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TARA WILKINSON

In the wake of the worst economic downturn since the Great Depression, the world's super-rich have emerged richer than ever.
The assets of the world's ultra-wealthy (usually defined as those with a net worth of US$25 million and above) hit a record US$27.8 trillion last year, up 7.7 per cent on the previous year, according to the Wealth-X and UBS World Ultra Wealth Report.
This boils down to an extra US$1.8 million in the individual wallets of the very wealthy - not bad at a time when global economic growth has barely budged above 3 per cent. And, despite the slowdown in China, Asia-Pacific wealth grew fastest, said the report.
This trend comes down to investment choices. Rich people can afford good advice. Olivier Pacton, the Hong Kong-based global co-head of HSBC's Private Bank Investment Group, said a regular private banking client would have access to five or six advisers on any given day. But for those in the ultra-wealthy bracket, the number of available advisers could exceed 100.
This army of consultants are versed in anything from structured products to where to sell a private jet.
Private bankers say their conversations with ultra-wealthy clients is longer term, frequently revolving around thematic asset allocation and portfolio building rather than looking at individual products. Recurring topics include private equity and direct acquisitions; structured financing; low-risk, long-term investments; real estate; hedge funds; family office solutions; and advice on tax rules in different jurisdictions.
Because of the size, scale and locations of their assets, bespoke planning is a necessity, not a luxury, said Vicki Wong, a managing director at LGT Bank. Wong said whereas the mass market generally would purchase unit trusts or widely available products, the ultra-wealthy would go for investment ideas designed particularly for them.
There are generational differences to investing even among this niche bracket, said Mandeep Nalwa, chief executive of Singapore-based Taurus Wealth Advisors.
He said that in emerging markets the first generation of wealthy people focus on short-term trades. "There is often a perceived need to generate investment returns irrespective of the market cycle," said Nalwa.
The second and third generation take a more defensive stance, usually focusing on containing the corrosive effects of inflation on inherited wealth.
Counter-intuitively, super-rich clients aren't always the most lucrative for private banks. Wealthy people are "higher-touch", said Pacton, which means they cost more to serve and are more demanding than other customers. An oft-cited complaint in wealth management circles is that the ultra-rich use a lot of different private banks, bargaining them down on fees and seeking many quotes on trades for the purposes of comparison shopping.
Despite the challenges associated with banking the ultra-wealthy, wealth managers - who typically pocket a fee of between 0.35 per cent and 1 per cent of a client's assets - have an interest in securing these accounts for the long term. Further down the line, a successful entrepreneur may seek to list his shares on the public market, requiring investment banking advice. A first-generation tycoon may need succession planning, while an heir to a family fortune might want a philanthropic adviser to set up a foundation.
Mindful of the opportunities, private banks often strive to provide everything and anything their client could dream of, be it exotic investments, long-term unlisted opportunities, direct property deals or structured financing, all the way through to setting up a foundation.
"Everyone aims to be a one-stop shop," said Wong. She said this is why so many big banks - including Credit Suisse, UBS, Barclays, HSBC and Standard Chartered - have adopted the "one-bank" model, which allows for introductions and integration between the private bank, asset management and investment banking businesses, keeping fees in house.
 

	SERVICES                                                                                                    
Are you extremely rich? If so, here is a guide to the services that some private banks will offer you.

Loans
	Asia's ultra-rich apparently want to borrow more money, says S.J. Hwang, Credit Suisse's Asia-Pacific head of solutions for these clients. Lots of regional entrepreneurs have most of their wealth tied up in their businesses. Banks will lend against their assets, and many businessmen use the money either to reinvest in their businesses or speculate in other investments.
Credit Suisse wants to increase its ultra-wealthy business by increasing lending in emerging markets, with the objective to add up to 20 billion Swiss francs (HK$178 billion) of risk-weighted assets to its private bank business. One of Hwang's clients recently wanted to borrow a large sum with a shareholding as collateral. Hwang worked with the investment banking division on the deal, which he described as relatively risk free.
Real estate
	This is a perennial favourite among the very rich. Particularly during crises, "safe haven" cities such as New York, Paris and London receive strong investment. But recent property tax changes have driven wealthy families to focus on commercial property over residential, vying against the large hedge funds and assets managers, says Nisha Singh, senior associate for the law firm Berwin Leighton Paisner. The ultra-wealthy are looking at commercial properties in London, such as shops, offices and hotels.
Family offices and succession planning
	"While many mainstream families are familiar with the concept of having a trust, ultra-rich families are increasingly taking the next step of setting up fully fledged family offices to professionalise the way they manage their wealth," said Amy Lo, head of ultra-rich client services at UBS Wealth Management in Asia.
This development has led to the proliferation of single- and multi-family offices in Asia. Not wanting to lose out, private banks are creating their own family office divisions. In 2010, UBS launched a global family office business, a platform to provide an institutional standard of trading and execution for its ultra-wealthy clients, giving them direct access to specialists and deals. About 200 of the bank's ultra-rich clients worldwide use the service, of whom 40 are in Asia.
Direct investment/group deals
	Bernard Rennell - CEO of North Asia at HSBC Private Bank, which manages assets of individuals with US$5 million or more - said clients want direct access to private equity deals. "We can introduce them to deals through our corporate finance solutions team and also to each other, should they wish to club together to form private equity consortiums," he said.
Rennell pointed to recent examples of HSBC arranging for 50 clients to acquire a one million sq ft office block in Manhattan through the HSBC alternative investments platform. In February, the bank led a €250 million (HK$2.6 billion) investment from a group of ultra-wealthy clients to buy a majority stake in a shopping centre in Dublin, Ireland. Clients find introductions to their peers highly valuable, said Rennell, as "many want to meet and network with other ultra-wealthy individuals."
Rich people like private equity. They can afford to lock up their money for long periods, and they get high returns. Private equity deals are open only to those who can commit large sums - small investors need not apply - but the returns can make the time and the risk well worthwhile.
"In most cases for smaller clients who typically look at listed investments, when someone recommends Chinese water stocks, they are typically recommending Chinese utilities, who aren't getting necessarily getting the key exposure to these structural trends," said Simon Smiles, UBS' chief investment officer for ultra-high net worth. "When we talk to our billionaire clients, they are looking to source direct investments into water infrastructure - into companies that make water pipes, seals for pipes, and are looking at a more direct way to access that investment."
Tax and compliance
	Co-ordinating with experts on tax implications or investment structures in many jurisdictions is a burden uniquely borne by the very rich. With all of the increased complexity of tax and reporting rules in recent years, individuals are keen to ensure that they understand the very complex web of laws to ensure compliance.
It's a misperception that Asian ultra-wealthy families create wealth-planning structures just to avoid tax. "Families in countries such as the United States and England often do structuring to reduce exposure to estate tax," said Vicki Wong, a managing director at LGT Bank. "In Asia, most countries have either abolished their estate taxes, they never had them in the first place, or the tax rates are low."
Families usually use structures for other purposes, for example, to isolate assets from a spouse's claims in the event of a divorce.
Tara Loader Wilkinson
 


Advising the one-percenters

Olivier Pacton, of HSBC's Private Banking Investment Group, says ultra-rich clients can get access to up to 100 advisers a day. Photos: Antony Dickson

Advising the one-percenters

How private banks help the rich get richer, by Tara Loader Wilkinson