Managing private wealth and the offshore financial centre

Managing private wealth and the offshore financial centre Dr Sarah Hall and Professor Jonathan V Beaverstock Sarah.hall@nottingham.ac.uk Jonathan.beaverstock@nottingham.ac.uk

Introduction Servicing the super-rich - from private banking to wealth management From offshore financial centres to wealth management and the advanced business services offshore nexus (Wójcik 2013) Private wealth management and OFCs

From private banking to wealth management Historical importance of private banking and old money (Hassler 1999; Irvin 2008) New money and the growth of private wealth management industry from mid 1980s onwards Private wealth management ecology No. wealthy individuals and value of their wealth (MLCG 2010) Year No. millions Value of wealth $ trillions 2000 7 25.5 2001 7 26 2002 7.2 26.7 2003 7.7 28.8 2004 8.2 30.7 2005 8.8 33.4 2006 9.5 37.2 2007 10.1 40.7 2008 8.6 32.8 2009 10 39 2010 10.9 42.7

as a result, an industry once dominated by private banks and family connected stockbrokers is now a significant global industry spanning banking, financial services, insurance, real estate (property) and traditional professional services (accounting, legal), with many, if not all, of the global financial and professional service firms highly active in this market both onshore and offshore (Beaverstock et al 2013). Investment of private wealth is located either in onshore or offshore centres. The main centres for onshore investment are the major financial centres of the world Key offshore also include Switzerland, the largest, as well as Luxembourg, the Channel Islands, Bermuda and the Cayman Islands. (www.thecity.com, 2012)

There is no generally accepted standard definition of wealth management both in terms of the products and services provided and the constitution of the client base served but a basic definition would be financial services provided to wealth clients, mainly individuals and their families (Maude 2006: 1)

Wealth management and the advanced business services (ABS)-offshore nexus (Wójcik 2013) Offshore financial centres and relational economic geography (Cobb 1998; Hudson 1998, 2000; Roberts 1994, 1995; Warf 2002; see also Maurer 2008) Social theories of practice focus on the everyday relational processes that constitute economic action and hold communities or firms together within, and in relation to, particular geographic contexts (Jones 2013: 7; see also Reckwitz 2002; Shove et al 2012) Practices within ABS-offshore nexus central to operation of the wealth management industry and its onshore/offshore activities

Private wealth segmentation Private Banking Bespoke One -stop Current and deposit accounts Personal loans Saving Brokerage Estate management Wealth management High Volume Management Brokerage Banking Lending (credit, mortgages) Insurance (yacht, art) Advice (trusts, inheritance)

ABS-offshore practice network in wealth management (adapted from (Wójcik 2013) World Cities ABS Private banks WMA in investment banks Law firms Accountancy Insurance Offshore jurisdiction Rest of the world

Private wealth management ecology Private banks Trust banks (US private banks) Universal and retail banks Family offices who serve the wealthiest and billionaires in the US (c4,000 families) and Europe (c500 families) Financial advisors, Stockbrokers and Asset managers Product specialists (e.g. hedge fund providers) Investment banks Insurance and other professional services (e.g. legal, accounting) (Mayer and Levy, 2004; Maude, 2006)

Defining the high-net worth and private wealth Ultra-High Net Worth Individuals Investable assets >US$50m Very-High Net Worth Individuals Investable assets between US$5m - $50m High Net Worth Individuals Investable assets between US$1m - $5m The Mass Affluent Wealthy (between US$500,000 - $1m) Affluent (between US$100,000 - $500,000) (Merrill Lynch/CapGemini, 2010)

The growth of the HNWI market Millions 12 10 8 6 4 Investable assets > US$1million 2007 10.1m 2008 8.6m 2009 10.0m 2010-10.9m 2011 11.0m 2012 12.0m 2 0 1996 2000 2005 2010 MLCG, (1996-2013)

HNWI market, 2003-2012 (by region) Million 12 10 8 6 4 2 0 2003 2004 2007 2008 2009 2010 2011 2012 Change 2007-2012 North Am +12.1% Europe +9.7% Asia-Pacific +32.1% North America Europe Asia- Pacific Latin America Middle East Africa (MLCG, 2007-2013)

The rise of new money Category % Share of total wealth Mean (04-08) 2004 2005 2006 2007 2008 (%) Alternative Investments 19 20 10 9 7 13 Real Estate 16 16 24 14 18 17.6 Cash Deposits 13 13 14 17 21 15.6 Fixed Income 24 21 21 27 29 24.4 Equities 28 30 31 33 25 29.4 Total Wealth (US$ trillion) 30.7 33.4 37.2 40.7 32.8 34.7 Source: MERRILL LYNCH/CAPGEMINI (2005-2010 inclusive)

City jobs and bonus payouts, 2001-2013 Year paid City Jobs City bonus pool ( billion) 2001 312,000 3.921 2002 308,000 3.329 2003 317,000 6.400 2004 325,000 6.950 2005 327,000 9.653 2006 343,000 11.383 2007 354,000 11.565 2008 324,000 5.332 2009 305,000 7.336 2010 319,000 6.749 2011 327,000 7.154 2012 n.a. 4,402 2013 n.a 1,585 Source: Centre for Economics and Business Research (2012)

