Julius Baer CEO on wealth management outlook

Julius Baer CEO on wealth management outlook
Boris Collardi, Julius Baer

Boris Collardi, CEO of Julius Baer, was in Hong Kong last week meeting clients and drumming up attention to a new wealth report the private bank will be introducing to clients at the end of the month.

“Other companies do this but they don’t actually have access to the high-net-worth clients that we have,” said Collardi. Or those that do — for example Merrill Lynch — tend to report on forecasts of gross domestic product growth, he added.

It’s a smart branding move by Julius Baer, which clearly seeks to displace the Capgemini Merrill Lynch Wealth Management World Wealth Report that journalists routinely trot out and quote every time they need to cite a statistic about expectations in the wealth management industry.

Julius Baer partnered with CLSA for its report which will be published on August 29, and which should be viewed favourably by analysts and journalists alike as Julius Baer is a respected boutique Swiss private bank and CLSA is well known for its stellar research.

According to the upcoming Julius Baer/CLSA report, by 2015 Hong Kong and Singapore will still have the highest concentration of high-net-worth individuals, as a percentage of the population, however China will have 1.4 million people with an average wealth of $5 million. Indeed, the net worth of China’s wealthy will have grown by a compounded annual rate of 27%. But in percentage terms, the highest increase in high-net-worth individuals will be Indonesia — the increase will be 193%.

This is perhaps difficult to fathom at the moment given last week’s rocky stockmarket ride. European and US dramas fuelled fears that another global recession is inevitable, which sent the stockmarket tumbling on its deepest dive since the 2008 financial crisis — and that was before Standard & Poor’s downgraded America’s credit rating on Friday. Indeed, the Dow Jones industrial average fell more than 500 points on Thursday.

“The biggest challenge now is not that people don’t have money — lots of investors have lots of money — but nobody wants to invest because there’s too much uncertainty in the market,” said Collardi. “Look at 2011, it’s a camel year — there’s already been two humps in the market. Obviously nobody could have forecast Japan’s earthquake, but the way the debt ceiling has been handled in the US has been very poor, and almost irresponsible, because everyone knew they would reach an agreement but in the process they destabilised the confidence in the markets. And in Europe it’s been the same. They did an agreement but now everyone’s questioning what are the details. What does it mean? Who has to pay what?

“I would encourage everyone to start saying: how can I solve the problem and at the same time restore confidence in the process? Without that, there’s no confidence in the market.

“People have to realise we (the economies in general) are much more interlinked today than ever before.

“I think there is a bigger picture and we really have to face the unfortunate truth that everyone will have to tighten their belt for the next few years. There will have to be sacrifices made. And people should not forget that maybe they had too good of a life, even in Europe, for too long,” said Collardi.

What does that mean for Julius Baer? “As a Swiss-based firm, there are also opportunities, like in any crisis. And the opportunities are, as always, if you can go through this crisis and manage your company in the best way possible, you can come out stronger because everyone else will be weaker.

“What is making the challenge tough for all Swiss-based companies is the strength of the Swiss franc. The currency is a reflection of the country’s economy. On the one hand it’s great for us to go on holiday, but it’s basically killing the export economy in Switzerland. It’s making life difficult for wealth management for a listed company considering 80% of our revenues are in non-Swiss francs, but 80% of our costs are in Swiss francs. When you aggregate it back even though economically nothing has really changed for you as a company — you are still putting the same resources at work to produce the same revenue — but that revenue is worth 15% to 20% less.

“We’re going to see very interesting moves anyway in financial services. I think what you see now in HSBC [announcements of lay-offs] will be seen in other financial institutions again.

“I think we’re in for a rough ride for the next few months... I think it’s going to be worse before it gets better. I would like to be wrong. But unfortunately, right now that prediction is materialising. Europe announced a deal, we had 48 hours of relief, then the debate moved to the US and now it’s coming back to Europe. And I wouldn’t be surprised if we are in for some big doubts about China in a few weeks or months, and Brazil’s stockmarket is down since the beginning of this year and there’s inflation…

“I’m a very optimistic person, I know it hasn’t come across just yet, but I think I try to see the good thing out of this entire process. And I think there are three things that are good.

“We are going to wipe out all excesses, all imbalances, and all fragile constructs, so there will be a flight to quality in this process.

“For the financial services industry we have to further transform the industry, and I think that process began with the financial crisis, and I think it’s continuing. And not all of what happened is bad, honestly. To have more capital, to have more stringent rules on leverage in general, these are not bad things. You should not be able to repackage the same thing five times, so that no one understands what it is but say, ‘Yeah but it’s triple-A so it’s good right?’

“The third thing, for our industry, is that despite all of this there are more and more rich people.”

Indeed, the report forecasts that the number of high-net-worth individuals in Asia is expected to grow 14%, compounded annually, if currencies do not change. With an average 5.5% currency appreciation across Asia, this will add 600,000 high-net-worth individuals who reach the $1 million in investable assets threshold. Thailand is forecast to gain the greatest benefits from currency appreciation.

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