July 23, 2013 7:24 pm

Singapore loosens Switzerland’s grip on wealth management

A few weeks ago, a small group of Swiss bankers and diplomats gathered in the ground floor restaurant of a high-rise office tower in Singapore’s central business district.

They had come to mark an unusual event: the opening of Swiss National Bank’s first overseas branch. The central bank needed to better manage its SF50bn ($53bn) in foreign exchange holdings in Asian currencies – in the Asian timezone – and had picked Singapore over other financial centres in the region.

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Singapore was particularly pleased to be chosen, said Ravi Menon, head of the Monetary Authority of Singapore – the central bank. The two countries were “kindred spirits”.

It was “a great compliment” when Singapore was described, as it often is, as “the Switzerland of Asia”, he added – thanks to its rise as one of Asia’s biggest asset management centres.

But beneath the polite words lies an uncomfortable reality: Singapore could yet overtake Switzerland as the word’s biggest wealth management centre, marking another landmark shift in the economic balance of power between east and west.

Yesterday, the MAS revealed that the value of assets under management in the city-state had jumped by 22 per cent last year to a record S$1.63tn ($1.29tn), from S$1.34tn a year previously.

Earlier in the month, consultancy PwC predicted that Singapore could dislodge Switzerland as early as 2015. According to the Swiss Bankers Association, which draws on data from the SNB, there were SFr2.8tn ($2.99tn) of foreign assets under management in Switzerland in 2012.

The reasons for such a projection are clear. For some years, and especially since the 2008 crisis, more wealth has been created in Asia, and faster, than in any other region at any other time.

While North America and Japan continue to be home to huge amounts of private wealth, Asia is accumulating wealth faster because it is being created by a new generation of entrepreneurs in the rapidly growing economies of southeast Asia.

The Boston Consulting Group estimates that private wealth in the “old world” – North America, Europe and Japan – grew by almost 6 per cent last year to around $5.3tn.

By contrast, growth in the “new world” of Asia (excluding Japan), Latin America and the Middle East grew by more than double that rate: 12.9 per cent.

In Singapore alone, the accumulation of wealth – and the speed with which it has happened – has been staggering. There were roughly 100,000 people with investable assets of more than $1m last year, according to Royal Bank of Canada and Capgemini, a consultancy. Their aggregate wealth amounts to $489bn.

But Singapore has also made a virtue of its position in the centre of southeast Asia to attract wealth from families in Indonesia, Malaysia, Thailand and the Philippines.

As a result, the city-state has attracted almost every name in wealth management. The MAS says there are more than 500 players in asset management operating in Singapore, including Swiss-based banks such as Credit Suisse and UBS, for which Singapore is the largest centre outside their home market.

For the banks, then, the question of whether city-state overtakes Switzerland is less relevant than whether they are able to make money from the trend. The answer is that it is becoming increasingly tough to do so.

Swiss bankers shrug off Singapore’s rise

If Swiss bankers are worried about the rise of Singapore as a centre for offshore wealth, they are hiding it pretty well.

“I certainly don’t see it as a threat” says Patrick Odier, chairman of the Swiss Bankers Association, and a managing partner at Lombard Odier, the Geneva-based private bank.

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Singapore is a crowded market, with banks chasing a community of largely Asian clients who are less interested in wealth preservation – as is the case in Europe – than in achieving yield.

That puts bankers under constant pressure to come up with capital market transactions that can appeal to such clientele, such as structured products, participation in IPOs and secondary market issues, as well as complex derivative deals.

“This makes it difficult for most banks to have a major market size and really dictate the price,” says the chairman of the Singapore branch of one European private bank. “It all boils down to price, so that makes it very competitive.”

In addition, banks say that they struggle with a shortage of qualified “relationship managers” to attract and keep clients. That job is made harder by the fact that wealthy entrepreneurs in southeast Asia typically like to hand their business to more than one bank at a time. Unlike in Europe, loyalty is low.

UBS has tackled this by training its own managers at a local “wealth management campus”, housed in former British colonial-era military headquarters. But, for many players that lack the scale of UBS, they are forced to deal with significant costs.

Vincent Magnenat, chief executive of the Singapore office of Lombard Odier, one of Switzerland’s oldest private banks, says: “This increase in the cost of business in Singapore has placed the cost-income ratio of the business higher than in Switzerland.”

Western banks face additional hurdles. Their Asian rivals have been pushing aggressively into wealth management recently, making a virtue out of decades-long presence in the region.

Some, like United Overseas Bank – Singapore’s third largest by assets – have longstanding ties with the ethnic Chinese community in southeast Asia, which accounts for a disproportionate share of the region’s wealth.

Nevertheless, bankers at Lombard Odier and rival Julius Bär, which recently acquired the Asia wealth management business of Merrill Lynch, believe that they can be competitive given their history of personalised service.

“A certain asset size is a prerequisite to surviving in this business,” says Thomas Meier, chief executive of Julius Bär in Asia. “It can also not just be about managing costs, it’s about anticipating a client’s needs.”

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