The term ‘millionaire’, once a premier criterion of affluence, has lost its cachet in a world that has been subjected to an explosion of wealth, highlighted a report entitled ‘Insights: The True Value of Wealth’, published by Barclays Wealth in December 2007. Jointly developed with the Economist Intelligence Unit (EIU), the global survey tracked the perceptions of 790 well-to-do individuals on the perceptions of wealth. Thirty-five per cent of respondents believed individuals would need to hold assets of at least £ 5 million ($14.8 million) to be considered wealthy.

In the ‘11th Annual World Wealth Report 2007’, a separate report by Merrill Lynch and Capgemini, the number of ultra High Net Worth Individuals (HNWI) in the world soared by 11.3 per cent to 94,970. The number of HNWIs in the world rose by 8.3 per cent in 2006 to 9.5 million. While the ultra HNWIs are those individuals with assets of more than US$30 million ($43.3 million) excluding their primary residence and consumables, HNWIs are characterised by individuals with net assets of more than US$1 million ($1.4 million) in financial assets. An interesting point emphasised in the Barclays Wealth survey is that HNWIs do not perceive themselves to be truly wealthy when they weigh themselves against those who possess more wealth than they do. This attitude accentuates that many people are placed on a wealth treadmill as they endeavour to draw closer to their more well-off counterparts.

Yet another intriguing trend is the emergence of the self-made millionaires and billionaires. As opposed to passively inheriting wealth, the new generation of HNWIs have built their wealth through income, business ownership, and other proactive activities as highlighted by the Merrill Lynch and Capgemini report. In a similar vein, the Barclays Wealth report also pointed out an impressive surge in the number of billionaires globally who have earned their wealth through entrepreneurial endeavours.

Global wealth, in all its resplendent splendour, has also trickled down to local shores. The private banking sector in Singapore has risen to prominence in recent years. The increase in the number of HNWIs in Singapore was predominantly fuelled by an acceleration of real GDP and market capitalisation growth rates, strong corporate profits, IPO activity and ongoing foreign investment, as underscored by the Merrill Lynch and Capgemini report. According to Capgemini’s research for the ‘Asia Pacific Wealth Report 2007’, Singapore is home to 67,000 HNWI and 928 ultra HNWI. While this report has been published several months ago and many are probably conscious of this fact, not many are aware that the total value of private wealth assets in Singapore is higher than the world average. “The total value of private wealth assets in Singapore stands at US$320 billion ($431.4 billion). Singapore accounts for 1.4 per cent total financial assets in the world, which is higher than the one per cent on average that each country has,” pointed out Mr Gregory Smith, vice president of Financial Services Consulting, Capgemini Consulting.

According to UBS’s estimates, liquid assets held by wealthy individuals in the region (excluding Japan), will grow by 9.7 per cent annually until 2009, compared to less than six per cent globally over the same period. With such a substantial amount of wealth assets in Singapore in the offing, it is little wonder then that not only the globally reputed private banks like Credit Suisse, UBS, Barclays and Citigroup are playing the local field. Several other banks like ABN Amro, DBS, UOB and Bank Hapoalim have also jumped on the bandwagon, to ride on the wave of the affluent elite in Singapore. UBS is the world’s leading wealth manager.

Currently UBS manages eight private bank booking centers located in Japan, China, Taiwan, Australia, Hong Kong, Singapore, South Korea and India. “Singapore ranks second after Switzerland as the wealth management centre of choice for UBS’s international clients. It will continue to play an important role as the hub of UBS’s wealth management business in the South Asian region,” explained Ms Yeong Phick Fui, head of Wealth Management, UBS Singapore. The total staff strength for UBS Singapore is over 2,000, spanning across Wealth Management, Investment Banking and Global Asset Management. “We managed invested assets of CHF 203 billion ($254.7 billion) in Asia Pacific and CHF 2.3 trillion ($2.89 trillion) globally, as of end of the third quarter of 2007,” conveyed Ms Yeong. For the third quarter of 2007, UBS’s wealth management business posted a 30 per cent year-on-year increase in pre-tax profit to CHF 2.4 billion ($3.0 billion). In Asia Pacific from 2004 to 2006, UBS’s Wealth Management business doubled its invested assets. In April, UBS had also established the UBS Wealth Management Campus – Asia Pacific.

For Credit Suisse, the main booking centres in Asia Pacific are in Singapore and Hong Kong. It has also recently launched onshore private banking businesses in China (Shanghai) and Australia (Sydney and Melbourne). Singapore is the largest wealth management operations outside of Switzerland. At the end of 2006, the assets under management (AUM) for Credit Suisse in the Asia Pacific region, was CHF 56 billion ($70.7 billion).

“In the region, our assets have been generally growing by more than 20 per cent compound annual growth in the last three years. Assets under management in Singapore have tripled since 2001,” affirmed Dr François Monnet, managing director, head of private banking Southeast Asia and Australasia, Credit Suisse. There are 800 employees working for and supporting the Private Banking business in Singapore, representing 19 nationalities and with a command of over 20 languages and dialects. “We aim to grow faster than the market and continue to be in hiring mode and grow our talent pool,” pointed out Dr Monnet.

In 2007, it hired more than 100 new relationship managers across the region in Singapore and Hong Kong. It has also significantly expanded its team of product specialists, ranging from investment consultants, portfolio managers etc who support the relationship managers in the delivery of its advisory service to clients. DBS is one of the leading Asian private banks. “We have more than 200 staff currently. We have seen very encouraging growth in 2006/2007, above the industry's average of 30 per cent,” highlighted Mr Kwong Kin Mun is the managing director and head of Private Banking in Singapore.

