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Asian family offices explore options to replace Credit Suisse
After the fall of Credit Suisse, Switzerland’s reputation as a wealth management centre hangs under a cloud. Could Asia reap the benefits as the region’s richest families look to diversify their assets?
By Shusi He | Mar 24, 2023
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While some Asian family offices may view the sudden collapse of Credit Suisse as a one-off, unlikely-to-be-repeated event, others believe the fall of the bank has dealt a serious blow to Switzerland’s reputation as a wealth management centre, in particular as a booking centre.
Despite the rescue merger with UBS, diversification and new relationships are now top-of-mind for many of the region’s richest families who are looking to bring their assets back closer to home.
“While Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank have come out and provided liquidity support and credit lines to the bank, Credit Suisse’s reputation has been severely damaged,” said Patrick Tsang, chairman of single-family office Tsangs Group.
“Merger of certain segments of their business with UBS may happen. Given the ongoing issues with the bank, we may consider retreating funds from them,” Tsang told AsianInvestor.
In a Swiss government-brokered deal on March 19, UBS agreed to acquire struggling rival Credit Suisse for SFr3 billion ($3.3 billion) and accept up to $5.4 billion in losses, ending the 167-year history of the Swiss giant.
The Swiss regulator may have avoided angering taxpayers with a costly bailout, but failed to assuage the fury of global bondholders – whose rights usually come before stakeholders – when it wiped out the value of $17 billion in high-risk debt known as Additional Tier 1 (AT1) bonds.
“If you ask me, it’s less about dealing with the bank, but more about Switzerland as a booking centre. I think that would probably be a bigger factor to consider for wealth management clients,” said a senior executive of a Hong Kong-based multi-family office.
“How the Swiss treated Russian clients last year (when assets were frozen) already caused asset outflows from Switzerland. A lot of them actually went to Singapore. Would the way they treated the current situation trigger another liquidity or AUM event? That’s a wait-and-see,” he told AsianInvestor.
As a result, many Asian families are considering moving assets around the globe, including back to Asia, for the sake of diversification.
“The recent banking crisis has certainly shaken the ultra-wealthy, prompting them to take a hard look at their risk management strategies and explore a broader range of investment options,” said Kwan Chi-man, founder and group chief executive officer of Raffles Family Office.
“As such, Asia, especially Hong Kong and Singapore, has become an increasingly popular destination to steer their assets. Many of our clients are considering moving around their assets, ensuring their portfolios are well-prepared to weather any future storms. In light of these developments, multi-family offices are gaining traction as an option for clients seeking independence,” Kwan told AsainInvestor.
However, within the Asian context, relationships count for a lot.
“We had some discussions in terms of further diversifying with private banks and external asset managers that we use. I think it will be a major topic among ourselves – and how do we restructure our relationships – because some of these relationships have been very long,” said the partner of one Asian multifamily office.
“Sometimes it is not just whether we want to diversify. It takes time for accounts to be opened, relationships to be re-established. So, it is quite tricky for us.
“I suppose it will be ongoing for the rest of this year as we try to further diversify, not just in terms of our positions or portfolio asset allocation, it is also with banks and external managers,” he told AsianInvestor.
In the Greater China region, families have split into two camps over the Credit Suisse crisis. The ones that are concerned about the situation have probably already moved their relationship to another bank, said the CEO of an Asian multifamily office based in Hong Kong.
For those less concerned, some are in a wait-and-see mode since they know their deposits are safe following the merger.
“However, even if they don’t transfer the majority, I think they would transfer part of their assets to other banks to further diversify,” he told AsainInvestor, adding that most people he knows within the industry believe Credit Suisse is a “one-off” incident and do not intend to transfer all assets away from Swiss banks.
TOO BIG TO FAIL
Credit Suisse worked with many multi-family offices in Asia, not only because they were experienced in offering sophisticated solutions, but because they were at the forefront in client fee sharing with multi-family offices, something that American banks would not usually offer, he noted.
“But I think with this incident, the lesson learnt is you have to diversify…It’s a huge reminder to people that anything can happen.”
Mainly working with Greater China families, he said that many families in the region usually have six to nine private banking accounts and, because they value relationships, were usually reluctant to move away unless the situation was terrible, as they “like the sense of having options”, he noted.
As most families already have American and European banking relations, he believes that Asia-Pacific banks could be a natural choice for further diversification. Compared with their global peers, they could be more competitive in client service and pricing.
“For Greater China clients, they will think about Hong Kong and Singapore [in Asia],” he said. These include DBS, OCBC, UOB, HSBC, and Hang Seng, he noted.
Despite the need for diversification, he said he believed there would always be a place for large global banks with longer history because of their scale, capability, and diversified offerings, particularly in the alternative investment space.
“They have a preference for those banks that are ‘too big to fail’. It gives them a sense of security,” he said.
AsianInvestor will be hosting its Family Office Briefing on March 28 in Hong Kong, which will bring together a select group of family offices. For more details, click here.