Asia-Pacific Wealth Report 2012 English Version

7/29/2019 Asia-Pacific Wealth Report 2012 English Version

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Asia-Pacific Wealth Report

2012



Preface 3

Asia-Pacific’s Population of HNWIs Became the World’s Largest 4

b Region in 2011

– Asia-Pacific’s HNWI Segment Continues to Expand Overall 4

Drivers of Wealth: Asia-Pacific Was Buoant in 2011, but Global 7 and Domestic Variables Constrained Economies and Markets

– Asia-Pacific GDP Far Outpaced Global Growth in 2011, Despite Challenges 8

– Performance of Certain Business Segments Drove Fortunes of Many 12 Asia-Pacific HNWIs

– Equities and Real Estate, Key Asset Classes for Many Asia-Pacific HNWIs, 13 Declined in Value in 2011

– Interest in Investments of Passion Grows Among Asia-Pacific HNWIs 16

– Outlook for Asia-Pacific Economy and HNWI Wealth Remains Positive 18

for 2012 and Beyond

Spotlight: Asia-Pacific Offshore Wealth Centers Are Rising 20

As Region’s HNWIs Grow in Number and Influence

– Asia-Pacific HNWIs Perceive Many Benefits in Region’s Offshore Wealth Centers 21

– Singapore and Hong Kong Are Attracting Increasing Amounts of Offshore AuM 22

– Asia-Pacific HNWI Growth and Demand for Diversif ication of Country Risk 23 Are Key Drivers of Success for the Region’s Offshore Wealth Centers

– Hong Kong and Singapore Outscore Many Other Offshore Wealth Centers 24

on Attractiveness

– Growth of Offshore Wealth Centers in Asia-Pacific Has Wide Implications 24 for Clients, Firms, and Regulators

Wa Forward: To Thrive in Asia-Pacific Offshore Wealth Centers, Firms 28

Can Borrow from Models Used in Other Locales, but Need to Leverage

Core Competencies

Methodolog 30

About Us 31



Capgemini and RBC Wealth Management are pleaed t preent the 2012 Asia-Pacific Wealth Report (APWR),

which lk at the rein’ everrwin ppulatin f hih net wrth individual (HNWI)—the with US$1

millin r mre1 at their dipal fr invetin.

Fr the firt time ever, ur reearch find, AiaPacific became hme t mre HNWI than an ther rein in 2011.

Hwever, AiaPacific’ HNWI ppulatin i unique in it cmpitin and rwth, preentin pecial challene fr

wealth manaement firm. Fr intance, much f the wealth i newl enerated, and a lare prprtin f HNWI are

entrepreneur (r heir f entrepreneur). Market in the rein are al rwin at ver different rate.

And even thuh the ppulatin f HNWI rew in 2011, the areate level f invetable HNWI wealth in the

rein declined marinall. The rein rappled with it wn ecnmic challene, includin inflatin, lwin

rwth, and capital utflw. Wealth al declined amid a lwdwn in man f the buine ement in which

HNWI are entrepreneur. At the ame time, AiaPacific ecnmie battled the effect f lbal trend, epeciall

the weakne in Eurpe’ ecnm, which reduced demand fr AiaPacific d and ervice.

Neverthele, AiaPacific i expected t cntinue hwin trner rwth than ther rein in frward, and it

HNWI ppulatin and wealth are likel t keep expandin accrdinl. In the prce, HNWI are increainl

lkin fr the kind f benefit ffered b ffhre wealth center—frm wider acce t prduct and ervice t

advantaeu tax framewrk and financial cnfidentialit. Thi reprt find AiaPacific HNWI are increainl

drawn t ffhre wealth center cle t hme, uch a Sinapre and Hn Kn. Thee center ffer leal and

reulatr tranparenc, eraphic and cultural prximit, and practive reulatr keen t dein imple prcee.

A a reult, the are wellpitined t becme a attractive fr ffhre wealth a center uch a Switzerland,

epeciall fr HNWI within the rein.

T erve HNWI well in thee AiaPacific ffhre wealth center, wealth manaement firm will need t devie a

trate t meet the exitin need fr killed advir, enhance capabilitie arund rik and cmpliance b upradin

IT infratructure, and imprve the prduct and ervice that drive lutin relevant t the AiaPacific market.

It i a pleaure t preent thi ear’ Reprt, and we hpe u draw value frm it iniht.

