Last month we had a chance to listen to the speakers of Bloomberg Asia Wealth Summit devoted to the changing nature and evolution of wealth in Asia and the opportunities it brings. Impressive line of experts and what is even more impressive is that they were very concrete with their insights, very specific and straight to the point. We’ve picked up the best of what we’ve heard.
Topic of the week: Asia Wealth trends
On The Changing
Nature of Wealth
Nuno Matos,
Chief Executive, Wealth and Personal Banking, HSBC
Asia X Japan is forecasted to generate around $22 trillion of new financial wealth from 2020 to 2025. This is just slightly below to North America region around $25 trillion. The Chinese middle-class population is today larger than the entire US population. In India, we are seeing a massive expansion of wealth pools. Hong Kong is on track to becoming the largest cross-border finance center. It will be larger than Switzerland, which is today leading that. Singapore is currently the third-largest cross-border wealth hub, but is also the fastest-growing one. I could go on and on and on, but the message is very clear, the Asian wealth story is the most compelling opportunity in global wealth today and also in consumer banking… Wealth management is becoming by the day more and more international. Our customers leave, work, study and invest abroad. They demand from us many elements that go beyond just the traditional diversification portfolio that a global wealth manager delivers. They want us to, for example, allow them to place their wealth in any part of the world. They also want us to enable them to open an investment account or a current account in other parts of the world even before they land there, or they would like us to, for example, extend credit portability, even if they don’t have a credit score in a specific country.
On The Origin of Wealth
Fong Seng Tee,
CEO, Pictet Wealth Management Asia
Wealth management business in Asia has changed a lot in the past 15-20 years and is still evolving. There are changes. In the past it was “Don’t ask me where I got my money. The less you know, the better.” The theory of Don’t Ask, Don’t Tell, is all about secretive and secrecy. I think today it has changed. We want to know exactly where your source of value is derived. We also want documents to prove your source of wealth before I can even do business with you, but I’ll keep our banking relationship between you and the bank totally private and confidential. We’re moving from secrecy to private and confidentiality. I think these are all good for the industry.
On pricing
Fong Seng Tee,
CEO, Pictet Wealth Management Asia
About pricing. In the past, every trade you do, every product you buy, you probably get one all-in price, maybe plus a commission. You don’t know what is embedded in that one price. Today, it’s about price transparency, “Tell me exactly how much you are making from me for each trade, each product, structured product or mandates that I’m doing with you.” I think it’s good for the industry when we move from embedded pricing to a total price transparency.
On Demographic Shift of Wealth
Ashmita Acharya,
Head of Retail Banking of Citibank Singapore
There is a tremendous demographic shift which is happening, Asian wealth is obviously growing very fast at 11% compared to global wealth which is growing at 5%. I think it’s coming from wealth creation in China and all over the world but really in the middle-class expansion which is taking place. We are also seeing a very clear need for the next-gen wealth transfer. That’s becoming another very important thing which will happen. The next generation looks at wealth very differently. They’re much more digitally attuned and savvy. They are looking at risk-taking in a very different manner as well. Of course, in between, there is the idea of the entrepreneurial mindset which has crept in Asia, which is leading to a much more global perspective on wealth management. We’re looking at global capital markets, non-traditional asset classes, alternatives, private assets. Therefore, that entire demographic shift is a big one for us which we’re all contending with.
On next generation involvement in decision-making
Thomas Ang,
Global Head of Family Office Services, Wealth Management Division, Credit Suisse
You just have to ask yourself one very simple question, is the next generation involved in decision-making? It’s as simple as that. In Asia, not yet. Later this month, my firm, we launch our single-family office survey. We interviewed about 120 family offices from 50 countries, 30% are from Asia, managing about a hundred billion, half of which is managing less than half a billion– it’s more than half a billion. I’ll just give you two statistics pertaining to next generation. 53% of single-family offices find it hard to involve the next generation in decision-making, and if I focus on Asia, 61% of decision-making are made by a single family member, so no presence if I tell you that that’s typically the older generation. As far as investment committee is concerned, in Europe, 50% of family officers have some sort of a investment committee. In Asia, it’s 17%, and if I’m being critical, well-run investment committee, it’ll probably give you a heck out of 50%.
