Published March 12, 2008

Singapore - Monaco of the tropics

But reports don't tell how individual players are doing in region


ASIA ex-Japan remains the fastest-growing - and one of the most profitable - wealth management markets in the world. The number of newly minted Asian millionaires continues to grow as fast as Roger Federer's serve.

The wealth of the wealthy in non-Japan Asia (US$10.6 trillion at end-2006) has almost caught up with that in Japan (US$11.9 trillion). And I believe it will very soon overtake it.

At the beginning of the decade, Japan had US$6.5 trillion and the rest of Asia only US$1.9 trillion.

In five years, the major private banks in Asia have tripled assets under management from US$200 billion to US$600 billion today.

Singapore in particular, with the explicit support of the government, has sought to build itself as the Asian industry's centre, complete with the lifestyle trappings of the rich - a world-class concert hall and theatre, exclusive villas with berths for yachts, a high-end casino and lower taxes.

The island's best grade A office space is filled with the biggest names in private banking. And every young banker who isn't in capital markets wants to become a private bank relationship manager.

It's Monaco in the tropics. Surrounded by big, powerful neighbours, the European princely state long ago discovered that offering its neighbours discreet wealth management and low taxes with the buzz of gambling and the thrills of rich men's yachts and racing cars was a recipe for not just success - but survival.

Monaco's casino first opened in 1856. Its fabled grand prix began in 1929. A thriving arts scene and world-class shopping, eating and luxury real estate provided the finishing post-War touches. And by September 2008's Formula One race in Singapore, the city state will look little different, save for the chilli sauce.

Behind the big numbers, what is not included in the market reports is how individual players are doing in this region.

The industry as a whole has done a sterling job in building presence and gathering assets, though some have done much better than others.

Nor is there much data on what customers think, which is the way competitors should be judged, rather than by asset gathering or profits.

In discussions with customers, one gets the feeling that growth in customer satisfaction has not kept pace with the 25 per cent growth in assets under management.

For all the advances in the range and quality of investment products on offer, customers have a limited voice. And for new customers looking for advice on who to choose, there is little to go on.

Awards, such as they exist, appear to be based on marketing prominence rather than actual results delivered to customers, and serve to make the private bank or banker feel good rather than act as a basis for customer choice.

On the latter issue, I have some hope that a forum may yet emerge to entertain customer feedback. Watch this space. For the former, I have attempted over the past few years to create a 'league table' ranking the major players in terms of asset size in non-Japan Asia, managed out of Singapore and Hong Kong.

I make no apologies for my use of English Premier League (EPL) football labels for the three tiers. Other than betraying my origins, the Premier League table supports the logic of the relative competitive advantage that accrues to the teams that get to the top.

You may not know anything about EPL football, or care, but you will undoubtedly have heard of Manchester United (yes, there is a reason for putting them first), Chelsea, Liverpool, or Arsenal. But Port Vale? The Tranmere Rovers?

This is not to say that size matters as much in private banking as in football, given the points made about customer service above. But scale has always created competitive advantages in business - for building brand identity, the perception of safety and the ability to draw and afford the best players.

So while my league is very flawed, until such time as a customer satisfaction version is available it will have to do.

And before those banks who feel hard done by in the figures squeal, please understand that these are estimates - many players will have undoubtedly grown fast since this was last updated in summer last year.

The point is that the table is conservative - plus or minus 10 per cent accuracy in total - and revisions are to the upside not the downside.

Please note also that some newer entrants, such as EFG and Standard Chartered, are not in the list, although Amex Private Bank stands as a proxy for SCB since its acquisition by the latter.

Clearly, the industry in Asia has matured from the early days of the 'rising tide lifts all boats'.

A pattern of competitive dominance has been established. A limited group of mega banks dominate the market (in this case, five players with 55 per cent of it).

Then there's a mid-market group or league with double the number of teams compared to the Premier League, but one-third of the market. And finally there's a fragmented division league where more than 15 smaller banks control less than 10 per cent of customer assets. Size does matter. But that said, many of the smaller players are not necessarily losers in the battle for volume dominance. They are genuinely niche or 'boutique' banks, much as Porsche can thrive alongside Toyota. In bank relationships, as in their garages, there is a place for both.

These boutiques are often privately owned, and continue to shine in the areas that count for many customers - real relationship management, a personal approach, thinking of the client's interest and not just their own profit and loss, and not being reliant on a global investment banking parent. While an investment bank parent confers advantages, such private banks risk yielding to the pressure to serve as sales channels for the endless stream of products pushed out by their investment bank factory. And for customers, this is the biggest source of complaint.

As ever, it is the middle league where the competitive dynamics of being 'stuck in the middle' are most intense. The teams in this space are all divisions of very large, universal or investment banking groups (except Julius Baer), and while their models may differ in terms of target customers, they are generally as sophisticated, or claim to be, as those in the Premier League. All are very solid teams, though some are a lot more solid than others.

What then is their differentiation? Very little for the most part, it appears, on the surface. And the surface is what most new customers see. US investment banks Goldman Sachs, Morgan Stanley and JPMorgan have managed to define a market position built around bringing their institutional investment banking offerings to private individuals, and a higher net worth target segment.

For the rest, I guess that if I secretly stole all their strategic plans in the middle of the night, mixed them up and returned then randomly to their CEO's desk, he or she would not know the difference. It is not my business to advise readers on the relative merits of one team over another if they are shopping for a bank.

I will leave that to when real consumer feedback data appears. But assuming that success in asset gathering does bear some relation, at least partial, to the ability to deliver value to customers, it is worth ending with a few words on some of those teams that have made the most progress in moving up the league tables.

Again, I will let the figures do the talking, based on a similar table I prepared five years ago. Noteworthy rises in the mid-league have been Deutsche Bank and Societe Generale (both up more than four times in assets under management), and Morgan Stanley (up five times). Singapore's DBS has also done well, up more than four times.

In the division league, many players are relatively new entrants; others started and remain relatively small. Barclays stands out as the most surprising to remain in this category, given its global strength in asset management and the quality of its investment bank Barclays Capital.

At the opposite end of the spectrum is Julius Baer, which was not on my 2001 list at all. After no more than two years, it recently jumped into the championship tier with US$12 billion of assets under management. This extraordinary growth reflects a carefully planned 'hot-house' strategy led by Alex Widmer, the former head of Credit Suisse in Asia.

As ever, for all these questions, we look forward to letting the customers be the ultimate judge.

Roman Scott is the managing director of Calamander Capital, a Singapore-based investment and advisory firm, and economic spokesman for the British Chamber of Commerce. He was formerly a partner at Boston Consulting Group and led its wealth management practice in Asia