Asian private banks, wealth managers and their clients have probably never faced stronger challenges to their portfolios and their investment relationships.
New forces are shaping the future of investing, private banking and how clients will be served. Financial markets and economies are just emerging from a global pandemic and unprecedented market volatility.
Citi Private Bank draws from its long international experience and network to help clients achieve long-term growth. Asia is a high-growth economic region where wealth creation continues to accelerate. It represents a major business opportunity for both banks and clients to generate returns and manage wealth.
“Ultimately, we’re in the business of trust, where the professionals should be as trusted as the client’s family members,” explains Horace Yip, Citi Private Bank managing director and global market manager for Hong Kong. “Only long-standing private banks can accomplish this.”
When it comes to investment decisions, Asian investors are inclined to demand some sort of active role or reserve a section of a portfolio for their own trades. Beating the markets and keeping up with other successful Asian businessmen – even in volatile markets – are unavoidable short-term client imperatives. However, Citi Private Bank seeks a deeper and more profound investment relationship with its clients.
“Citi Private Bank accompanies and advises clients on their wealth-building and -management journey,” says Yip. “Wealth-management accounts start from US$5 million. We see it as a journey going up a wealth escalator. It’s also a journey that mirrors the emergence and rise of the middle class witnessed throughout Asia.”
Both individuals and institutions display their own unique advantages and disadvantages in today’s volatile markets that are heavily influenced by an uneven pandemic recovery and central-bank interventions across economies.
Citi is optimistic about the scale and growth potential of the Asia-Pacific wealth market. So far this year, it hired close to 650 wealth professionals in the region, including more than 130 relationship managers (RMs) and private bankers (PBs) to support client-led growth.
In the first quarter of 2021, Citi added more than US$5 billion in net new funds, representing one of the strongest quarters for the bank on record. The hiring is part of plans to add an extra 2,300 wealth staff, including 1,100 RMs and PBs to support clients, and grow client assets by US$150 billion by 2025.
“Hong Kong is a wealth-management and financial hub for Asia and China’s Greater Bay Area. Our research is covering more ‘A’-share companies in response to demand,” says Yip.
Daniel L Chan, managing director and head of Citi Investment Management Asia, emphasises the importance of establishing and maintaining a core section of the overall portfolio for long-term investments. Determining a client’s appropriate asset mix is an important exercise in carefully blending different investments to obtain targeted results. Risk becomes an important consideration and it possesses many dimensions for the individual.
“We work hard with clients to help them understand and educate them on the importance of a core portfolio – a long-term portfolio of key investments,” says Chan.
Some clients prefer to make their own decisions (active investing), using their bankers to access world markets and an enormous variety of asset classes. Others simply delegate the management of their investments to the bank’s asset managers (discretionary investing).
Whatever their style preferences, Chan observes, “clients have been grateful to hold on to core portfolios through pandemic volatility. It also demonstrates the benefits of a disciplined long-term investment strategy. Our wealth managers have been able to generate a 12 per cent per annum return on a 50/50 equity and fixed-income portfolio.”
One example of how the financial education journey can begin is illustrated by a Hong Kong family whose main business is manufacturing in China. The first natural and comfortable preference is to invest in China equities. Over time, the core portfolio includes global equities and fixed-income strategies.
“It’s an evolving learning process that can take six years,” says Chan. “Last March, during the worst market volatility, instead of calling to liquidate, this family asked if they should add to the core portfolio. At that point, we knew the education journey had borne fruit. Their core portfolio ended last year with a return of more than 20 per cent.”
“Today’s Asian clients display sophistication over a wide spectrum of investment techniques and asset classes,” observes Yip. “And the progression of family offices has been fast over the last five years.”
Whether or not clients use discretionary investment services, they should conduct regular reviews of their strategy and performance with their private banker and stay up to date with regular reports.
“Citi has established a wide investment platform with local, regional and global products and services. Our private bankers, along with our investment counsellors, provide highly tailored advice, as well as a regular flow of investment ideas to support client decision-making,” says Yip.
Most Asian high-net-worth (HNW) customers have more than three wealth management relationships and increasingly demand a relationship manager who understands their business and family needs. As the Asian HNW sector matures, demand is increasing for more sophisticated investment products and services. And the future of private banking services will be determined by investors’ behaviour – healthy or unhealthy, rational or irrational.
“Hong Kong clients from the 1980s and ’90s primarily relied on equities to grow wealth,” says Chan. “Today’s new clients are more focused on capturing the new investment cycle.”
He points out that one big difference is the interest in the wide scope of alternative assets. The recent multi-billion-dollar mainland technology listings on the Hong Kong Stock Exchange have sparked interest in venture-capital and private-equity early-stage investments. Citi Private Bank is prepared to address this new trend.
Chan points out, “Private-equity, alternative assets have proven to be a reliable source of non-correlating diversification that should be part of a core portfolio. We’re able to offer asset managers who are independent of Citi.”
Citi Private Bank’s global capabilities are especially valuable to entrepreneurs or cash-rich investors who seek investment opportunities in down or volatile markets. Private equity has emerged as an asset class that’s generating more interest, despite its broad management challenges.
Sustainability is also built into Citi Private Bank’s philosophy and capability. Investment funds, clients and corporations are increasingly demanding high environmental, social and governance (ESG) standards. The bank offers a wide range of sustainability funds and qualifies companies before an investment is made. Citi Private Bank integrates ESG analysis and criteria in its financial assessment to better identify opportunities and risks.
Mobile technologies from tablets to smartphones have made it easier for clients and bankers to extract all the information and data they require to make timely investment decisions. But data overkill can also overwhelm analysis and decision-making.
Yip warns that as “technology becomes more customer-driven and focused on accessibility, convenience and information-delivery, information overload has become a problem; clients generally manage it by asking only to send them what they should read and nothing more.”
Citi Private Bank is client-driven and can tailor its information platforms. Client-focused services supported by well-designed data and information platforms were forced to evolve during the Covid crisis. While the pandemic impacted everyone’s lives, it has transformed the wealth-management industry in terms of how institutions work and relate to clients’ priorities.
“Not only has it changed clients’ banking patterns, but the pandemic has also accelerated the development of big data and artificial intelligence. It has improved the digital capabilities of both clients and banks and the entire client-engagement experience. The pandemic provided a perfect opportunity to test the agility and efficiency of the front and back-office focused digital solutions that we’ve developed. And the outcome so far has been extremely positive.”
Working from home during Covid for both bankers and clients has made virtual connectivity with clients a necessary and primary communication and engagement platform.
“We’ll continue to fully utilise digital tools in client interactions,” says Yip. “They’ll become an integral feature in our business operations.”
“Nonetheless, a personal, face-to-face relationship with clients remains a cornerstone to building trust and establishing fundamental strategies, themes and holdings in a core, long-term portfolio. So we should never substitute relationships with technology.”
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