On South East Asia prospects
James Cheo,
Chief Investment Officer, Southeast Asia, Global Private Banking and Wealth, HSBC
I think South East Asia is something everyone should watch out for. Clearly the economic gravity is shifting to South East Asia, but if you look at general investors, global investors are still very much underinvested in South East Asia. For people who look at South East Asia over a long time, it’s almost like watching a movie, but slow motion. It’s always moving in the right direction, but of course, the prospect is bright if you look at historical data. I’ll give you some statistics. Back in 2000, South East Asia trade with Mainland China is only about 40 billion. Today it’s 850 billion, so it’s increased 20 times and the size of South East Asia’s economy compared to back in 2000, compared to Japan, for example, Japan was eight to nine times larger than South East Asia. Right now Japan’s only 1.5 times larger and clearly in the years ahead, South East Asia is going to catch up. What’s also very important is that South East Asia has very different complimentary strengths, of course, Singapore financial center, strong manufacturing base, industrial powerhouse and you have, of course, in Thailand, for example, it has a very strong automotive industry, Malaysia electronics production and Indonesia for its natural resource. This year with the implementation of the regional comprehensive economic partnership, the world’s largest free trade agreement, it’s going tie the region together and would spur investment and trade in the years ahead. I think that’s going to be a very interesting proposition that investors have to consider South East Asia. It’s a 3 trillion economy, sits at a crossroad of 3.4 trillion of global trade every single year. That’s something that I think investors have to think seriously about in the years ahead.
On partnering
Gareth Nicholson,
Chief Investment Officer and Head of Discretionary Portfolio Management, Nomura International Wealth Management
I think in this environment where we are getting a push towards de-globalization, where we are getting different regions focusing on more growth within the region, we are getting different parts of the world growing at different speeds and you’re not getting that one unifier central bank coming up and lifting at all. This means that portfolios do need to become a bit more broad. We shouldn’t be focusing just on what everyone looks at the US equities and maybe your niche. You do need to expand out and to do that, we really recommend partnering. It’s about creating those diversified portfolios with partners, focusing on what you’re good at but not forgetting that those other parts are going to help improve this income.
Summaries
Asset management in China
Due to geopolitical risks and cautious valuations of current economical trends in China there are contradicting moods among western investors about the prospects of asset management in the country. But one company doesn’t hold its horses.
AllianzGI setting asset management venture in China
Who
The German insurer’s main asset management arm, Allianz Global Investors (AllianzGI), which has 578 billion euros ($574.5 billion) in assets under management
What
Holding discussions with Industrial Bank and China CITIC Bank on setting up a majority-owned asset management venture. The two banks’ wealth management units had 1.8 trillion yuan ($263.20 billion) and 1.4 trillion yuan worth of assets, respectively, as of end-2021. AllianzGI has hired Mckinsey & Company for feasibility studies for this project. AllianzGI in recent months began hiring operational staff in preparation for setting up the wholly owned fund management unit.
Where
In China.
When
Over the past few months.
Why
- World’s second-largest economy has a $4.3 trillion market for wealth products and China’s fund management market is worth $3.7 trillion.
- Western asset managers are no matter what still betting on the long-term growth prospects of China’s financial sector.
- After China in 2019 allowed foreign companies to set up majority-owned wealth management joint ventures with local banks’ wealth units, BlackRock, as well as units of Goldman Sachs and Barclays have found or are working to find local partners to foray into this business. AllianzGI is the latest foreign asset manager to seek a slice of China’s lucrative wealth management market.
- There are fears that whether there are enough suitable local partners for the asset managers to team up with. The competition to win over a local bank intensified this year as not many large banks are left for foreign firms to grab. AllianzGI has to hurry up.
