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The Peak (Hong Kong) - - Feature -

hina’s high net worth (HNW) mar­ket has crossed the tip­ping point and en­tered into the next phase of ma­tu­rity,” says Kenny Lam, group pres­i­dent at Noah Hold­ings, a wealth man­age­ment provider in China. The HNW do­main in China has show­cased the most fas­ci­nat­ing de­vel­op­ment over the past decade, ex­plains Lam, with the mar­ket grow­ing rapidly in the past three to five years.

Noah Hold­ings, founded in 2005, is a quiet but fast-grow­ing en­try in the Chi­nese wealth man­age­ment field. Their as­sets un­der man­age­ment (AUM) stand at US$80 bil­lion, while US$16-20 bil­lion per year is be­ing added to their AUM. To­tal AUM ex­panded at a com­pound rate of 97.5 per cent in the five years to the end of 2016. Much of their early fo­cus was on the wealth of se­cond tier cities, over­looked by in­ter­na­tional wealth man­age­ment firms.

“On the de­mand side, the pop­u­la­tion of Chi­nese HNW in­di­vid­u­als is grow­ing rapidly. On the sup­ply side, Chi­nese banks and wealth man­agers are quickly adapt­ing to the chang­ing needs and up­scal­ing their of­fer­ing. The whole do­main is evolv­ing and go­ing be­yond do­mes­tic bound­aries,” says Jen­nifer Zeng, part­ner at Bain.

The 2017 China Pri­vate Wealth Report is­sued by Bain and China Mer­chant Bank high­lights that over the past decade, China’s to­tal pri­vate wealth has grown six­fold since 2006 to reach RMB165 tril­lion (HK$ 194 tril­lion) at a CAGR of 20 per cent. In the same pe­riod, the num­ber of HNWIS has grown more than eight­fold to 1.58 mil­lion in 2016. Col­lec­tively, China’s HNWIS have about RMB49 tril­lion (US$7 tril­lion) in in­vestible as­sets.

The growth num­bers are im­pres­sive, but the big­ger story is the new­found ma­tu­rity of this mar­ket. The report points out that in 2009, first gen­er­a­tion busi­ness own­ers ac­counted for 70 per cent of HNWIS, whereas to­day that fig­ure is 40 per cent. In ad­di­tion to se­cond gen­er­a­tion busi­ness own­ers join­ing the ranks, there is a new gen­er­a­tion of so-called gold col­lar pro­fes­sion­als – highly paid, top-ranking ex­ec­u­tives. Gold col­lars now ac­count for 30 per cent of China’s wealth­i­est peo­ple, up from 10 per cent in 2009.

The top ob­jec­tive of these HNW in­di­vid­u­als has shifted from wealth cre­ation to wealth preser­va­tion, wealth in­her­i­tance and ed­u­ca­tion of chil­dren. The ul­tra HNWIS whose in­vestible as­sets ex­ceed RMB100 mil­lion are seek­ing pro­fes­sional guid­ance on more tra­di­tional mat­ters such as fam­ily gov­er­nance and philanthropy.

They are also look­ing to in­vest. The emer­gence of ven­ture cap­i­tal, pri­vate eq­uity and other al­ter­na­tive investments are at­tract­ing in­vestors to put their money in hotspot in­dus­tries in the real econ­omy via pri­vate wealth man­agers. Fi­nan­cial in­sti­tu­tions now man­age 60 per cent of the in­vestible as­sets of HNW in­di­vid­u­als in China, and of that, pri­vate banks man­age close to 50 per cent of as­sets.

Lo­cal banks and in­de­pen­dent wealth man­agers have re­sponded by deep­en­ing their ex­per­tise, build­ing dif­fer­en­ti­ated mod­els, and en­hanc­ing long es­tab­lished re­la­tion­ships with clients. They are ramp­ing up their dig­i­tal ca­pa­bil­i­ties as well as set­ting up branches over­seas. This has re­sulted in main­land Chi­nese pri­vate banks widen­ing their lead in the do­mes­tic mar­ket over for­eign banks.

Noah Hold­ings has set up its own train­ing in­sti­tute for its top tier clients, Enoch Ed­u­ca­tion, the only li­cenced ed­u­ca­tional unit of a fi­nan­cial firm in main­land. “We train 1500 clients ev­ery year and hold around 120 ed­u­ca­tional events an­nu­ally,” says Lam. These clients are the core ul­tra-high

net worth clients with in­di­vid­ual trans­ac­tions of US$1.5 mil­lion. Noah also fa­cil­i­tates them to go to the top schools such as Whar­ton, Yale and Stan­ford to learn about ad­vanced con­cepts of wealth man­age­ment such as fam­ily of­fice and in­her­i­tance struc­tures.

