There is so much wealth being created in Asia that there is not enough talent to manage it all.
Yes, you read that correctly.
In the midst of a trade war, there has been a “talent war”, where it’s not uncommon for wealth managers to see 30% higher pay to defect to rival firms.
With increased wealth, there is a void that can be filled by investment managers who seek to expand internationally or to Asia for the first time.
And although growth might slow down in 2019, don’t count Asia out in the long run.
Asia Wealth Stats
- Asia Pacific is home to 814 billionaires, representing 38% of the global billionaire population (PwC).
- 177 new billionaires in Asia were created in 2017, most of them coming from China (PwC).
- One billionaire is created every two days in Asia (CNBC).
- There are 5.1 million people in Asia who are millionaires (CNBC).
- Hong Kong now has the most ultra-high-net-worth residents in the world, beating out New York (Business Insider).
Asia is vast, so economic situations vary drastically by country and region. And while pockets of wealth and extravagance exist, much of Asia remains a developing continent.
But because the number of wealthy individuals is increasing so rapidly, the opportunities in Asia for wealth and asset managers cannot be ignored.
How Investment Managers Can Land New Clients in Asia
Consider the Country/Region
Not all countries offer the same prospects.
Take mainland China, for example. The country creates two new billionaires every week, and with 373 billionaires, China’s wealthiest residents collectively possess $1.12 trillion in wealth, according to PwC.
Most of the wealthy reside along or near the coast in cities like Beijing, Shanghai, Hangzhou, Guangzhou, and Shenzhen.
Singapore and Hong Kong are notable recipients of an influx of Chinese wealth, and so much is coming in there’s not enough skilled wealth management talent to manage it all.
Japan has a mature and established financial market, but population growth is in decline. The country will face a long-term uphill battle with economic growth due to the falling population. Still, the nation added 268,000 new millionaires in 2017, per PwC.
India, like China, has seen the numbers of its wealthy residents increase. India added 31 new billionaires in 2017 and now has a total of 131. The country saw its millionaire population increase by 20% to 263,000 millionaires, though it is just a fraction of China’s 1 million.
Other Southeast Asian nations like Indonesia, Thailand, Vietnam, Malaysia, and the Philippines mirror a similar trend in rising numbers of wealthy citizens, but numerically they are smaller than mainland China, Hong Kong, Singapore, Japan, and India.
Consider Legal and Regulatory Requirements
A “one-size-fits-all” approach will not work in Asia.
Regulations around market entry, reporting, data management, privacy, and security vary from country to country, which can be costly.
According to PwC’s Hong Kong Private Wealth Management Report 2017, 82% of firms surveyed cited regulatory issues as one of their top three concerns. Differing regulatory requirements across jurisdictions make it challenging for private wealth managers to operate in multiple locations. As a result, PWMs are seeking further cooperation from regional and global regulators.
Unlike the mature US and Western European financial sectors that have cooperated closely for decades, most of Asia’s financial markets are young and haven’t yet developed a shared or similar regulatory framework.
Regulatory Focus on China
Mainland China may be the ultimate prize when it comes to new business, but government regulations have limited foreign firms’ presence and market share in the country.
And despite the ongoing trade tensionsbetween the US and China, the Chinese government has promised to open up its financial markets, albeit on the government’s terms.
Such opening would allow foreign investors in China to do the following:
- buy mainland-traded stocks
- face no limits for their holdings in domestic banks
- take an equity stake of up to 51% in brokerages, futures, and fund management firms (SCMP)
English may be a global language, but do not rely on English when attempting to attract new business.
The clients will need to be marketed to and serviced in their native language, be it Chinese or Japanese, Malay or Marathi.
Some clients, whether they are Hindu or Buddhist, Muslim or Christian, non-religious or otherwise, may require investment strategies that reflect their values.
For example, Asia is home to a sizable Muslim population, and Muslim clients might request investment strategies in accordance with their faith, or sharia-compliant.
This means their investments cannot include the receiving of interest payments, and they cannot invest in certain industries forbidden according to their religion, most notably alcohol production. In this case, consider hiring staff who understand Islamic finance, as they can best serve Muslim clientele.
Find Partners and Understand Relationships
If you or your team members have not spent a significant amount of time in that country to understand the language, the culture, and the needs of your potential clients, then you must hire local talent to fill in the missing gaps.
In some cases like China, it may be required to have a local partner to do business there. While some may see such a policy as restricting their ability to operate independently, this requirement may not be a bad thing for an outsider with little knowledge of the country.
Doing business in China is incredibly complex, and guanxi (relationships) is everything. Knowing the right people in China will unlock doors for you. In this case, the local talent for your marketing, sales, and client servicing departments will be key to your success.
It’s ok if you aren’t familiar with the country you want your firm to enter, aside from the fact you know there’s opportunity.
But just because you’ll hire local talent, you should still make a sincere effort to learn more about the country.
Visit it. Spend a significant amount of time there if you can. See how people communicate, observe their mannerisms, learn about what is acceptable and taboo in their society.
