Asia-Pacific is set to become HSBC Private Bank’s most significant geography in the next 5 to 10 years, according to Chris Meares, its CEO. He also talked to William Cain about a new sponsorship deal with business TV channel CNBC as it continues to build on the powerful brand of its parent.
In an industry built largely on trust and reputation, brand strength is a vital ingredient in building a successful wealth management franchise, and nowhere is that more evident than at HSBC Private Bank.
As well as recently launching a number of its own initiatives, including a rebrand and a sponsorship deal with business TV network CNBC, the wealth manager has benefited from the conservative qualities of its parent through the financial crisis.
It has also benefited from its strength and focus on Asia, a region Chris Meares, CEO of HSBC Private Bank, said continues to gain significance in private banking.
Meares said the business’ Asia-Pacific arm will make up more than 50 percent of its assets under management and profit in the next five to ten years, up from the current level of 30 percent. Investment in countries like China, Russia and India, which HSBC Private Bank has made over the last 18 months, would take time to make money but are likely to fuel that growth in the longer term, he said.
“Yes, I think that percentage will definitely go up, mainly because that’s where a lot of the new wealth is created,” said Meares.
“We don’t have any specific targets but I’d expect that the percentage will increase. But you have to bear in mind that parts of our European business are growing strongly, we have the Middle East [which is primarily booked in Europe], Turkey and other fast-growing countries. There’s still a lot of wealth being created in a number of the developed economies.”
Unifying the brand
Success in Asia-Pacific, and much of HSBC Private Bank’s business success during the financial crisis, is based around a brand which is barely 10 years old. Since unifying the bank’s various businesses under the HSBC logo in 1999 it has become recognised as probably the only truly global bank.
Meares said his part of the HSBC franchise has not been a huge user of media marketing in the past. It generally targeted clients through specialist events which combine presentations on wealth management and financial planning with cultural and networking events. Meares had just returned from Switzerland from such an event prior to speaking to PBI. He had been in Gstaad for the bank’s seventh family forum in conjunction with its sponsorship of the annual Yehudi Menuhin season, a classical music festival.
The marketing push has been stepped up in 2009 following its $10 million rebranding in March this year. The bank gave a marketing mandate to advertising group WPP to bring the private bank’s positioning closer to the core values of the HSBC Group.
More recently, the private bank signed a deal with business news channel CNBC to sponsor a series of 60-second features on alternative investments. There are 13 individual features which will be broadcast on the network’s flagship programme Squawk Box Europe.
The move was in keeping with the bank’s philosophy that a dollar spent in a downturn is worth two dollars when the market is advancing, according to Meares.
“It’s a new space and an interesting one for us to be involved in,” he told PBI. “CNBC said they were launching a series on alternative investments, initially focusing on areas like wine and art investment, but we thought there were lots of other interesting areas in alternatives that could also be covered.
“The series will also look at renewable energy, hedge funds, private equity and real estate among others.”
Alternatives a differentiator
Expertise in alternatives is one of the areas HSBC Private Bank feels it can differentiate itself. Its clients are among the world’s largest investors in hedge funds, for example, with around $30 billion invested in the products.
“The CNBC deal certainly supports us in that area,” said Meares. “We have a strong research function in hedge funds with experts based in New York, Hong Kong, London and Switzerland. There are not many people operating in this area, because it’s highly specialised. Knowing the different strategies and being in touch with hedge fund owners is very important and that knowledge and research expertise certainly provide us with a niche.”
On the same day as the interview this month, HSBC’s Swiss-based private bank revealed it had seen $4 billion withdrawn from its hedge fund portfolios in the first half of 2009. Meares said much of the worst of the outflows had now finished and its hedge fund business was seeing net inflows for the first time since the onset of the crisis.
Clients were still interested in hedge funds as part of wealth preservation strategies, depending on their risk appetite, he said.
Many clients like a so-called bar-bell approach, balancing large quantities of cash holdings on the one hand with an allocation to hedge funds as a strategy to outperform other asset classes.
Meares said interest in certain structured products has returned, despite the products dividing the industry during the financial crisis. Due to the collapse of some issuers of the products like Lehman Brothers and AIG, clients at many banks lost money on products they thought were capital protected.
“If you take the example of Lehman Brothers, no-one envisaged it going under. What I would say is as long as the product was part of a diversified portfolio, clients were probably OK and that has been one of the key lessons over the last 12 months – the need to be properly diversified,” said Meares
“You also have to make sure you have the conversations with clients well recorded. What can typically happen is a client would buy a product initially, and then after they were happy with the performance they’d buy multiples of them. In that scenario now you have to make sure every time you do something with the client you explain it all again.”
Meares said around half of the structured products in the bank’s client portfolios were products created in-house at HSBC Private Bank.
Ultra high net worth
HSBC Private Bank broke into the top five private banks globally, according to PBI’s half-yearly update of its global wealth management rankings.
It overtook Citi, which dropped out of the top five following the sale of its Smith Barney wealth management business. HSBC Private Bank has itself placed third in its in-house rankings as it does not include Bank of America/Merrill and Morgan Stanley’s brokerage businesses.
It is one of the lead players in the ultra high net worth space (UHNW), benefiting from its sprawling base of private, commercial and investment banking. It also operates further down the spectrum in the high net worth segment, generally considered more profitable.
“I think that this $500,000 to $10 million area is seen as a sweet spot in that you are able to agree a reasonable level of fees,” said Meares.
“But UHNW is an important part of our business. While private banking clients will tend to be charged less than retail clients on portfolio management and funds etc. in terms of margins, the volume and size of transactions at the UHNW level can offset that.
“I think the other reason though, and the reason we are active in both segments, is UHNWIs will use you for quite different aspects.
“They usually have fairly firm views on how they want their money to be managed and take a hands-on approach. They will often have created their own family or investment offices and are more directive in the way they do their investment business. With the very large ones, and here we’re talking about the $100 million plus area, you are maybe only managing a part of their total wealth.”
He added: “Because we have such a wide range of businesses across the bank, it means we can provide the other services they require, which sets us apart from the competition… we can provide banking services in many parts of the world, and the lending which a lot of wealth managers do not do.”
“Lending is important, as is trust and administration services. Most wealthy families will have a range of advisers and we quite like doing that as well, so the key with UHNW clients is to provide the services to them that you are able to be best at, because they will be using a number of different firms.
Pricing and fees
The quasi-institutional nature of UHNW clients means it can be a tough area to operate in, particularly with regard to pricing. Prices are negotiated intensively because the clients have access to first-class advisers and it is considered a difficult segment to make money.
Meares concluded: “I wish we had much more say in it but the reality and there is a floor beyond which we will not go but there is usually a pretty big discussion around price and we find out quickly whether we can agree on price or not.
“Then it can be very satisfying, as it is a very relationship-oriented business, with UHNW clients usually asking you to know their family office people and the family themselves.”