Source: bcg.perspectives.com, accessed 05/08/2013

Top 15 Global Cities by HNWI* Population City 2012 2022F ChangeF 1 New York 7,580 10,306 +36% 2 London 6,015 8,202 +36% 3 Tokyo 5,440 6,763 +24% 4 San Francisco 4,590 6,665 +45% 5 Los Angeles 4,520 6,075 +34% 6 Hong Kong 3,205 4,780 +49% 7 Osaka 2,970 3,813 +28% 8 Paris 2,860 3,672 +28% 9 Chicago 2,615 3,689 +41% 10 Mexico City 2,585 3,901 +51% 11 Washington DC 2,395 3,188 +33% 12 Houston 2,295 3,397 +48% 13 Beijing 2,285 5,262 +130% 14 Mumbai 2,105 4,988 +137% 15 Dallas 2,020 2,927 +45% *A HNWI is defined as having net assets of over US$30m. Source: Knight Frank (2013, www.knightfrank.com, accessed 06/08/2013)

Top 10 global private banks, 2013 Bank Assets under Management (AuM) Reporting US$billion Growth 2012 currency 1. USB 1,705.0 +9.7% CHF 2. Bank of America 1,673.5 +5.9% USD 3. Wells Fargo 1,400.0 +7.7% USD 4. Morgan Stanley 1,308.0 +7.3% USD 5. Credit Suisse 854.6 +6.9% CHF 6. Royal Bank of Canada 628.5 +9.6% CAD 7. HSBC 398.0 +5.6% USD 8. Deutsche Bank 387.3 +11.1% EUR 9. BNP Paribas 346.9 +9.7% EUR 10. Pictet 322.2 +22.9% CHF Source: Scorpio Partnership Global Private Banking Benchmark, 2013

London s wealth management global corporate network the most significant changes followed the deregulation of financial markets from the mid-1980s in the City that led to the rapid growth of a pure private wealth management industry. This growth involved a range of multinational corporations, small and medium-sized financial and professional service providers, as well as established private banks (e.g. Wachovia) and the private banking arms of many global banks, most notably by competitors from the US like Bankers Trust, Chase Manhattan, Citicorp and Merrill Lynch (Beaverstock et al, 2012).

London s Private Banks Coutts & Co (1692) Kleinwort Benson (1792) Lombard, Odier (1798) Pictet (1805) ANZ-Grindleys (1828) UBS (1865) Bank Julius Baer & Co (1890) Bank Sarin (1900) Citicorp (1902) Chase Manhattan Private Bank (1968) Bankers Trust (1978) Barclays Private Bank (1992) Swiss Banking Corp. (1993)

London s wealth management global corporate network The UKs regulatory framework and close relationship with offshore jurisdictions (Switzerland, Channel Is., Isle of Man, Hong Kong and Singapore) The range of its financial and professional services The availability and quality of professional advice (e.g. trust and taxation) Expertise in global and regional financial products (e.g. Islamic finance) An international client (high net worth) base (IFSL, 2009)

London s wealth management global corporate network Managed UK private client securities by banks, fund managers and stockbrokers valued at 335b Had over 300 family offices with assets over 100m Managed both conventional (e.g. cash, bonds, equities) and alternative (e.g. hedge funds, private equity) assets (ww.thecityuk, 2011)

Trends in offshore wealth 2013 bcg.perspectives.com, accessed 05/08/2013

Asia pacific financial centers such as Singapore and Hong Kong are expected to receive most of the newly created wealth in the region that finds its way offshore and they are expected to hold roughly 18 percent of global offshore wealth by the end of 2017. www.bcgperspectives.com, accessed 05/08/2013

Deloitte Wealth Management Centre Rankings, 2013 Source: Deloitte (2013)

PwC Global Private Banking & Wealth Management Survey, 2013 Source: PwC (2013)

Wealth Management Centre Rankings, 2013 Centre Business Provider Stability Tax and (score) environment capability regulation Switzerland (2.5) =1 1 3 3 Singapore (2.7) 4 4 1 1 Hong Kong (3.7) 5 6 2 2 UK (3.8) 3 2 5 5 United States (5.0) =1 3 6 7 Bahrain (5.2) 7 5 7 4 Luxembourg (5.7) 6 8 4 6 UAE (7.2) 8 7 9 8 Panama & Caribbean (7.4) 9 9 8 9 Source: Deloitte (2013)

Private wealth specialisation in selected OFCs Bermuda Reinsurance Britain Funds from British dependencies routed through the City Cayman Islands Hedge funds Channel Islands Trust/banking and private equity funds Isle of Man Banking Monaco Long standing tax haven for European elites Singapore Rising star in wealth management trusts Switzerland Offshore private banking The Economist (2013)

Singapore AuM US$1.63trillion 500+ players in the asset management industry Established private banking centre Insurance hub Regulatory environment Talent Global financial centre Asian world city network Asia s wealthy flock to the citystate Might overtake Switzerland in 2015 80% AuM from outside Singapore [MAS (2013); Euromoney (2013); Lai (various)]

Private banks in Singapore ABN Amro Private Banking ANZ PTE Bank Singapore Barclays Wealth BNP Paribas Wealth Management China Construction Bank Corp. Citi Private Bank Coutts & Co Ltd Credit Industriel et Commercial Credit Suisse DBS PTE Bank Deutsche Bank PTE Wealth Man. Goldman Sachs PTE Wealth HSBC PTE Bank (Suisse) SA Industrial & Commercial Bank of China JP Morgan PTE Clients Julius Baer Merrill Lynch International Bank Morgan Stanly RHB Bank BHD Rothschild Schroder & Co Asia Ltd Societe General PTE Banking (S) UBS AG Singapore Union BanCaire Privee (S) Ltd http://directory.stclassifieds.sg/singapore-directory/search?navigators=category&category=private+banks&querystring=private+banks&catnav=private +Banks&sortby=directoriescategory&offset=0, accessed 06.08.2013.

Conclusions Strong growth in global private wealth and offshore AuM HNWIs continue to seek management and preservation of wealth The ABS- offshore nexus and private wealth management Switzerland in fierce competition with wanabee OFCs Enter Singapore stage-left