Go East, Young Buy Sides

Does a geographic shift augur new technology?

bourgaize-murray

Tim highlights this week's BST coverage with an eye towards our latest meeting of the minds in Singapore.

The life of a private bank isn't an easy one in 2015. On one hand, there is the historical expectation of absolute confidentiality — which is impossible to pull off, given governments' improved hacking skills and willingness to actively investigate their clients. This combines with an expectation from regulators in certain jurisdictions that data always remain onshore, which is also not easy to pull off.

On the other hand, it's been well-documented that the names attached to private wealth management accounts have gotten younger, and shifted eastward, and in the process, these institutions have needed to change the way they do business, in particular by providing much greater client transparency.

That paradox was pointed out this week in John Brazier's reporting from Singapore at our BST Asian Summit.

Many of Asia's young millionaires want to know what's going on with their investments at any time, on any device, and in subtle detail. And the complexity of these investments usually extends way beyond what you or I have in our brokerage account.

At the extreme, it's more akin to client reporting for a small institutional investor's CFO. Constantly pulling in that kind of information with any sort of veracity is very tricky, indeed.

Chasing new hedge fund and private equity business in APAC can fundamentally alter the way the home office operates — the periphery influences the core, in other words — because the expectations are so different, and unlike in the developed markets, there is far less cost involved in prying each and every potential client away from its current asset servicer.

Step-Change

The keynote address, given by Credit Suisse's Francois Monnet, reflected another step-change in these institutions' thinking.

At first, it would seem logical that most private banks, as they grow out their Asian operations, simply port the technology they use in Europe or the United States to the region, translate into the local languages, and start selling. It's perhaps a quick-and-dirty way of entering a new market, and not always a smooth one. But traditionally, it's worked pretty well.

Dr. Monnet, the COO for private banking, explained why that's no longer the case at Credit Suisse.

Quite simply, he said it makes little sense to have an older platform designed for one generation chase the needs of another — particularly when the younger generation actually possesses larger numbers. The move east is also a move to youth. So the Swiss bank redesigned its technology with Asia in mind, releasing it first in Singapore, not Zurich. As Monnet put it, this was a "strategic" decision; he fears his company going the way of Nokia if it doesn't keep up.

I heard the same thing while interviewing a profile subject in Geneva a couple years ago, and one fund administrator CTO I recently spoke with made a similar point.

He argued that chasing new hedge fund and private equity business in APAC can fundamentally alter the way the home office operates — the periphery influences the core, in other words — because the expectations are so different, and unlike in the developed markets, there is far less cost involved in prying each and every potential client away from its current asset servicer.

Chasing Today's Margins

Asia is not exactly a greenfield, of course, but the feeling seems to be now that technology should chase margins, even if those margins reside many thousands of miles away. Little wonder that most serious firms serving the buy side — private banks, admins, and tech providers — are setting up shop in Singapore or Hong Kong at this point, if they're not there already.

Maybe it doesn't last forever. Nothing does, obviously. Slower growth is stabilizing in China; the larger economies in Southeastern Asia are once again walking a thin, perilous line towards currency crisis. There are signs that the boom of the last ten years is transitioning into something else.

That might put a cap on the new wealth being generated, yes. But it will also create a premium for investment managers that 'get it' in the region. Ask any of them, and they'll tell you: there is more than enough money to be managed as it is.

 

 

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