China's Wealthy Population Booming
China has a new class of investors. It's huge, and for the exploding ranks of the very rich that comprise it, so are the wealth management needs. As Johnson Chng, head of financial services for Bain in China and the author of a new study that is chronicling the phenomenon said, "Wealth creation in China is marching on unimpeded."
The "2011 China Private Wealth Study," conducted by Bain & Company, a Boston-based business consulting firm that helps clients with strategy, operations, technology, organization, and mergers and acquisitions, in collaboration with China Merchants Bank, showed that the number of Chinese high-net-worth individuals (those with more than $1.5 million in individual investable assets at current exchange rates) has nearly doubled since the onset of the global recession in 2008, and is expected to reach an estimated total of 585,000 by the end of this year. The fastest growth is coming from the "wealthiest of the wealthy" within this segment-those with more than $15 million in investable assets.
The vast majority of China's emerging rich are first-generation-fewer than 1% are second generation successors with investment decision-making power-and dominated by business owners, though less so than several years ago, when Bain conducted their first China study. The greatest concentration of wealth can be found in Beijing (the capital), Shanghai (China's most populous city), and the provinces Guangdong, Zhejiang, and Jiangsu.
According to the 2011 report, these investors are utilizing more sophisticated investment strategies than they were in 2009, including shifts in asset allocation. The use of alternative investments has risen 5.4% since 2009; stock and equities, 5.3%; and wealth management products, 4%. Meanwhile, the use of cash and deposits has dropped 7.4%, and investments in property are down by 4.3%.
Diversification is on the rise, too, with 81% of present survey respondents planning to diversify further in the future (of these 44% say to spread risk, 32% to improve their risk-reward profile, and 23% to widen portfolio selection). Of note, at the same time they are shifting away from high-risk to more moderate-risk investments, compared to attitudes in 2009.
Wealth management objectives have changed as well. The current study notes that while wealth creation remains the number one goal of China's rich, wealth safety is now right behind it; and China's rich are more concerned with their children's education and providing for their inheritance than before.
It's clear that as Chng noted, wealthy Chinese are fast becoming "savvy shoppers of wealth management products and services." Their demand for both personal and corporate financing has increased more than 40% since 2009, as have demands of wealth management institutions for value-added services, including the introduction of new investment opportunities (nearly doubled). Sixty percent of those surveyed expressed a preference to do business with multiple wealth managers, though half viewed increased difficulties in private banking relationship management and funds transfers as the largest sources of inconvenience in dealing with multiple institutions.
Who, exactly, are these institutions? According to the study, 85% of China's rich who use financial institutions for wealth management now select domestic banks as one of their wealth management institutions (among them 60% use domestic banks as their primary wealth manager)-and less than 40% choose foreign banks. Bain reported in 2009 that Chinese private banks could capitalize on the global recessionary disruption by taking business from foreign banks in following years. They did, while exhibiting increasing levels of brand awareness and trust, a trend the study says will continue: more than 30% who currently do not use domestic private banks have indicated their intention to do so going forward. For further information go to www.bain.com.
In other news ...
The wealth management group of U.S. Bank has launched a new brand, Ascent Private Capital Management, for its ultra-high-net-worth clients, with offices opening in select U.S. cities later this year. Led by Michael Cole, president and former head of Wells Fargo Family Wealth Group and Wealth Planning Center, Ascent will provide the "guidance and tools" ultra-wealthy clients (in this case those with $25 million or more in investable assets) need to focus on the impact of their wealth rather than just its accumulation, according to the company. Go to www.usbank.com for further information.
The SEVEN Fund (Social Equity Venture Fund), a virtual non-profit entity run by entrepreneurs whose strategy is to increase the rate of innovation and diffusion of enterprise-based solutions to poverty, has launched its latest initiative, "The Daedalus Experiment." The publication's inaugural issue features an international panel of influential thought leaders and practitioners in the field of economic development. China is not so scary, the British are doing it right, and one of the greatest challenges to humankind goes unnoticed, are just some of the topics they address. Go to www.daedalusexperiment.com for further information.
M&T Bank Corporation, a financial holding company headquartered in Buffalo, N.Y., has received Federal Reserve Board approval of its application to acquire Wilmington Trust Corporation (www.wilmingtontrust.com), which provides wealth advisory and other services and is based in Wilmington, Del. M&T (www.mandtbank.com) expects to close the merger-announced on November 1-following additional regulatory approvals, including those from the New York State banking superintendent and the Delaware banking commissioner, which are still pending.
The Morningstar 1000 Hedge Fund Index, a composite of the largest hedge funds in Morningstar's database, rose 0.1% for the month of March, while the currency-hedged Morningstar MSCI Hedge Fund Index declined 0.4%. Overall, most hedge fund strategies slightly outperformed the S&P 500 Index in March, which was virtually flat at 0.04%, according to the company. Go to the Morningstar Alternative Investment Center at www.morningstar.com for more information.
In March 2010, Gleneagles Group (www.gleneaglesgroup.com), a multifamily office based in Atlanta, created the investment advisory firm Glenmore Advisors (www.glenmoreadvisors.com) to serve high-net-worth individuals, family offices and foundations, and act as a commercial family office. Gleneagles and Glenmore have since added over $200 million in assets under management, and expect to add another $500 million AUM in the next six to 12 months; together they currently oversee assets in excess of $1.5 billion, according to Gleneagles.
