alternative investments in the world’s fastest growing markets

                                           Monaco ...
25 November 2007

Monaco in the Tropics

A     s the year draws to a close, and businesses turn to closing their books ...
25 November 2007

marketing prominence rather than actual results delivered to customers, and serve to make the
private ba...
25 November 2007

dominating the market (in this case, five players with 55% of the market); a mid market group with
25 November 2007

performance. UBS does appear to have been the most successful in defining, and most importantly
25 November 2007

   alternative investments in the world’s fastest growing markets

                singapore prope...
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Monaco In The Tropics - RS - Issue III - 25Nov07


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Monaco In The Tropics - RS - Issue III - 25Nov07

  1. 1. 2007 alternative investments in the world’s fastest growing markets Monaco in the Tropics Roman Scott Managing Director Calamander Group Economic Spokesman British Chamber of Commerce Singapore Issue III 25 November 2007 Calamander Capital Economic Outlook, Q4 2007
  2. 2. 25 November 2007 Monaco in the Tropics A s the year draws to a close, and businesses turn to closing their books for the year, I thought that this quarter I would not focus on my usual big picture economic themes. This is the season of Christmas giving (hopefully matched by decent retail sales figures), stuffed turkeys, and yearend bonuses. Assuming you have a bonus to bank (CDO salesman can stop reading now), it seems appropriate to take a quick look at one interesting, fashionable, and unashamedly high end sub sector of the Asian economy-the world of private banking. I do not intend to regurgitate the usual fare of market sizing that are regularly reported, and with which I have been closely associated with in my past lives. This data is readily available from the annual world wealth reports produced by Merrill Lynch/Cap-Gemini (good) and The Boston Consulting Group (even better) - a judgment I can make having been on both teams. Suffice to say, non-Japan Asia remains the fastest growing, and one of the most profitable, wealth management markets in the world; and the number of newly-minted Asian millionaires continues to grow as quickly as Roger Federer’s serve. The wealth of the wealthy in Asia (10.6 trillion dollars end 2006 according to BCG) has almost caught up with Japan (11.9 tn), and I believe will very soon overtake it. At the beginning of the decade Japan was 6.5 tn, and Asia only 1.9 tn. In five years, the major private banks in Asia have tripled AUM from 200bn dollars to 600bn today. Singapore in particular, with the explicit support of the government, has sought to build itself as the Asian industry’s centre, complete with the lifestyle trappings of the rich: a world class concert hall and theatre, exclusive villas with berthing for yachts, a planned freshwater lake, a high end casino, and lower taxes. The best grade A office spaces are filled with the biggest names in private banking, and every young banker that isn’t in capital markets wants to become a private bank relationship manager. It’s Monaco in the tropics. Surrounded by big, powerful neighbours, the European princely state long ago discovered that offering its neighbours discreet wealth management and low taxes with the buzz of gambling and the thrills of rich men’s’ sports-yachts and racing cars- was a recipe for success, and survival. Monaco’s casino first opened in 1856, it’s fabled grand prix in 1929. A thriving arts scene and world class shopping, eating and luxury real estate provided the finishing post-war touches. By September 2007’s Formula One race in Singapore, the city state will look little different, save for the chili sauce. Behind the big numbers, what is not included in the market reports is how the individual players are doing in this region. The industry as a whole has done a sterling job in building presence and gathering assets, but some have done much better than others. Nor is there much data on what customers’ think, which is the way competitors should be judged, rather than by asset gathering or profits. In discussions with customers, one gets the feeling that growth in customer satisfaction has not kept pace with the 25% pa growth in AUM. For all the advances in the range and quality of investment product on offer, customers have a limited voice, and for the new customer looking for advice on who to choose there is little to go on. Awards, such as they exist, appear to be based on Economic Outlook Q2, 2008 Page 2
  3. 3. 25 November 2007 marketing prominence rather than actual results delivered to customers, and serve to make the private bank or banker feel good rather than a basis for customer choice. For the latter issue, I have some hope that a forum may yet emerge to entertain customer feedback. Watch this space. For the former, I have attempted over the last few years to create a ‘league table’ ranking the major players in terms of asset size in non-Japan Asia, managed out of Singapore and HK. I make no apologies for my use of English Premier League football labels for the three tiers. Other than betraying my origins, the Premier league table supports the logic of the relative competitive advantage that accrues to the teams that get to the top. You may not know anything about EPL football, or care, but you will undoubtedly have heard of Manchester United (yes, there is a reason for putting them first), Chelsea, Liverpool, or Arsenal. But Port Vale? The Tranmere Rovers? That is not to say that size matters as much in private banking as in football, given the points made about customer service above. But scale has always created competitive advantages in business, for building brand identity, the perception of safety, and in the ability to draw and afford the best players. So whilst my league is very flawed, until such time as a customer satisfaction version is available, this will have to do. And before those banks who feel hard done by in the figures squeal, please understand that these are estimates, many players will have undoubtedly grown fast since this was last updated Q1 this year. The point is that the table is conservative, plus or minus 10% accurate in total, and revisions are to the upside not the downside. Please note also that some newer entrants, such as EFG and Standard Chartered, are not in the list, although Amex Private Bank stands as a proxy for SCB since its acquisition by the latter. Clearly, the industry in Asia has matured from the early days of the ‘rising tide lifts all ships’. A more mature pattern of competitive dominance has been established, with a limited group of mega banks Economic Outlook Q2, 2008 Page 3
