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Chris Chapel

Asia represents a region of great potential for private banks. Wealthy Asians will control assets worth about US$8 trillion by 2007, up from about $4.8 trillion in 2000, according to Merrill Lynch/Cap Gemini Ernst & Young.

In last year's World Wealth Report, published by the  two groups, Asia's outperformance in the wealth stakes in 2002 was evident.

The number of high net worth individuals (HNWIs) - defined as those with more than US$1 million in financial assets - rose by 4.9 per cent in the region and their combined wealth swelled by 10.7 per cent to $5.7 trillion.

By contrast, the ranks of the well heeled in Europe rose by 3.9 per cent and the wealth they held was up by just 4.8 per cent to $8.8 trillion.

In North America, poor stock markets led to a reduction of wealth. Individual wealth holdings there declined by 2.1 per cent to $7.4 trillion and the number of HNWIs fell by 1.9 per cent.

High savings rates and good economic growth were among factors cited for the strong growth in Asian wealth.

Asian-based private bankers are well aware of this growth trend. A study last year by PricewaterhouseCoopers showed Asian-based private bankers and asset managers were forecasting average business growth of 15 per cent for the following three years.

Daniel Truchi,  chief executive of SG Private Banking (Asia Pacific), expected another period of positive economic growth in the region within the next few years.

'This will definitely fuel the creation of wealth, especially in China, South Korea, Taiwan and Hong Kong. Southeast Asian markets [such as] Malaysia, Thailand and Indonesia will also benefit from this economic growth cycle.'

Mr Truchi expected annual double-digit increases in the amount of Asian private wealth over the next five years, despite a recent slowdown to single-digit annual growth.

Illustrating the rich potential in the private banking market, last year SG's private banking assets under management grew 35 per cent and the private bank's revenue from Asia had grown by an annual  rate of 60 per cent for the past five years, Mr Truchi said.

Michel Longhini, head of strategy and development in Asia for BNP Paribas Private Bank, said the  region's relatively strong economic growth rates suggested private wealth expansion would continue.

'If you compare gross domestic product growth in the Asian region with growth in Europe, it is clear there is more new money being created in the Asian economies.

'Emerging, fast-growing economies generate new money, new business, new wealth, whereas most of the growth in Europe is older established money.'

Mr Longhini said Asian clients tended to be more entrepreneurial than their European counterparts and therefore demanded a far different kind of service.

'People consider that this entrepreneurial money has to be active. It has to deliver a return which is in line with what they could get outside of the financial world, on the business side. That is where it makes it more demanding to manage. You have to be more innovative, more creative.'

Where private banking was concerned, Asia 'is not seven hours ahead of Europe, it is more like seven months ahead', Mr Longhini said.

'Whenever new products come in for clients, most of the time Asia is the first place they are requested by clients and launched. That is the type of demand which we see in Asia.'

As investment conditions change, so does the general preference of Asian private bank clients for particular types of investment product.

For example, bankers report that demand for fixed-income products over the past 18 months has been very strong.

As interest rates have been on the decline, clients have been looking for products that deliver yield and perhaps offer some additional gain in the event of further interest rate falls.

The activity has been seen in direct fixed-interest investment and in structured fixed-income products - instruments which carry an element of exposure to fixed-income markets, but can offer extra returns in a variety of scenarios.

For example, BNP Paribas offers a structured fixed-income product known as a range note, which has proved popular in recent conditions. Investors stand to make the strongest gains if interest rates remain within a prescribed range through the life of the investment.

Equity-related products are also making a comeback after the past two to three years of falling markets. Here, the ability to offer a guarantee of the amount invested has proven attractive to many private bank clients who want to be exposed to equity upside with some downside protection.

For these investors, there is a trade-off between having the protection and gaining less than a direct investment during an upward market swing.

Alternative investments are also proving very popular among Asian investors.

These include products such as hedge funds, funds of hedge of funds and gold-linked notes, which aim to deliver absolute returns regardless of the direction of stock and bond markets in a particular year.



Asia's golden touch