Preface

Jean Lassignardie

Global Head of Sales and Marketing

Global Financial ServicesCapgemini

M. George Lewis

Group Head

RBC Wealth ManagementRoyal Bank of Canada

1 Invsab wah s n inu h vau f psna asss an pp suh as pia sins, ibs, nsuabs, an nsu uabs



2012 ASIA-PACIFIC WEALTH REPORT4

2 HNWIs a hs iniviuas w ih US$1 iin a hi ispsa f invsin

3 Invsab wah s n inu h vau f psna asss an pp suh as pia sins, ibs, nsuabs, an nsu uabs

4

F h pupss f u ana sis, w as spaa HNWIs in h is wah bans: hs wih US$1 iin US$5 iin in invsab wah (s-a ‘iinais nx ’);hs wih US$5 iin US$30 iin (s-a ‘i-i iinais’) an hs wih US$30 iin (‘Ua-HNWIs’)

5 S World Wealth Repor t 2012, hp://www.apini./insihs-an-sus/b-pubiain/w-wah-p-2012/

6 Ibi

ASIA-PACIFIC’S HNWI SEGMENTCONTINUES TO ExPAND OVERALL

AiaPacific’ HNWI ppulatin cntinued it rwthtrajectr in 2011, becmin the laret HNWI marketlball fr the firt time. While the wrld’ ppulatin f HNWI rew jut 0.8% in 2011,5 AiaPacific’ ained 1.6% t3.37 millin individual (ee Fiure 1), urpain Nrth

America fr the firt time, after pain Eurpe the ear befre.

Hwever, Nrth America’ 3.35 millin HNWI till accuntedfr the laret reinal hare f HNWI invetable wealth—atUS$11.4 trillin6—thuh that wa dwn 2.3% frm 2010 duet the nin effect f the Eurzne debt crii and thelinerin impact f the lbal ecnmic crii. The Eurznecrii al cntributed t a drp in areate invetable wealthamn AiaPacific HNWI, with le in mt f the rein’mature market, and harp decline in India and Hn Kn.Still, there were pcket f rwth in the rein, which kept theareate decline t 1.1%, and ttal invetable HNWI wealth in

the rein at US$10.7 trillin (ee Fiure 2).

Japan i b far the inle laret HNWI market in AiaPacific,and accunted fr 54.1% f all HNWI in the rein in 2011,up frm 52.5% in 2010. China i the next laret, fllwed b Autralia. The three market tether accunted fr 76.1% f all HNWI in the rein in 2011, up lihtl frm 74.4% in2010. Hwever, the hare held b the three had erded in thetw ear prir—drppin frm 77.4% in 2008 t 74.4% in2010. That trend tward framentatin i epeciall likel treemere if previul evident rate f harp rwth remain rreturn in develpin AiaPacific market.

AiaPacific accunted fr 14 f the tp 20 fatet rwinHNWI ppulatin in the wrld in 2009, and eiht f the tp20 in 2010. In 2011, AiaPacific accunted fr even f the tp20 fatet rwin HNWI ppulatin with me marketutainin trn ain. Fr example, the number f HNWIin Indneia jumped 23.8% in 2010, and re anther 8.2% in2011. The 2010 and 2011 ain were 16.0% and 12.8%repectivel in Thailand, and 12.0% and 5.2% in China.

In 2011, Asia-Pacific became home to

more high net worth individuals

(HNWIs)2 than an other region. Driven bygrowth in the large markets of Japan andChina, the HNWI population in Asia-Pacificcontinued its sustained growth in 2011, andhit 3.37 million. For the first time, that wasmore than the number of HNWIs in North

America, and more than in Europe for thesecond straight year. Asia-Pacific HNWIinvestable wealth3 declined marginally, by1.1%, mainly due to declines among thehigher wealth bands,4 but that decline wasless than in most regions.

The Asia-Pacific HNWI population was

more concentrated in the largest

markets in 2011 than it had been in 2010,

but signs of fragmentation are likel to

re-emerge over the longer term. Japanalone accounted for 54.1% of the region’s

HNWIs in 2011, China for 16.7%, and Australia for 5.3%. Their combined share(76.1%) was up 1.7 percentage points fromthe year before, but it had previouslydropped from 77.4% in 2008 to 74.4% in2010—a trend that is likely to re-emerge,especially if previous high growth rates incertain smaller markets return or continue.

HNWI population growth was not

uniform across the region. Despite theaggregate expansion, the HNWI populationdid contract in several Asia-Pacific markets

in 2011, most notably India and HongKong—which had led the growth in the priortwo years. Those significant declinesconstrained the overall growth in the Asia-Pacific HNWI population, but thoselosses were offset by robust growth in themarkets of China, Japan, Indonesia,Malaysia, and Thailand.

