Go East Wealth Managers!

Perhaps not surprisingly given its size and oil wealth Russia has already become the most promising market east of Switzerland for aspirant wealth management firms, according to the latest research released by Scorpio Partnership, a London-based research and consultancy firm.This examines wealth management opportunities in the Czech Republic, Hungary, Poland and Russia.

According to Scorpio rich Russian investors already control around more than $250 billion of assets than Poland, the next wealthiest country in central and Europe market. Rich investors control around $73 billion of liquid assets in Poland, $38 billion in the Czech Republic and $35 billion in Hungary.

The world's leading wealth managers as well as a growing number of domestic institutions are increasingly targeting the four markets. Interest in the markets extends to both an onshore and offshore dimension, although the onshore segment is still rather constrained at present, especially in Russia where despite recent rapid economic growth financial reform has lagged. As a consequence a substantial proportion of the assets of the rich has tended to end-up offshore.

In addition, the numbers of rich are small, both in absolute terms and relative to the population as a whole. Both are numbers are increasing, however.

The Scorpio research shows that most of the rich in the Czech Republic, Hungary and Poland fall within the $1 million to $5 million size category with a much small proportion in the higher echelons. This contrasts with Russia. Despite the fact that around one third of the assets owned by the rich are controlled by just around 300 individuals and/or families (the so-called oligarchs) a similar volume of wealth is controlled by a much bigger number of people that fall within the $1 million to $5 million category of millionaires.

Scorpio found that local wealth management firms within Poland, Czech Republic and Hungary are targeting the affluent, rather than rich market segment, i.e. individuals with less than $1 million of free assets who are at an early stage in the wealth cycle. This may provide a solid platform for future growth in line with future economic progress. The market for investors with more than $1 million of assets still tends to be the preserve of the big international wealth management groups.

Although all three countries are similar there are points of difference as far as the wealth management product and service offer is concerned. The Czech Republic has the most sophisticated offering in terms of asset allocation. It also has the highest investment threshold for tailored investments, another possible sign of greater sophistication. Yet wealth management firms in all three countries favored a diversified asset allocation including venture capital and foreign exchange.

This is not the case as far as Russia is concerned, however, where cash still tends to be the asset of choice, albeit diversified by currency. Nonetheless, the situation can change rapidly. "Ten years ago the product range was just as restricted in the Czech Republic, Hungary and Poland was concerned," said Ted Wilson, a Scorpio Partnership consultant. "Now, however, investors have access to almost as big a range of instruments, as their peers in other jurisdictions and this is beginning to be reflected in the overall asset allocation."

Not surprisingly wealth management firms are assiduously targeting these markets from both an onshore and offshore perspective, despite the relatively immaturity of the markets.