Convio Inc., Austin, Texas, a provider of on-demand constituent engagement solutions that enable nonprofit organizations to more effectively raise funds, advocate for change, and cultivate relationships with donors and other constituents, has formed a strategic relationship with WealthEngine, a Bethesda, Md.-based provider of wealth identification and prospect research, to deliver real-time, cloud-based prospect data to fundraising professionals at nonprofit organizations. For further information, go to www.convio.com or www.wealthengine.com.
Manager bullishness for emerging market equities has plummeted, reaching its lowest level since March 2009, according to the latest Investment Manager Outlook, a quarterly survey of U.S. investment managers conducted by Russell Investments (www.russell.com/us). While 51% of managers surveyed remain bullish on the asset class, this figure represents a decline from the 71% who were bullish in the December 2010 iteration of the survey. Non-U.S. (developed market) equities also saw a notable drop, decreasing 9 percentage points from the last survey to 49%. "The time for profit-taking is now," said Farid Bedjaoui, founder of Rayan Asset Management (http://rayan.ae), which partners with Russell in the Middle Eastern market.
Merlin Securities, a brokerage services and technology provider to the alternative investment industry, is offering the MerlinSHARPTM analytics and reporting platform as a stand-alone software solution to the investment community. This unbundled version of MerlinSHARP (shadow, attribution, risk, performance), launched in 2004 and previously available only to Merlin's prime brokerage services clients, has minimal implementation requirements as users can access the platform via the Internet on a "software-as-a-service" model, according to the company. Go to www.merlinsecurities.com for further information.
Events
The China Venture Capital & Private Equity Forum will be held on May 4 at the Westin Times Square Hotel in New York City. Keynote speakers include Zhiwu Chen, professor of finance at the Yale School of Management, and David Munoz, managing director of BlackRock. Go to www.zero2ipo.com.hk/cvcf/ny2011 for further information.
The RBC Capital Markets Financial Institutions Conference will be held May 5-6 in Boston. Go to www.rbccm.com for further information.
The San Diego Investment Conference will hold its second-quarter conference on May 6-7 at the Hyatt Regency, La Jolla Aventine, in San Diego. Keynote speaker Doug Smith, founder and CEO of Village Green Global, is a semi-finalist for the Ernst & Young Entrepreneur of the Year 2011 Award in Orange County, Calif. Go to www.sandiegoinvestmentconference.com for further information.
The JMP Securities Research Conference will be held on May 9 in San Francisco, showcasing more than 250 publicly traded and privately held companies in sectors that include financial services and real estate. Go to www.jmpg.com/jmpsecurities/about/conferences for further information.
The MMI (Money Management Institute) Annual Convention will be held May 11-12 at The Boston Park Plaza Hotel & Towers in Boston. Go to www.mminst.org or www.cvent.com for further information.
The second annual Family Office Wealth Management Forum, Recovering, Rebuilding and Reassessing: Managing the Continuing Challenges for Affluent Families, co-hosted by Gleneagles Group and Institutional Investor, will be held on May 12-13 at The Ritz-Carlton at Reynolds Plantation, Greensboro, Ga. Go to www.iiconferences.com/Customer/FOF.html for further information.
The Tel Aviv Annual Institutional Investment Conference will be held on June 20 at the Hilton Hotel, Tel Aviv. This topic is "Investments, Risk Management and Regulation in Times of a Global Economic Recovery Alongside Instability in the Middle East." The keynote speaker is the journalist Ehud Yaari, one of Israel's top experts on Middle East affairs. Go to www.TLVII.com for further information.
On The Move
KBS Capital Markets Group, an affiliate of KBS Capital Advisors and KBS Realty Advisors, has hired Jeffrey Pucker as regional vice president for the company's Florida region. Previously, Pucker was regional vice president at Allianz Life Financial Services in South Florida, and a regional vice president at Genworth Financial, also in South Florida.
Denis Horrigan has been named a partner at Connecticut Wealth Management LLC, where he has served as the firm's director overseeing the marketing and client services teams in addition to his duties as financial advisor. His previous background includes positions at Fidelity Investments and St. Germain Investment Management.
Evercore Wealth Management, a subsidiary of New York-based Evercore Partners that serves high-net-worth individuals, families, and related institutions, has appointed Randy Hustvedt as its new managing director and wealth advisor. Hustvedt joins Evercore from Federal Street Advisors in Boston, where she founded and led the firm's family office practice.
Harris myCFO, a multifamily office with a focus on ultra-high-net-worth individuals and families, has relocated its regional office from Menlo Park, Calif., to larger quarters at Embarcadero Place, 220 Geng Road, Palo Alto, Calif.
Bank of the West, a San Francisco-based subsidiary of BNP Paribas with $57.6 billion of assets, has hired John Bahnken as its head of wealth management. Previously, Bahnken was the president of the global wealth and investment management products group at Bank of America, and before that, chief operating officer of Banc of America Investment Services, and president of Fleet Securities.
Wilmington Trust has hired Stephen P. Winterstein, former managing director of municipal fixed income with PNC Capital Advisors, LLC in Philadelphia, as managing director and head of strategy in the municipal fixed income group of the company's Wealth Advisory Services business. Wilmington Trust manages more than $43.6 billion in assets for high-net-worth and institutional investors.
-Cort Smith