- AllianzGI currently has 49% stake in a fund management joint venture with a unit of China Pacific Insurance. One of the sources said its plan to set up a separate wholly owned business comes after its failure to buy out the partner.
- Besides the existing fund management joint venture, Allianz’s other businesses in China include life insurance and insurance asset management which received regulatory approval in July last year.
Estate planning
Passing week brought a few big news on wealth inheritance.
Outdoor clothing brand Patagonia announced a precedent-setting decision. The brand’s founder, 83-year-old Yvon Chouinard, is donating the $3 billion company to two environmental organisations. “Earth is now our only shareholder. Instead of ‘going public,’ you could say we’re ‘going purpose,. Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth,” said Chouinard.
Wow! Move at this scale has never been made by an apparel business before. This bold move sets a precedent for moguls everywhere and sent shockwaves through the global business and ESG-investors community.
What this means is that 98 per cent of Patagonia shares will go to the Holdfast Collective, a newly formed not-for-profit that will invest in the protection of nature, biodiversity and communities. All of the shares will be non-voting, which means that the collective will have no input into how Patagonia is run. The remaining 2 per cent will go into the Patagonia Purpose Trust, which will be run by members of the Chouinard family to ensure that the brand continues to operate with the mission and values it set out almost 50 years ago. The family, which previously earned about $100 million in profits each year, will no longer receive that money. Although children will continue to be paid for their work at the company. All the profit the clothing brand makes (and that is not reinvested in Patagonia) will be distributed as a dividend; not to the CEO, board and private shareholders but instead to those working on efforts to protect the environment.
GQ states, that “Chouinard’s children also rejected the idea of inheriting the company and becoming nepo-billionaires”, but the social networks are full of memes on the possible true reaction when “Well, my Grandpa gave my inheritance to Greenpeace” and “Probably it is the least effective estate planning from a raw $ perspective in history”.
But there is more to that. The moves mean Chouinard won’t have to pay the federal capital gains taxes he would have owed had he sold the company, an option he said was under consideration. On a $3 billion sale, that bill could be more than $700 million. It also helps Chouinard avoid the US estate and gift tax, which is a 40% levy on large fortunes when they’re transferred to heirs.
So, judge for yourself whenever its a smart tax evasion scheme or a wish to extend the influence on social matters beyond the grave.
And then there are news from Australia. Billionaires Nicola and Andrew Forrest pledged to give away ‘the majority’ of their $27 billion. Nicola Forrest has been married to iron ore magnate Andrew Forrest for 30 years and reluctantly edged into the spotlight when the mining power couple pledged to give away the ‘vast majority’ of their fortune in their lifetimes. Based on the value of their shares, especially in Fortescue Metals Group, their wealth is estimated at $27.25 billion, much of it made from exporting iron ore to China.
Mrs Forrest said she and Andrew would give away their fortune because they don’t want their three children, daugthers Grace and Sophia, and son Sydney to be ‘burdened’ by a handout. “Children don’t benefit from thinking they’re going to inherit a huge amount of money,” she said earlier this year. Her husband added that there was no point in dying rich, and it was not at all difficult for them to make the decision to donate their wealth to charity before they died.
The couple’s children are already craving out successful careers in their own right in the knowledge that they won’t be inheriting a fortune. And they don’t even mind. One of them stated that he never understood the meaning of inheritance: “You don’t deserve that money, you didn’t work for it, you didn’t deserve it. I don’t see why you would think it should be yours”.
Links to consider
- Africa Wealth Report 2022
- PRIME FRANCE REPORT 2022
- Collectibles amid heightened uncertainty and inflation
- David Novak podcast. Stanley Druckenmiller
- Zoltan Pozsar & Perry Mehrling debate “Bretton Woods 3.0”
- ESG and Impact Investing in Hedge Funds Opportunities for Sustainable Investing
- How A Mysterious Tech Billionaire Created Two Fortunes—And A Global Software Sweatshop
- Goldman Sachs: The Quest for Eternal Youth
- Business service firms in the Asia-Pacific (APAC) region are increasingly relocating their headquarters to Singapore due to geopolitical tensions
Infographics
Quotes
Books that caught our attention this week
Trusts and Private Wealth Management: Developments and Directions
by Richard Nolan, Tang Hang Wu, Man Yip
There has been insufficient literature focusing on the world-changing rise of Asian wealth. Private wealth in Asia is very substantial, with 33 per cent of the global population of high-net-worth individuals based in Asia. Yet, there is a dearth of legal analysis of Asian wealth, particularly by texts written in English.