AiaPacific’ Ppulatin f HNWI Becamethe Wrld’ Laret b Rein in 2011



52012 ASIA-PACIFIC WEALTH REPORT

ASIA-PAcIFIc’S PoPUlAtIoN oF HNWIs BecAme tHe World’S lArgeSt By regIoN IN 2011

FIgURE 1. Asia-Pacific HNWI Population, 2007–2011 (by Market)

(000s)

0

1,000

2,000

3,000

4,000

20112010200920082007

2.8m 2.4m 3.0m 3.3m 3.4m

CAGR 2007-2011: 4.7%

Number

of HNWIs

(000s)

1,517

413

169

118123

149

96

7871

2444

1,366

364

12910584

138

61

1942

5837

1,650

154

477

174

127

1278283

24

7650

1,739

535

193

146

1539994101

166 3058

1,822

562

180

144

12691

173

8984

6532 Other Markets

Indonesia

Thailand

India

South Korea

Australia

China

Japan

Singapore

Taiwan

Hong Kong

Asia-Pacic

Annual Change

2009-10

9.7% 1.6%

8.4% 3.9%

23.8%

16.0% 12.8%

33.3% -17.4%

13.7% -5.4%

21.3% -7.8%

20.8% -18.0%

15.5% -1.5%

11.1% -6.9%

12.0% 5.2%

5.4% 4.8%

8.2%

2010-11

Japan, China,and Australia nowaccount for76.1% of total

Asia-PacicHNWI population(up from 74.4%in 2010)

N: cha nubs a n a up u unin; oh maks inu Kazakhsan, maasia, mana, Nw Zaan, Pakisan, Phiippins, Si lanka, an Vina

Su: capini lnz cuv Anasis, 2012

FIgURE 2. Asia-Pacific HNWI Wealth Distribution, 2007-2011 (by Market)

(US$ Biin)

0

3,000

6,000

9,000

12,000

HNWIInvestable

Wealth(US$ Billion)

20112010200920082007

CAGR 2007-2011: 3.1%

US$9.5T US$7.4T US$9.7T US$10.8T US$10.7T

2,109

3,815

3,179

3,892 4,135 4,231

2,706

542

477

439

408381298279

2,657

582

582

453

511

396272302

2,347

519

477369379340

1,672

380

310272

276540

437

386

523319

807

671

749

829 840

181

232264

176190

80

100 106

61

22523485

Other Markets

Indonesia

Taiwan

Singapore

India Australia

China

Japan

Hong Kong

South Korea

Thailand

Asia-Pacic

Annual Change

2009-10

12.1% -1.1%

1.3%

24.9%

10.8%

14.7% -7.8%

9.3%17.3%

16.5% -3.9%

35.0% -20.1%

22.6% -3.1%

22.0% -18.0%12.1% -6.9%

13.2% 1.8%

6.2% 2.3%

5.3%

2010-11

N: cha nubs a n a up u unin; oh maks inu Kazakhsan, maasia, mana, Nw Zaan, Pakisan, Phiippins, Si lanka, an Vina





7 S Asia-Pacif ic Weal th Re por t 2011, hp://www.apini./insihs-an-sus/b-pubiain/asia-paifi-wah-p-2011-nish/

ASIA-PAcIFIc’S PoPUlAtIoN oF HNWIs BecAme tHe World’S lArgeSt By regIoN IN 2011

Thee market were aided b rbut macrecnmicrwth a meaured b r natinal incme (gNI),natinal avin, and dmetic cnumptin, and pcketf indutrial trenth fr the entrepreneurial bae (ee“Perfrmance f Certain Buine Sement DrveFrtune f Man AiaPacific HNWI” n p12).

Japan, which underwent inificant hck due t naturaldiater, recvered well in the ecnd half f 2011,ptin rwth f 4.8% in it HNWI ppulatin. Thirwth wa mainl aided b the natin’ recver effrt, which helped t increae dmetic cnumptin, andcntinued en appreciatin. The rwth rate fr Japan’HNWI ppulatin have been relativel table ince 2007cmpared with ther AiaPacific market, mainl becaue Japanee HNWI have traditinall been cnervative,hldin hih level in cah, fixed incme, and real etate(where dmetic price are till hih). A a reult, Japan’

HNWI have been inif icantl le inveted in declininequitie than reinal and lbal peer.7

In ther market, hwever, the frtune f HNWI aretied ver clel t equitie. In Hn Kn, fr example,the HNWI ppulatin cntracted b 17.4% in 2011, afterexpandin b 33.3% in 2010, fllwin wide win intck market value. Man HNWI in Hn Kn areactive and areive invetr in equit market andrelated equitlinked derivative prduct, the vlatilit and le diplaced a inificant number f individualfrm the HNWI cater.