A growing market for private banking

Investors are increasingly looking at nonfinancial factors such as political stability, geographic diversity and favourable regulatory environments when deciding where to place their investments, according to a research by Merrill Lynch and Capgemini. Investors look to Singapore as a growing market for private banking, given the sizeable growth in wealth in the surrounding area. “Private banking clients are attracted to Singapore due to the innovation in wealth management and private banking solutions, the relative stability of the economy and the favourable regulatory environment,” said Mr Smith. The innovation in private banking refers to alternative investments such as structured products, hedge funds and equity.

With the proliferation of private banks in Singapore, the question that surfaces in the minds of many is, whether there is room for new entrants. “Given the growth in wealth that’s occurring in Singapore and the surrounding region, I don’t feel we’ve yet reached a saturation point,” underscored Mr Smith. He cited a confluence of factors, comprising continued economic growth, high domestic savings and mature financial markets that will continue to steer Singapore as a key market for many wealth management providers. The Merrill Lynch and Capgemini report had forecasted that global HNWI financial wealth will grow to US$51.6 trillion ($74.4 trillion) by 2011, at an annual rate of six per cent. Economics aside, the financial and investment needs of the well-heeled individuals have now evolved and become increasingly complex.

Investment trends of high net worth individuals

Over the years, the world’s approximately 10 million HNWIs have undergone significant changes in their sources of income, demographics and spending goals. They are also increasingly sophisticated, globally aware and proactive with their investments. “The level of wealth creation around the world provides a tremendous opportunity for wealth management firms. Success will go to the firms that offer a service model that meets the ever-changing needs of today’s sophisticated clients,” highlighted Mr Robert J. McCann, president of Merrill Lynch’s Global Private Client Group.

With the upbeat sentiments about the thriving property sector and the rally in property prices in 2006, HNWIs have apportioned more money into real estate investments. “Real Estate and alternative investments continue to be popular with the private banking clients,” accentuated Mr Smith. Global direct real estate transaction volumes have climbed by 38 per cent from 2005 to US$682 billion ($983.3 billion) in 2006, according to the Merrill Lynch and Capgemini report. Real estate investment funds or REITs performed strongly to create an overall preferred investment channel. While alternative investments into art collections, wines, antiques, coins, jewellery, sports, luxury automobiles and yachts remained a key component of HNWI portfolios, overall allocations to those investments declined in 2006, according to the report.

In addition, private banking clients are also looking for customised and sophisticated investment solutions, stated Mr Smith. “Ultra HNWIs are increasingly looking to be served by providers who can mimic the high service levels and sophistication traditionally provided by so-called Family Offices,” he explained. The ‘Family Office’ is essentially a private bank catering solely to the needs of a particular family. It takes charge of all the family’s financial assets, investments, succession planning and lifestyle. Yet another prevalent trend is that private banking clients are also increasingly looking for assistance with philanthropy, socially responsible investments, community-focused investments, highlighted Mr Smith.

Philanthropic causes

Spurred by the altruistic philosophy of “giving back to society, what society has given to them”, the self-made HNWIs and ultra HNWIs are committed to allocating more time and financial resources to philanthropy to provide a social return on their investment. Led by the ultra-HNWI, they strive to initiate change, optimise the impact and improve the lives of others on a global level. The HNWIs are giving to a wider range of activities (e.g. education, global health and environment) than was previously the case. In 2006, the less fortunate stood to gain from the generosity and benevolence of the HNWI, who have channelled a whopping US$285 billion ($411.1 billion) into philanthropic causes. This was based on the Merrill Lynch and Capgemini report.

According to Barclays Wealth report, 37 per cent of respondents with wealth in excess of US$3 million ($4.3 million) would be leaving a minimum of US$300,000 ($432,800) to charity. All these evolving investment needs of private banking clients have spawned the demand for a more dynamic, sophisticated and diverse private banking services. It has also called for private banks and wealth management centres to adopt a new approach in servicing their clients. Wealth management firms are veering towards adopting client service approaches that are more dynamic and needs-based, stated the Merrill Lynch and Capgemini report. They are also applying advanced segmentation and analysis to the traditional assets under management model that was once embraced as the industry standard.

Economic trends in private banking

Though the private banking sector has performed well in 2006, the robust growth of the economies may not continue indefinitely. A more moderated growth outlook holds for economies going forward, as the Merrill Lynch and Capgemini report stated. This comes in the wake of the tightening of monetary policy following the fall-out of the US subprime mortgage crisis. As mature economies like the United States act as an anchor on the world economy, Asia is expected to ease back in tandem as global demand slows, as highlighted in the report. While economic observers used to say, “when US sneezes, Asia catches a cold”, the phrase pertinent to this current economic climate is “when US catches a cold, Asia sneezes”.

Indeed, the interdependency of markets will engender volatility in Asian markets as investors here take the cue from the occurrences in the US, a suggestion made by DBS Treasures Priority Banking’s newsletter dated December 2007. That said however, the tone is not altogether all that pessimistic. In a bid to restore consumer confidence the US has pumped billions of dollars into the US financial system and the Federal Reserve had initiated two interest rate cuts first on September 18 2007 and the second on October 31 2007.

This effort had somewhat mitigated the effects of the liquidity crunch. Asia looks adequately resilient to weather the storm, having learnt the unmistakably harsh lessons from the Asian Financial Crisis of 1997-1998. The appeal of Asia now lies in its economic fundamentals driven primarily by surging economies like China and India, as the newsletter pointed out. As economic growth is inextricably correlated with the number of HNWIs and the level of exuberance in the private banking sector, the sentiment of anticipation prevails. SI

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