  4. 4. 25 November 2007 dominating the market (in this case, five players with 55% of the market); a mid market group with double the number of teams compared to the premier league, but one third of the market; and finally a fragmented division league where over fifteen smaller banks control less than 10% of customer assets. Size matters. That said, many of the smaller players are not necessarily losers in the battle for volume dominance, but are genuinely niche or ‘boutique’ banks, much as Porsche can thrive comfortably alongside Toyota. In customer’s bank relationships, as in their garages, there is a place for both. These boutiques are often privately owned, and continue to shine in the areas that count for many customers: real relationship management, a personal approach, thinking of the client’s interests not just their own P&L, and not being reliant on a global investment banking parent. Whilst an IB parent confers advantages, such private banks risk yielding to the pressure to serve as a sales channel for the endless stream of products pushed out by their IB factory. For customers, this is the biggest source of complaints. As ever, it is in the middle league that the competitive dynamics of being ‘stuck in the middle’ are most intense. The teams in this space are all divisions of very large, universal or investment banking groups (with the exception of Julius Bar), and thus have a model that may differ in targeted customer segment, but are generally as sophisticated, or claim to be, as the premier league. All are very solid teams, although some a lot solid than others. What then is their differentiation? Very little for most, it appears, on the surface. And the surface is what most new customers see. The US IB’s (Goldman, Morgan Stanley and JPM) have managed to define a market position built around bringing their institutional investment banking offerings to private individuals, and a higher net worth target segment. For the rest, I guess that if I secretly stole all their strategic plans in the middle of the night, mixed them up and returned then randomly to their CEO’s desk, he or she would not know the difference. It is not my business to advise readers on the relative merits of one team over the other if they are shopping for a bank. I will leave that to when real consumer feedback data appears. But assuming that success in asset gathering does bear some relation, at least partially, to the ability to deliver value to customers, it is worth ending with a few words on those teams that have made the most progress in moving up the league tables. Again, I will let the data do the talking, based on a similar table I prepared five years ago five years ago. Noteworthy rises in the mid-pack championship league have been Deutsche Bank and SG (both up over four times in AUM), and for US IB’s Morgan Stanley (up five times). Singapore’s own DBS has also done well, also up over four times. In the Division players, many are relatively new entrants; others started and remain relatively small. Barclays stands out as the most surprising to remain in this category, given the banks global strength in asset management and the quality of Barclays Capital, its IB. At the opposite end of the spectrum is Julius Bar, which wasn’t on my 2001 list at all, sat in the Division for no more than two years, and recently jumped into the Championship tier with a $12bn. This extraordinary growth reflects a carefully planned ‘hothouse’ strategy led by Alex Widmer, the former head of Credit Suisse in Asia, and many may argue that the young upstart has yet to prove itself. That may be true, but I have seen many over the years who have tried the same and failed, which means they must be doing something right other than just buying talent. Finally, in the premier league, the standout team is undoubtedly UBS. To triple its size when it was already big five years ago (30bn), and maintain leadership in the premier league, is a great Economic Outlook Q2, 2008 Page 4
  5. 5. 25 November 2007 performance. UBS does appear to have been the most successful in defining, and most importantly consistently executing, a clear strategic vision for the market with less of the management mishaps and internal conflicts that other teams have faced (and this is not an easy business to manage). One hopes that its customers feel the same way. Its challenge is one that troubles many hugely successful mega banks: how do you manage size to stay an advantage and not a disadvantage, as the private banking world returns to its small bank roots with the entry of the boutiques. As ever, for all these questions, we look forward to letting the customers be the ultimate judge. Global Disclaimer This research note and/or opinion paper, article, or analysis has been released by Calamander Capital (Singapore) Pte Ltd., or its parent company or affiliates, to professional investors, clients, and business members of the British Chamber of Commerce for information only, and its accuracy/completeness is not guaranteed. All opinions may change without notice. The opinions expressed, unless stated otherwise, are not investment recommendations, or an offer or solicitation to buy/sell any funds, investments or other services of the Calamander Group, Calamander Capital, or its affiliates. Calamander Capital does not accept any liability arising from the use of this communication. Copyright © 2008 Calamander Capital. All rights reserved. Intended for recipient only and not for further distribution without the consent of Calamander Capital Pte Ltd For further details, please contact marketing@calamandergroup.com. calamander capital (singapore) pte ltd (co. reg. no. 200723396M) MAS exempted fund manager 85 a/b circular road, singapore 049437 tel. +65 6723 8129 fax. +65 6491 1227 Economic Outlook Q2, 2008 Page 5
  6. 6. 25 November 2007 alternative investments in the world’s fastest growing markets singapore property fund II one of asia’s best performing value added real estate funds sri lanka private equity fund a world first: the cinderella of the indian growth story emerging asia banking fund specialist in smaller asian consumer banks meridian emerging markets art fund world’s first emerging markets contemporary art fund the wine growth fund the world’s best performing investment grade wine fund www.calamandergroup.com Economic Outlook Q2, 2008 Page 6