Noah is also in­vest­ing in tech­nol­ogy and off­shore ex­pan­sion. The firm got its SFC li­cense in 2012 and set up an off­shore of­fice in Hong Kong, which al­ready brings in US$2 bil­lion of new AUM an­nu­ally. A year ago, they set up an of­fice in Sil­i­con Val­ley and now they are open­ing of­fices in Canada and Mel­bourne. “We want to ex­tend our on­shore re­la­tion­ships glob­ally,” says Lam.

Wing Lung Pri­vate Bank has its own suc­cess story, ben­e­fit­ing from be­ing the off­shore pri­vate bank of China Mer­chants Bank – 84 per cent of Wing Lung’s clients are main­land Chi­nese.

Brenda Tian, head of pri­vate bank­ing and wealth man­age­ment at Wing Lung Pri­vate Bank, thinks that over­seas ex­pan­sion is very im­por­tant to keep pace with in­vestors look­ing to glob­al­ize. The num­ber of Chi­nese HNWIS who are look­ing at op­por­tu­ni­ties over­seas has in­creased dra­mat­i­cally, she says, adding that “key des­ti­na­tions are Hong Kong, United States, Aus­tralia and Canada (in pref­er­ence or­der).”

“Wealth man­age­ment prod­ucts now take up 25 per cent of HNWIS’ in­vest­ment port­fo­lio, which is nearly dou­ble 2015.” To match her clients re­quire­ments, Tian has pri­ori­tised bet­ter wealth man­age­ment prod­ucts, and ser­vices such as over­seas ed­u­ca­tion ad­vi­sory, art in­vest­ment ad­vi­sory and over­seas prop­erty in­vest­ment ad­vi­sory. The bank has launched a real es­tate fund that in­vests in Asian lo­gis­tics, with an in­vest­ment hori­zon of eight years and an in­ter­nal rate of re­turn greater than 10 per cent.

Stricter reg­u­la­tion and com­pli­ance ad­her­ence, go­ing dig­i­tal through on­line trad­ing plat­forms, mo­bile ap­pli­ca­tion, ar­ti­fi­cial in­tel­li­gence and en­hanc­ing in­ter­na­tional con­nec­tiv­ity are the fo­cus points for her. As of Au­gust 2017, the bank’s wealth man­age­ment rev­enue was up 27 per cent year on year and AUM was up 17 per cent against year end, 2016.

ICBC Pri­vate Bank­ing in Main­land China is serv­ing over 77,000 HNWIS with cu­mu­la­tive AUM of RMB1.3 tril­lion at the end of June 2017. Deputy Head of ICBC Pri­vate Bank­ing Zheng Yuan thinks that grow­ing de­mand for cus­tomised prod­ucts and ser­vices in China has left plenty of room for de­vel­op­ment in pro­vid­ing com­pre­hen­sive, trans-sec­tor, trans-prod­uct and trans-bor­der fi­nan­cial ser­vices. He cites a 2016 report by PY Stan­dard, a fi­nan­cial data provider, that said 22 com­mer­cial banks now pro­vide pri­vate bank­ing ser­vices in China. Yuan says he is fo­cused on staff train­ing and cer­ti­fi­ca­tion in an­tic­i­pa­tion of more stan­dariza­tion in the main­land pri­vate bank­ing busi­ness.

Tap­ping into this grow­ing de­mand re­quires bet­ter ser­vice, some­thing that some early par­tic­i­pants in the wealth man­age­ment space may not have man­aged so well. Com­pa­nies like Noah are turn­ing the tide of a rel­a­tively do­mes­tic fo­cused in­dus­try. Bet­ter prod­ucts and ser­vices, and digi­tial de­vel­op­ment are all fo­cal points. But en­hanc­ing in­ter­na­tional pres­ence is a key point for ICBC’S Yuan, as well as the many other new breed of Chi­nese pri­vate bank.

In an April in­ter­view this year, on the heels of open­ing a pri­vate bank­ing of­fice in Sin­ga­pore, China Mer­chant Bank Vice Pres­i­dent Liu Jian­jun spoke of his bank’s de­sire to be­come one of the top ten pri­vate banks glob­ally. Though he noted the dif­fi­culty of fac­ing in­ter­na­tional com­peti­tors, he added that the grow­ing num­bers and wealth of China’s high net worth pop­u­la­tion, who would trust a Chi­nese bank like CMB, would be their key strength as the join the global fra­ter­nity.

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