Asia-Pacific topped Europe on two key wealth management parameters last year for the first-time ever: the population of high-net-worth-individuals (HNWIs) on the continent and wealth in the region. The Asia-Pacific region is now the second-biggest wealth management market in the world.
According to the World Wealth Report 2011 published by Capgemini and Merrill Lynch, rising interest rates in emerging markets coupled with declining interest rates in developed countries continue to stimulate capital inflows to Asia. Other indicators of investor confidence in the region include declining prices of over-the-counter (OTC) derivative contracts and credit default swaps (CDS). Fund flow tracker EPFR estimates that a record $80 billion and $34 billion flowed into emerging markets equity funds and bond funds respectively during the first 11 months of 2010. Despite the high inflation and economic slowdown facing Hong Kong, it has still shown a 33% growth in the HNWI population.
The rapid pace of growth of HNWIs in Asia continues to attract asset managers to the region. “Asia, the engine of world wealth creation” was emblazoned on London & Capital Asia’s media handout at the launch of its Hong Kong office yesterday. The firm was formed in 1986 and currently has more than $3.1 billion of assets under management.
London & Capital highlighted that it functions as an independent asset manager and is therefore different from traditional asset managers, which provide uncoordinated advice. “In Hong Kong, it is not unusual for a private client or family to have their wealth managed by two or three banks or wealth management firms,” said Philippe Legrand, the chief executive of London & Capital, Asia. “[In the traditional private banking model] each of these one-on-one relationships that the client has with the banks is generally specific to the assets the client has with a particular bank. It is time-consuming and might not be efficient.”
To address this problem, independent asset managers provide a consolidated overview, enabling them to offer advice efficiently, independently and with no biases. They source solutions for clients from all service providers and offer global monitoring of risk positions.
The concept is relatively new in Asia. “It is a concept that obviously has been working for many years in both the US and Europe, but in Asia there are not that many people who accept the model,” Legrand highlighted.
Asia might have surpassed Europe on some wealth parameters but the market is still relatively unsophisticated and has the potential to grow further due to the fact that money is controlled by the first generation, who are the creators of the wealth and thus have the ability to “press the button” for wealth allocation. However, as the wealth is passed down to the second or third generation, “the concept of who decides is delegated and professionalised, therefore we strongly believe discretionary fund management, as years go by, will grow,” said Legrand.
Although Asia has continued to be a driving force for the global economy, the market is still volatile and investment strategies should reflect this, said Eddie Chu, managing director of London & Capital Asia. “Rather than getting rich, we help customers stay rich."
Profit margins in the wealth management industry have steadily declined since 2006 and fell 320 basis points in 2010, due to the increased cost of compensation and operation, and the limited fee income from investors’ heavily conservative investments, reported Merrill Lynch.
The number of fund managers is expected to grow as Asia continues to drive the global economy and Asian HNWIs become increasingly aware of the need for more sophisticated asset management in the wake of the financial crisis.