As the new year begins and resolutions to become fighting fit are considered (and quietly discarded!), in the world of wealth management and private banking, budgets are being set, business development and strategy plans are being put in motion and the subject of growth is rearing its head – including around potential mergers and acquisitions.
This last year, we have been furiously collating data around the purchasing habits of wealth managers and private banks and should have some insights to share with you in the coming weeks as part of our annual Deal Tracker analysis. Since 2013, analysing trends in wealth management deals has become even more relevant as a way of understanding the strategic objectives of industry players, as the volume and scale of M&A activity has grown significantly (Figure 1).
Figure 1: Total number of global deals 2008 – 2014
Source: 2015 Scorpio Partnership Wealth Management Deal Tracker
One deal which is worth considering is the recent Julius Baer – Jupai deal. The Swiss pure player firm decided at the turn of the year, to acquire a 5% share of Jupai, a US-listed Chinese wealth manager. At USD1.83 per share for the purchase of 9,591,000 ordinary shares, the level of investment represents approximately USD17.5 million. This would imply Jupai’s value to be close to USD351 million.
Quite aside from its size, the Julius-Jupai deal throws in to sharp relief the strategies firms are employing to crack emerging markets. The two main ones, I believe are the ‘bake-a-cake’ and ‘cherry-on-top’ strategies:
- Bake-a-cake strategy – Develop operations with (initially) an offshore focus in emerging markets (where permissible). As wealth managers chase assets and attempt to cultivate new clients, one option is to create offices which give resident HNWs in emerging markets opportunities to diversify investments and spread risk. The representative or offshore office enables firms to gain exposure to a sophisticated client market without the need to develop onshore capabilities and thus compete with in-country onshore groups. It allows the firm to develop a profile and grow outside-in.
- Cherry-on-top strategy – Allow competitors to develop their operations to scale before purchasing a fully-fledged business and adding niche or specialist capabilities on top. Whether it was Julius Baer picking up the Merrill Lynch’s international operations back in 2012, or UBP acquiring Coutts’ international business, where larger players go, eventually, smaller ones follow. As large diversified and well capitalised firms can often afford the upfront cost to develop their operations, those firms can also, retrench, refocus, recalibrate and cut costs. This allows smaller, boutique operators to swoop.
Yet there are a couple of firms doing things differently to these tried and tested market entry strategies. In 2014, Société Générale set up a strategic partnership with DBS following its exit from Singapore and Hong Kong which is essentially an active referral relationship between the firms, whose clients were either looking to offshore or invest between APAC and Europe.
BNP Paribas has also this week, set up a strategic partnership with Orion Partners – an Asia-focused alternative investment firm, providing Orion’s clients with access to BNP’s platform, products and services and allowing BNP’s client’s access to rare and exotic investment opportunities in Asia.
Both these strategies, make a great deal of commercial sense, with little financial commitment required on either party, but there again, the rewards are also likely to be marginal. Having a client purchase a fund, a trust solution or an equity will generate only smallish but stable revenues.
Julius Baer’s strategy on the other hand, of taking small stakes in emerging market wealth managers, has caught my eye. It has form in this regard as over the last four years it has increased its stake in GPS Investimentos Financeiros e Participacoes, a Brazilian wealth manager. The move to invest in Jupai shows Julius Baer is committing to wealth in emerging regions, and doing so by not reinventing the wheel, but by taking advantage of local expertise.
The arrangement will also allow Jupai to leverage the vast resources of Julius Baer’s operations as it further increases the range of products, services and operational capabilities it can deliver. This international influence can only be of benefit to Jupai’s clients.
The move also makes sense in the context of the ongoing fluctuations in the Chinese market. By taking a small equity shareholding, Julius Baer can observe the market up-close and personal without significant exposure and potentially increase its shareholding subject to performance and market conditions.
Whether you are a butcher and cutting your operations, a baker, a cherry placer or Julius Baer, 2016 looks set to be a year of further consolidation in the wealth management market. How this occurs, remains to be seen, but Julius Baer’s strategy is certainly one worth considering.
Thought for the week:
“Strength and growth come only through continuous effort and struggle.” – Napoleon Hill, American author.
News from the world of wealth:
JPMorgan misled private banking customers over broker pay, SEC says – (International Business Times)
Are wealth management firms really facing a shortage of financial advisors? – (efinancialcareers.com)
Union Bancaire Privée settles with US authorities – (swissinfo.ch)
AllianceBernstein names UK chief – (eFinancialNews.com)
Coming events in the world of wealth:
We will be attending the events highlighted in pink. We look forward to seeing you there!
Background: James comes from a political and corporate communications research and strategy background. He previously worked with political and corporate leaders across a range of research, campaigning and presentational issues.
Education: James holds a Bachelor’s degree in International Politics from the University of Stirling.
And at the weekends: James spends his weekends gardening, walking his mischievous dog and being instructed by his wife in various activities ranging from the complex to the mundane (he’s more obedient than the dog).