The more knowledge you possess, the more respect you’ll gain from local partners, future employees and clients. In addition, you’ll make better decisions when it comes to your firm’s strategy.
Consider Investment Strategies
Just as the economic situations vary in Asian countries, so do the investment opportunities.
Though Japan is a developed and stable country, increasing growth remains a challenge. Japan’s Nikkei Stock Exchange still has not recovered from its peak and subsequent crash in 1989, as a result of the collapse in urban real estate prices.
China‘s stock market has seen its share of volatility, and government may intervene when it deems necessary. Understanding the role government plays in business will help guide your investment decisions.
In addition, China’s Belt and Road Initiative (BRI) may offer investment opportunities in infrastructure, manufacturing, commodities, etc.
And if the initiative works out as well as the proponents and optimists suggest, it would make China and BRI participating nations more prosperous, potentially adding new people to the ranks of the wealthy, hence new potential clients.
Moving down to to Southeast Asia, private equity has been booming, particularly in Vietnam.
As for Asian millennials, real estate and cash are the most preferred forms of investing, according to a Manulife Asset Management survey of respondents from Mainland China, Hong Kong, Taiwan, Singapore, Indonesia, Philippines, Malaysia, and Thailand. These views reflect those of their parents.
“Millennial investors grew up in an era where they witnessed their parents having earned a lot from their property. It is only natural that they follow the same pattern.”
The survey also found that among these young investors, 50% of their non-property investments are in bank deposits, whereas it’s 20% for the US or other OECD nations.
Of course, with any country, be aware of the risks, including the effects prolonged trade tensions may have in Asia.
Consider Technology Requirements
Running a global operations will require a solid and secure IT infrastructure. And depending on the country, you may be more vulnerable to system and network hacking, so take all precautions seriously.
One way to ensure security is by using a VPN (virtual private network).
Many people associate VPNs with circumventing China’s Internet censorship, which blocks Google, popular social media apps like Facebook, Instagram and Twitter, and many foreign media outlets.
But the security a VPN provides is more important than being able to see your Twitter feed or watch YouTube videos. And even if you aren’t in China, using a VPN is still a good idea.
In China, the laws around VPN usage are nebulous. While the government has stepped up efforts to stop VPN usage, they haven’t outright eliminated full usage because foreign companies in China could not successfully conduct business without access to certain websites and apps from the outside.
In these cases, the authorities could make an exception for your firm to use a VPN.
Mobile First, Digital First Solutions
Asia has become increasingly digital and mobile savvy, especially China.
According to McKinsey:
- 40% of Asian mass-affluent customers now prefer online or mobile banking over going to a branch location to complete a transaction.
- Of the mass-affluent customers under 40 years of age, half of them prefer digital banking
In China, there are 800 million Internet users. 98% of Chinese Internet users are mobile.
From January to October 2018, the total value of mobile payment transactions in China reached $12.8 trillion, far surpassing the US as at $49.3 billion.
“China is recognized as the most advanced market for mobile payments in the world, thanks to WeChat and Alipay,” – Paul Haswell, a senior partner at international law firm Pinsent Masons.
Your Chinese clients, colleagues, and partners will more than likely be using WeChat, the Chinese equivalent of Facebook. But WeChat is more than just social media and instant messaging. One can:
- transfer money
- pay bills
- order food
- set up doctor appointments
- apply for visas
- check driving records
You and your firm will definitely need a presence on WeChat.
Robotic Process Automation
Robotic process automation (RPA) is a kind of software that performs routine and predictable tasks. This automated technology can save the back-office and middle-office operations a lot of time in running daily reconciliation reports.
RPA not only helps get the work done faster, but it also improves data accuracy, assuming the RPA has been set up properly.
Increasing operational efficiency will make your firm’s international expansion be a more smooth and seamless process.
Startup costs for entering a another country are not insignificant, and where costs can be cut, they should be.
One of those areas is in middle- and back-office operations.
It’s hard enough to enter a new country and find the right people to join your firm, but when you partner with an investment operations outsourcing provider, your operational hiring needs will be taken care of by the provider.
With outsourcing, you’ll mitigate the following risk:
- employee turnover issues
- over- or under-hiring
- hiring unqualified staff
- bad reporting
- low ROI on technology
A third-party provider can run your reports and deliver them whenever you need, and because these companies specialize in operations, they should have experience and expertise in portfolio accounting, and they can leverage your technology, including RPA and quality control implementation.
Delivering timely and quality reporting are necessary for you in building trust with your new clients.
Asia Is Full of Opportunity for Investment Managers
As the number of wealthy people continues to grow in Asia, so will the demand for skilled wealth managers, asset managers, and hedge funds.
The demand for talent presents opportunity to firms willing to make a move, but missteps abroad can be costly.
That’s why firms should seriously consider the country’s economic situation, cultural landscape, legal and regulatory environment, investment strategies, technology, and the possibility of outsourcing operations.
For the firms that do their homework and execute according to plan, Asia will offer immense rewards.