The firm offers discretionary services from Hong Kong and targets American expatriates, high net worth individuals and family offices.
Long told Fund Selector Asia that the firm has taken on new clients since the October launch, exceeding expectations in its initial forecast. Half of new business came from existing client referrals and the other half from advisers such as lawyers and accountants, he said, but declined to say how many clients have been signed.
The interest in discretionary services in Asia surprised him, and highlighted the regional demand for such services despite a large portion of regional wealth still held by the first generation.
“A lot of family businesses or first generation entrepreneurs created wealth. Asia will experience a massive transition of wealth from first to second generation, and some even started going from second to third. Those are the hardest transitions where you can lose wealth.”
Crowded competitive field
Nearly all private banks and wealth management firms seek discretionary business, which is proportionally small in Asia, ranging from 7-12% of the total wealth management business.
One reason is that many Asian HNWIs earned their wealth using their own wits and tend to be reluctant to give up investment decisions to someone else.
However, regional discretionary mandates are expected to grow 53% in terms of assets this year compared to last, Long said, citing statistics from Datamonitor.
“A very visible amount of wealth is being created in the region and that means everyone wants to be here,” Long said. “It is hard to compete, and we’ve seen people pull out or retrenching after going into too many areas of the market.
“The biggest challenge in this competitive landscape is, how do you get noticed?”
Generational wealth handover
Competitors, however, are likely to be product sales-oriented because Asia tends to be a transaction-oriented market, Long said. “Firms may say to a client, `You’re doing a transaction and we’d also like to sell you our discretionary product, do you want growth or income or both?'”
BNY’s key differentiation, he believes, is a focus on integrating wealth management with family governance, or preparing the next generation for the wealth they will receive.
In a global context, most wealth doesn’t last for three generations, he said.
“An expression in the US is `shirtsleeve-to-shirtsleeve in three generations’. When you look at transitioning wealth globally, 70% of wealth is gone at the end of the second generation and 90% is gone at the end of the third.
“We take a holistic approach. Not just investments, but how the investments integrate with wealth planning and how it all integrates with family governance. With wealth planning, we work with the family and other advisers they may have to make sure wealth is protected.”
BNY’s model is roughly analogous to how insurance companies work, he explained. “They have actuarial assumptions on payouts and assumptions on what’s coming in from premiums, then they have to create an allocation that matches pay-ins with pay-outs over a specific timeframe.
Similarily, the firm looks at the current cash needs of a family, for example, and determines how to invest to meet future cash needs, which BNY calls “objective-driven investing”.
American ex-pats are another target client for the firm. With FATCA legislation bearing down on foreign banks, Long believes BNY has an edge with American clients. Local servicing and an understanding of the complexities of the US tax code he believes sets the firm apart from others in Asia.
The firm doesn’t have relationship managers. Clients are managed by a team of specialists, but the portfolio manager works directly with the client, serving as the day-to-day contact.
The portfolio manager typically has a caseload of 35-50 clients.
“The portfolio managers are evaluated on client satisfaction and retention, so they must have good investment results and be real good at servicing.”
The wealth management firm has clients from Greater China, but is not actively marketing in those countries and is currently content with running the business from Hong Kong, Long said.
He pointed out that private wealth in Hong Kong is $2.2trn and 81% of that is households with $1m or more.
China is attractive as a future client base. But Long said 65% of Chinese HNWIs hold offshore assets and Hong Kong is the gateway to China.
“Mainland China clients are easy to serve from Hong Kong, but we are studying a possible expansion into China at some point.”