The costs of managing wealth in China

Added 11th October 2016

China’s private banking industry is struggling with growing pains, according to speakers at Monday’s Hong Kong Finance Forum.

The costs of managing wealth in China

Client expectations and product differentiation are among the key challenges faced by Chinese money managers, according to industry experts.

“The [private banking] sector is new and competitive, so there is a lot of similarity among products instead of differentiation. That’s a challenge in the short run,” Noah Holdings International CEO Liu Yihao told delegates at the Hong Kong Finance Forum co-hosted by the Chinese Financial Association of Hong Kong on Monday.

Moreover, in the medium term a limited pool of talent will drive up staff costs. And “in general, industry players in the region are still quite young. Surging house prices in the mainland and Hong Kong might also escalate human capital costs,” he warned.

“I have spoken to several private banks in Europe on this topic. They said that the costs of employing a private banker in Asia are similar to the costs of a private banker in Europe with ten more years of experience," said Liu, who joined the wealth manager in August from the NYSE Beijing Representative Office.

But, perhaps the biggest challenge facing the industry is managing investors’ expectations. Despite the low or negative interest rate environment, some clients are still asking for a 10% return from fixed income, he said.

Pu Yonghao, partner and chief investment officer at Fountainhead Partners, and former UBS wealth management chief investment officer for North Asia, agreed.

“Clients don’t care if you have negative interest rates or not: they look at their monthly returns,” he said.  

As a result, his firm only charges performance fees and not fixed management fees. Boutique wealth managers might struggle with this model.

According to Vanessa Xu, co-founder and CEO of Hong Kong-based FountainCap Research & Investment, Chinese managers should focus on one expertise in order to be globally competitive.

Her firm concentrates on the “China factor” to give it an edge.

“When people assess macroeconomic changes and risks, first they look at the US, and then China,” she said.

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