long as you were not banking blood money, you were OK. The golden age of Asian private banking, when KYC [know your customer] was a four-letter word, is behind us,” suggests Jhaveri.

Dramatic changes to Singaporean laws were enacted in mid-2013, when using a Singapore base to help evade taxes in other countries was made a criminal offence, while neighbouring Malaysia maintains capital controls. The only way forward will be for banks to have onshore branches that manage local wealth, a process likely to be hampered by the lack of portfolio management expertise across much of the region.

Bankers in Malaysia need to service a much more sophisticated top tier of investors than in nearby markets, says Anant Deboor of The Partners, a branding agency that has helped relaunch wealth management operations for several local banks. “They are picking up on hedge funds and more advanced investment products barely talked about in Hong Kong,” he says. But most private banks are failing to define their offers. “Are they a luxury brand founded in 1720 or a modern-day financial franchise offering expertise in investments? Most are neither.”

The only way to improve this image is through dialogue with clients, with real emphasis and understanding of how their wealth is created, Deboor adds.

. . .

Carolyn Leng, head of CIMB Private Banking, set up the bank’s wealth management arm 12 years ago. She says that when you dig deep into Malaysia’s regions, where much of the wealth resides, it becomes clear business people tend to gravitate towards their local banks.

“They might be sitting there with a pile of cash in Batu Pahat [the second-largest city in Malaysia’s Johor province], but they walk around in a T-shirt and old shoes,” she says. “Each trade they make is worth $1m but none of the banks notice these people, because they don’t wear suits and don’t speak English.”

One of her clients will only deal with relationship managers fluent in the southern Chinese language of Hakka and resists all approaches about listing his handset manufacturing enterprise.

“These people want to be with family and friends, leaving for home at 5pm, rather than being super-wealthy and answerable to shareholders,” says Leng. Rather than convincing this type of client to list their company, bankers need to look at their funds, diversify their portfolio and help with succession planning, she says.

Many Indonesian and Malaysian families want to take a small domestic business and expand regionally or internationally, requiring clear power transfers from one generation to the next. Credit Suisse, for instance, helps Asian patriarchs choose and prepare successors from extended family clans to eventually run the business.

“We work with the people they have identified as potential successors and help show them the scope of things they are expected to know and do, having spoken to the older generation about their expectations,” says Bernard Fung, who is responsible for Asian family business clients at Credit Suisse in Singapore.

Global investment management expertise also needs to be developed locally if banks are to take advantage of lucrative opportunities generated by wealthy, risk-taking entrepreneurs, many of them from the Chinese community, in a country rich in resources of rubber, timber, oil and fish.

BNP Paribas, the French bank whose Asean equities operation is based in Kuala Lumpur, recognises the growing importance of the country within the region. “Malaysia is now the epicentre of Asean in terms of services,” says Patrick Chang, head of BNP’s investment operation. He points to low-cost airline Air­Asia, financial services groups such as Maybank and CIMB, and Axiata, the telecoms company, as examples of companies that have all diversified across their own borders. This ties in with the mantra of the country’s sovereign wealth fund Khazana, which talks about showcasing the achievements of just 28m people to a broader regional audience of 600m.

. . .

Part of Malaysia’s draw is its ability to attract visitors from Iran, former Soviet central Asia and the Arab states, luring those with Rm500,000 ($160,000) to invest, particularly in Islamic products, an area in which Malaysian banks are starting to rival their counterparts in Dubai.

Foreign investors, particularly those from Singapore, are also expected to pump funds into the Iskandar special development zone, a lush sliver of land in Johor province. Marlborough College, the UK private school, has set up an outpost there, a Legoland has arrived and a high-speed railway is planned.

“This can become the Shenzhen of Malaysia and Singapore,” says Chang. “But infrastructure being built is not enough. Low-tech manufacturing business will need to relocate there, especially as the land is so cheap.”

Not everyone is convinced by the new developments, however. Many Malaysians harbour doubts about the social cost of a rise in the number of wealthy, not least because of the effect of rising prices. CIMB’s clients have been put off by “insane” off-plan property prices more than doubling in 2013, preferring developments in Kuala Lumpur or London, where Malaysians traditionally have bought property.

This effect has been amplified by the success achieved in the UK by AirAsia founder Tony Fernandes, who owns Queens Park Rangers football club, and Malaysian property developer Sime Darby, which is marketing its Battersea power station commercial and residential development project in London to domestic clients.

While he is a big fan of Malaysia’s emergence on the world stage, Michael Shone, managing partner and chairman of Commercial Intelligence, the private equity manager, feels the country’s economic policies and politics are preventing much faster development. “Government policies tend to lead to the continuation of wealth for families who already have money,” he says. “A small number of people are getting richer and richer, so for private banks, compared with Hong Kong, Singapore and Indonesia, there are relatively small numbers of potential clients.”

Wealthy Malaysians are increasingly wary about investing their gains in local companies, say private bankers. “They are taking money out of local markets and investing in Europe and the UK,” says Johnny Heng, head of active advisory for Asia at Coutts, the private bank.

Many regional commentators have doubts about the Malaysian political system. Sudden power cuts occurred during recent elections, with ballot boxes alleged to have been switched under cover of darkness. The country also competes for regional investment with Indonesia. “In terms of overall development, Malaysia is well ahead, but Indonesia has more momentum and seems much more stable,” says Deboor at The Partners. “The Malaysian government is the most unpopular in the region.”

While some analysts praise Malaysia’s economic transformation programme – which is designed to boost sectors such as tourism, agriculture and commodities – the one factor business people say holds back economic development are “pro-Bumi” policies. These discriminate in favour of ethnic Malays, offering preferential housing, car loans and even reserved tranches in initial public offerings, against those of Chinese and Indian origin.

“You can count the real achievers on the fingers of one hand,” says a former government adviser who prefers not to be named. “New people come in and restructure the balance sheet without building growth. There are not many entrepreneurs of the quality of Tony Fernandes about.”

Link To FT.com

Copyright The Financial Times Limited 2013

(c) 2013 The Financial Times Ltd. All rights reserved. Please do not cut and paste FT articles and redistribute by email or post to the web.

Leave a Comment