Published by WealthBriefingAsia – 5th December 2016
Private banks in Asia want to grow annuity income at a time when reliance on transactional revenues is harder to justify as cost/income ratios are high. But access to funds requires a battle for talent and new ideas on where to find the right people, so this report says.
Private banks in Asia are battling to grow annuity income by building teams able to focus on in-house and externally managed funds but there is a limited talent pool available, forcing players to go outside traditional employment sources, according to a new study by Huddleston Jones, the executive search firm that regularly comments on industry trends. (To see its commentary on the impact on Singapore of tax amnesties and other forces, see here.)
Based on Huddleston Jones’ discussions and on the funds invested in, funds generate between 50 and 150 basis points of revenue as a portion of assets under management per year, highlighting the fruits of getting fund relationships right.
As the Asian wealth management industry matures and there is more focus on areas such as discretionary asset management, access to best-of-breed funds is seen as an important differentiator for private banks in the region.
“There has been a slew of hiring within asset managers of people who focus on distribution of funds to private banks. PIMCO, Robeco, M&G and Amundi are examples of firms that have been hiring in this space,” Peter Henke, head of practice, asset management and capital markets at Huddleston Jones, said in the report. The study is entitled Annuity, Annuity, Annuity: The Rise of Funds Within Asian Private Banks.
“The competition for talent has been fierce and several firms are struggling to find suitable candidates as their staff have often been lured away by either higher salaries, or by firms which have a perceived better product suite. To fulfil this deficiency of talent, many asset managers have turned to private banks to find talent. Increasingly, fund specialists or investment consultants have been moving to asset managers in junior to mid-level distribution roles,” it said.
“There is a huge opportunity for asset managers to increase the amount of AuM in their funds which are sourced from private banks,” Henke told this news service.
One takeaway from the report is that it shows that fund firms seeking to get on banks’ radars must have local representatives who understand the market, he said.
Recent trends
In recent times, private banks in Asia, both large and small, have tried to expand AuM held inside funds and have onboarded and developed new products designed to meet client needs.
“It seems that the consensus amongst senior professionals is that annuity based within private banks in Asia represents a much lower percentage of revenue than it does in markets where large-scale private banking has a longer history, such as Europe or the US,” the report said.
The benefit of increasing AuM parked in funds is that banks make their income more stable, a particularly crucial factor to banks seeing their cost/income ratios pushed up in recent years amid tougher regulations and client demands. Spikier returns from trading activity are no longer sufficient sources of income, the report said.
The report examined a number of cases to show the contrast in the make-up of income source that banks have. It found transactional-focused AuM makes up 70-80 per cent of a portfolio at Asia-based private banks, with the remainder split between internally and externally managed funds. On the other hand, European-based private banks have more emphasis on funds: at a typical bank in the region, the AuM split is about one-third in third-party funds, a third in discretionary portfolio mandates, and the remainder in transactional revenue.
“Asian clients tend to be less focused on growth, and more on income. Given the current and seemingly perpetual low-yield environment, providing a fund or suite of funds that provide a stable income is what many private banking clients want,” the report said.
“Over the past few years asset managers have been competing to enhance existing or create new products to satisfy this demand. Global multi-asset income funds, which are designed to generate a stable income, have come to the forefront over the past few years, and asset managers have been competing for investment talent in this space. The most popular funds, however, are generally Asian or global bond funds, which seek to earn income from debt securities and have little or no equities exposure. The service people we have interviewed are very adamant that there needs to be a solid and effective client servicing presence in Asia, ideally in Singapore and Hong Kong,” the report added.
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