Union Bancaire Privée (UBP) is weighing up whether to apply for a bank licence in Singapore and Hong Kong, or both, as it seeks to deepen its penetration in Asia and emerging markets.
The 50-year-old Swiss firm, which describes itself as an asset management bank, has historically grown through acquisitions, with a strong focus on hedge funds. Its core business is private banking, which accounts for about 70% of its $70 billion in global assets.
It also has an asset management business, providing investment services to institutional clients, and has a range of long-only mutual funds, primarily focused on emerging markets. Plus it offers direct access to single hedge funds and manages fund-of-hedge-fund accounts.
Just last week UBP announced a joint-venture with Taiwanese insurer Chung Wei Yi, owner of TransGlobe Life Insurance. It aims to provide investment solutions through UBP Asset Management (Asia) in Hong Kong and TransGlobe Securities Investment Consulting in Taipei, at the same time offering its global client base (mostly European) access to Asian markets.
Lawrence Lo was recruited late last year to drive expansion of UBP’s asset management business in Asia and he took what he calls a pragmatic approach via this JV.
“UBP is little known in Asia and we need to build products and brand name,” he says. “We went for a strategic partner whereby we provide technical knowhow and they provide distribution.”
He notes that the Hong Kong market is saturated with large international players and says it is “a bit too late to go into China at this moment”.
But UBP was attracted by Taiwan’s open market and active offshore mutual fund segment. The JV was completed with a 50:50 arrangement and management responsibility for UBP.
“We have signed this JV to create more capacity to distribute in Taiwan and Hong Kong,” says Michel Longhini, executive managing director of private banking at UBP based in Geneva.
He adds: “On top of that we are looking at our private banking expansion strategy. Today if you want to capture where the growth is, you had better invest in Asia. On our side we were a bit late to invest in Asia. But now we have the advantage of being late. You have an opportunity to invest in a smarter way in terms of cost allocation and operational cost.”
UBP already has a capital markets securities (CMS) licence in Singapore. Asked if the firm planned to apply for booking centre status in Hong Kong or Singapore, he replies: “Most of our competitors have started with booking in Singapore and an SFC licence in Hong Kong.
“That is also our number one option, but we are considering the idea of having a banking licence in Hong Kong straight away. The question is, which booking centre do you need as a starting point as a place of recognition in the private banking world.”
In a redirection of strategy on the back of the global financial crisis, UBP moved to enlarge its range of long-only products, predominantly focused on emerging markets.
In January this year it hired a Middle East equities team from a Dubai asset manager led by portfolio manager Habib Oueijan, and in March this year finalised its Asian equities team in Hong Kong with three hires from Hamon Investment Group, headed by Nina Wu. It says it already has a strong team on Turkish equities.
“We look to have local expertise which can be combined with our strategic expertise [in Geneva] to include more access to emerging markets,” says Longhini.
He notes that UBP aims to offer a very specific niche of long-only products, which he believes offer appeal to both institutional and retail clients, even in today’s volatile climate.
“The game-plan in long-only is simple,” he says. “You have to be in the top quartile. If you are, you get press [attention], you get recommended, you get awards and you are on the shelf. That is it.”
In terms of third-party products, UBP has a team of five people based in Geneva who visit fund managers and produce a list of recommended long-only funds.
“Today there is clearly a trend in Europe to invest more in emerging markets,” he says. “Before it was more in emerging market equities, and now more and more in emerging market bonds. You can see that in the spreads, which have been narrowing quite a lot. The perception of risk is changing, and I think clients are more concerned by Greece and Italy than by Indonesia.”
But Longhini stresses that the risks of emerging markets (UBP has an emerging markets fixed income team based in Zurich) should not be underestimated.
“People have realised that there is a high risk in their home markets which they had previously considered a safe bet, so they start to reject this,” he says. “But they have gone a little bit too far into risky places. There is an underestimation of real risk of these countries because there is inflation which is being built, and that can blow at any time.”
In terms of its hedge fund coverage, UBP has a 70-strong team of managers and researchers based mostly in New York and London, with a handful in Geneva.
“On our side what we really focus on is mandates, managed accounts in hedge funds,” he says. “There is appetite among sophisticated European investors, such as family offices, for hedge funds.”
He says there is little demand for funds of funds in general, but says that the absolute return strategy is firmly back in fashion.
“To deliver absolute returns with good management of risk, there is demand for that and you can see that in the flows of new business going into most performing absolute return funds.”
Data provider Eurekahedge backs up this observation. It finds that while global hedge funds have gained a modest $20 billion through performance in the first half of 2011, the sector has attracted $116.2 billion over that time – the strongest half-year asset flow on record.