You lived in Asia for a long time as a private banker and saw good and bad times. Now when you come back to Asia, do you have a sense that the region is recovering very rapidly from the lows of 1997?
Brown: That's very much my sense. The two or three years after 1997 were unquestionably extremely difficult. But increasingly over the last 18 months ? not to say the economic environment is rosy ? I get the sense from talking to clients that things are more positive. We're seeing growth, and China is going like a steam train.
So I feel very positive on the prospects for the region over the next four to five years. Asia is coming back, and is all the better for the tough times which got rid of many of the excesses.
With a weaker US dollar, Enron, Worldcom and so forth, do you sense portfolio flows moving out of the US and into Asia? Is it your sense that Asia is sucking money in again?
It's not only my sense, it's the reality. If I look at our own global discretionary portfolios ? which are a very good indicator of how institutions are thinking about asset allocation ? I think for the last few years we have been overweight US equities, and at times have been zero weighted in Asia. About two months ago we went significantly underweight the US, overweight in Europe, and aggressively overweight in Southeast Asia and Japan. So we're positive on this region, and are putting our money where our mouth is.
What's the house view on the dollar? Will it get weaker?
We have been having this debate internally for a long time. Our year end view is US$/ yen 120 and US$/ euro 98.50.
You mention that you are bullish on Japan. Many have got burned investing in Japan in recent years. What's your strategy?
We're very selective about the exposure we take in Japan. But we like the liquid, large blue chips with global franchises. They are very well placed for a recovery. But having been bearish on Japan for quite some time ? with a zero weighting ? we now feel we are through the worst. So we are taking selective exposure.
As well as being bullish on Asian equities, are you also bullish on Asian bonds?
From a bond market perspective, we find greater appetite for Asian bonds within the Asia region, because there is greater familiarity. With the exception of a few Asian companies, they lack name recognition with European investors. Therefore the European investor tends to gravitate to more familiar names from Europe or the US.
Asia used to be very closely linked to the rest of the world and feel contagion. Do you sense it is becoming more insulated [against external shocks] and able to stand on its own two feet?
Europe is a good example of a trading block. Something like 90% of exports within Europe are intra-European. Therefore savage shocks in the US have some impact, but are not necessarily catastrophic. I think we'll increasingly see more intra-regional trade within Asia and it will become a block. China is starting to compensate for Japan and become a regional engine. Asia should become more self-propelling and less reliant on the US as an export partner.
What's Barclays strategy for growing its private banking business in Asia?
If I had to give you a one-liner I would say it was wealth structuring and not day trading. We hired Nigel Sze from Morgan Stanley in December to run the region and we have a new head of our Singapore business [Agnes Choi, also from Morgan Stanley] to run South Asia. We are looking to hire people who have been in the business for 15 years or more. They have seen cycles and can speak to clients in their mother tongue. We want to be the trusted advisor to a client.
I'd love to have 20 client advisors in Hong Kong of that sort of profile.
Let me give you an example of how we work. Just recently we gained a client that had a business and personal asset mix across various countries. We created a structure for his family and synthesized an artificial currency for him that reflects the way his current business is structured. This means we are managing his assets in a way that is complimentary to his current portfolio. He is not aligned to any one country or currency, and so our synthetic currency allows him to measure the way his assets are growing and allows us to benchmark against it. We spend three days with him every quarter going through this in some detail. This is a lot of fun for us. It's an extremely interesting intellectual exercise and is the first time we've done this kind of thing for a client. Obviously the amounts involved are fairly substantial. This is a $100 million portfolio.
We're also doing more and more in the area of trusts to deals with generational issues. I've just done a structure for the patriarch of one family who subscribes to the three generational view of clogs back to clogs. Much as he loves his grandchildren, he's concerned about their ability to take the family business forward. Consequently we've taken 20% of his net worth and put it into long term trusts and a mixture of standard and alternative investments. This will go to the great grandchildren when they are 25. These are children not yet born. So they will get seed capital in the event that their parents are not in a position to provide continuity from a business perspective.
So we as a house are much more happy to be dealing with these generational issues than just doing intra-day dollar yen trading.
How many relationship managers do you now have?
At the moment we have 10 relationship managers across Hong Kong and Singapore and we are in the process of expanding.