Family offices in Asia tend to rely heavily on the custody and execution services provided by private banks. To a lesser extent, they also often use them for deal and product sourcing, wealth and succession planning and certain other functions.
But as investment banks get squeezed as a result of more costs and regulation – such as Europe's Basel III and the US's Dodd-Frank Act – so private banks are less able to act as a 'one-stop shop', argued participants in a recent roundtable hosted by AsianInvestor*.
“The banks have shrunk, they are offering fewer services, so you have to shop around,” says Steve Diggle, Singapore-based founder of family office Hrothgar and its regulated platform Vulpes Investment Management. “The idea that each firm does everything is no longer true.”
Others take a similar view; wealthy Asians globally have the most private bank relationships per individual – as AsianInvestor will report in a story this coming Monday – and it seems they are now further broadening that range.
“You need to be cognisant of who can do what,” says William Chan, founder and chairman of Stamford Privée, a Singapore-based multi-family office. For example, some banks may no longer be able to offer certain types of loan, because they don’t have the credit warehousing capability. “So you’ve got to start looking around,” notes Chan.
Thirdrock Capital, another Singapore-based MFO, works with a much broader range of banks now than in the past – and mostly investment banks.
But it does use private banks, for custody of assets and for products, services and research. “It’s easier to deal with private banks for custody and operations than to set up our own middle and back office,” says Melvyn Yeo, chief investment officer. “Most of our clients’ assets are custodied with three to five private banks primarily.
“With regard to products and services, we don’t just deal with the private bank’s investment advisory desks, but also with the traders and product specialists on the IB side,” he adds. “As a result, we deal with a larger number of financial intermediaries, not just banks, to source products and services.”
Stamford Privée uses a wider range of private banks than Thirdrock, says Chan, without specifying a number. "Banks are still an excellent execution platform for trades," he notes. "But again we would go direct to traders or investment bankers rather than have the private bank trying to tell us what to do."
Michael Tan, managing director at Singapore-based CS Partners, says the MFO works with five or six private banks for the different services they specialise in.
In addition to being more constrained in terms of the services they can offer these days, some are also more squeezed in terms of headcount, which will affect their level of service.
There’s “a huge spread in the quality of service” provided by different private banks, says Ong Iu-Jin, a family office executive and founder and former CEO of Singapore-based MFO Deauville Private Office. “And it often comes down to the quality of the relationship manager base; on who you’re dealing with if the RM [relationship manager] is no longer there or is on leave.”
Vulpes’ Diggle echoes this view, adding: “And even if the RM is still there, he may not have the support he used to. With one guy we worked with, the quality of his work went downhill because three-quarters of his team had gone.”
* The full roundtable discussion appears in the latest (February) issue of AsianInvestor magazine.