This collection aims to fill that gap, with chapters on legal issues in relation to Asian wealth transmission, investments in international real estate, familial disputes, family offices and private trust companies.
A substantive section of this book also focuses on the changing legal context with chapters exploring trusts and cryptoassets, constructive trust, trustee’s discretion and decision-making, changing regulatory environment and abuse of trust structures.
This collection of essays on trusts and wealth management presents a focus on Asian wealth and the changing legal context, and follows the related publication, Trusts and Modern Wealth Management (Cambridge University Press, 2018).
Authors
Richard Nolan is Professor of Law at the University of York and previously Reader in Corporate and Trust Law at the University of Cambridge. His work has been cited by judges in the UK, Australia, Singapore, New Zealand and Hong Kong. He has been a consultant to several governmental bodies.
Tang Hang Wu is a Professor at the Yong Pung How School of Law, Singapore Management University researching on equity, trusts and wealth management. Hang Wu has published widely and advised local and international law firms, high-net-worth individuals, US Department of Justice and banks and trust companies on trust law.
Man Yip is an Associate Professor at the Yong Pung How School of Law, Singapore Management University research on equity, trusts, remedies and private international law. She has published widely in international peer reviewed journals and her work has been cited in leading treatises and courts.
Publisher: Cambridge University Press; New edition (October 31, 2022)
Language: English
Hardcover: 400 pages
To buy: https://www.amazon.com/Trusts-Private-Wealth-Management-Developments/dp/1316518027
Wealth of Wisdom: Top Practices for Wealthy Families and Their Advisors
by Tom McCullough,
Keith Whitaker
Significant family wealth brings many opportunities and benefits. At the same time, enterprising families face considerable challenges as they attempt to navigate financial and estate planning, succession, developing rising generation talent, and more. It is important for high-net-worth families to find and employ proven methods to help protect and improve their resources and family relationships over time.
In Wealth of Wisdom: Top Practices for Wealthy Families and Their Advisors, veteran family wealth practitioners and advisors Tom McCullough and Keith Whitaker have collected practical and hands-on tools, exercises, and activities for wealthy family members and the practitioners who advise them. Contained in 62 stand-alone chapters, written by leading family wealth advisors, these concrete strategies are designed to help families thoughtfully plan for their future, invest wisely, raise the next generation of family leaders, share decision making, and effectively connect with communities through philanthropy.
In this book, you will find templates, tools, and exercises you can apply immediately in your advisory practice or in your own family to determine legacy, identify core values, understand family complexity, and explore individual histories with money. This book offers a single, definitive source of actionable solutions from over 70 leaders in the field of family wealth advising.
Wealth of Wisdom: Top Practices for Wealthy Families and Their Advisors is an indispensable guide for wealthy families and the family offices, advisors, consultants, lawyers and accountants who work with them to help them achieve their goals.
The book shows readers how to:
- Identify the factors that matter the most when it comes to retaining and growing family wealth
- Plan thoughtfully, invest wisely, and raise the next generation
- Share their decision making prudently and carefully combine family and business
- Incorporate charitable giving into an overall wealth strategy and seek sound advice
Perfect for family wealth advisors, financial planners, and private bankers, Top Practices for Wealthy Families and Their Advisors is also an indispensable resource for managers of family trusts seeking to protect and advise their clients.
Publisher: Wiley; 1st edition (September 7, 2022)
Language: English
Hardcover: 464 pages
To buy: https://www.amazon.com/Wealth-Wisdom-Practices-Families-Advisors/dp/1119827701
Photos
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