Business

Saturday September 12, 2009

Private banking stays buoyant

By YEOW POOI LING


THE outlook for private banking remains buoyant on the back of a growing number of high net worth individuals in the country.

According to CIMB Private Banking co-head Carolyn Leng, the number of high net worth Malaysian individuals, defined as those with more than US$500,000 in assets, are expected to increase by 30% by 2012, similar with PricewaterhouseCooper’s survey, which indicated assets in Asia-Pacific is likely to grow 30% in the next three years.

Carolyn Leng says ultra high net worth individuals are more consistent in their investments.

“We’re looking at close to about 70,000 households by 2012 with more than US$500,000 each in liquid assets. The total value is estimated at about US$73bil,” she told StarBizWeek in a recent interview.

Private banking, a segment that caters to wealthy individuals, offers personalised private wealth management services to help clients achieve their respective financial objectives.

CIMB Private Banking has two sets of clientele – ultra high net worth (those with RM100mil and above) and high net worth individuals (over RM50mil), who portray different personalities when it comes to investing.

Leng said the ultra high net worth individuals were more consistent in their investments and tend to be less risk-seeking as their focus was to preserve wealth.

“The ultra high net worth individuals are not badly affected by the crisis because their wealth is far more substantial,” she said, adding that a consistent annual growth of 8% on capital of RM100mil would yield substantial returns on a compounded basis.

Such investors have a balanced portfolio with exposure in hard assets like property, as well as in fixed income and some in equities.

“If they like a company, they would invest in big tranches like RM5mil worth of shares and sit on it for two to three years, patiently without bothering with the volatility,” Leng said.

In contrast, high net worth investors tend to move with market sentiment, have higher expectation on returns and frequently rebalance their portfolio.

“What these individuals don’t realise is, if they want a return of 15% a year, they should be able to weather a volatility of 30% to 35%,” she said.

CIMB Private Banking has more clients in the age range of 40s to mid-50s, who are entrepreneurial and want to grow their portfolio, and as such, they take more calculated risks.

Nine months ago, investors’ focus was on preserving cash, hence the interest was concentrated in fixed deposits.

“But come March or April, people forgot about 2008 and the interest returned to the equity market. Even now, there are still people who asked, “Did I miss the market?” Leng said.

Interest on corporate bonds is also back, thanks to the financial institutions seeking for Tier-1 capital while fixed deposits have declined versus a year ago.

Citibank Bhd retail banking head Paul Hodes shared similar views, noting that investors had cautiously re-entered the market on the back of some initial positive signs of recovery.

“We have experienced a significant rise in interest in investments linked to foreign currencies, especially in Australian and Singapore dollars,” he said, adding the focus was on simple investment products with clear and transparent fee structures.

Citibank does not have a specific private banking segment but within the Citigold division, the bank offers customised products and services for wealthier clients.

“We expect investors to remain fairly conservative in the short term though, as the market recovers, the appetite could gradually return for riskier investments,” Hodes said.

Leng said there should be a match in the type of product, tenure, expected returns and financial needs.

Investors who have a short-term horizon of six to 12 months should focus on deposits while mid-term investments of one to two years on fixed income. Equity exposure, meanwhile, requires holding power of three to five years.

“It’s quite impossible to want to achieve 15% to 20% returns, expects a regular income but have a tolerance time frame is six to 12 months,” she said.

Leng advocates clients to have a five-year time frame for a balanced portfolio, comprising of 35% fixed income, 30% equities, 15% alternative investment and remaining in cash.

“The reason to hold so much cash is to have ample of bullets to enter the market when it corrects,” she said, noting that international fund managers had 20% to 25% of their portfolio in cash and were in no hurry to deploy the capital.

“Everyone are sticking to plain vanilla products as most have shied away from structured products, which have put people off in the recent financial crisis,” she said, adding that clients had also become more inquisitive due to the downturn.

Leng said private banking was not an easy business as it required much tenacity and long time to build a critical mass, which amounted to about RM10bil in quality assets. CIMB Private Banking currently manages RM4.8bil worth of assets.

“Our business is high cost in nature as it takes six to 12 months to sign up a new client,” she said, adding that there were domestic financial institutions like CIMB Private Banking that could offer “true blue private banking services” similar to an offshore outfit.

Hodes said the bank’s wealth management services were unique as it could tap into the group’s vast global resources, financial expertise and worldwide research to provide personalised services and strategic counsel to suit the changing demands of customers.

“The way forward for wealth management will be based on client trust and confidence through improved risk management, higher quality service, enhanced portfolio performance and strong consultative tools,” he said.

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