The HNWI ppulatin in India imilarl drpped b 18.0% in 2011 after ainin 20.8% in 2010. Indian MSCIequitmarket index al ank in 2011 (dwn 38.0%), afterurin b 19.4% in 2010. The equitmarket decline and a

teeperthanexpected ecnmic lwdwn drve dwn thenumber f individual with mre than US$1 millin inliquid aet available t invet.

Population and Wealth of ‘Millionaires Next Door’Increased in 2011

In 2011, wealth rew 1.5% amn AiaPacific’ called‘millinaire next dr’—the with US$1 mill in t US$5millin in invetable wealth (ee Fiure 3). The number f HNWI in that cater al rew—b 1.9% t 3.08millin—reflectin the expanin f wealth, and accuntedfr 91.5% f all HNWI in the rein. Areate wealthacr the HNWI ppulatin declined marinall,hwever, becaue f le amn the hiher wealth band, whe hldin have a diprprtinate influence n thepl f invetable wealth.

Jut 0.6% f HNWI in AiaPacific fal l int the ‘UltraHNWI’ cater—havin mre than US$30 millinavailable t invet, but that mall number accunt fr24.5% f areate HNWI wealth in the rein.Similarl, the ‘MidTier Millinaire’ cater (US$5millinUS$30 millin in invetable wealth) accunt fr7.9% f all the HNWI in AiaPacific, but 23.8% f theirareate wealth. Wealth amn the in the UltraHNWI and MidTier Millinaire caterie drpped b 5.2% and 1.9% repectivel in 2011 (and the ppulatin b 3.9% and 1.6% repectivel), mtl becaue theeinvetr are tpicall cmmitted t hiherrik and/r

leliquid aet uch a hede fund, private equit, rcmmercial real etate that le value quickl in declininmarket, and can al be hard t ell. The le amnthee rup help t explain wh areate wealthdeclined even thuh the HNWI ppulatin increaed.

FIgURE 3. Composition of Asia-Pacific HNWI Population by Wealth Bands, 2011

N: cha nubs a n a up u unin


Number ofIndividuals, 2011

HNWI PopulationGrowth,

2010–2011

HNWI WealthGrowth,

2010–2011

% of HNWIWealth, 2011

21.7 k

(0.6% of total)

-3.9% -5.2% 24.5%

266.0 k

(7.9% of total)

-1.6% -1.9% 23.8%

3080.2 k

(91.5% of total)

1.9% 1.5% 51.8%

+ $30 m

Ultra - HNWI

$5–$30 m

Mid-Tier Millionaire

$1 m–$5 m

Millionaire Next Door




8 ‘gdP’ fs in a ass in his un infain-ajus, a gdP

9 Bas n aa f Asia-Pacif ic Weal th Re por t 2011

Gross domestic product (GDP8 ) continued to epand at a health rate of 6.5% in Asia-

Pacific ecluding Japan in 2011, far above the World GDP average of 2.7%. The region’sexpansion followed stellar growth of 8.3% in 2010, and was fueled by a GDP gain of 9.2% in Chinaand 6.9% in India in 2011. Even the developed economies of Australia and Japan performed betterthan expected. Japan, struck in quick succession in March 2011 by an earthquake, tsunami, andnuclear disaster, recovered well in the second half of 2011 as both government and personalspending increased.

Asia-Pacific growth was constrained, however, b both global and domestic challenges,

especiall in ke markets such as India and China. In 2011, the region’s trade exports declinedas the European economy slowed markedly and the Eurozone debt crisis deepened, fueling fearsof financial contagion. At the domestic level, China’s growth slowed as the government crackdownon property speculation cooled prices sharply, and banks faced an increasing debt burden due totheir high exposure to local government financing vehicles (LGFV). In India, the major domesticchallenges were high inflation, lower investment flows, and policy paralysis.

Entrepreneurship and commerce remain ke drivers of HNWI wealth and population

growth in Asia-Pacific, but some industr sectors were less vibrant in 2011 than in the past. Key services and manufacturing industries, including healthcare, IT, automobile, and infrastructure,have been leading economic and HNWI wealth expansion in recent years, but were constrained bymore challenging economic conditions in 2011. Now that large developing economies such as

China are nearing the end of their national wealth-creation phase (measured by aggregate realGDP), the next wave of growth in Asia-Pacific HNWI wealth is likely to come from a diverse mix ofindustries, but especially those aimed at improving the wealth of society (recognized in GDP/ capita levels), including financial services, education, healthcare, and value-added manufacturing.

The value of ke asset classes also declined in 2011 as their performance in Asia-Pacificfollowed global trends. Most significantly, there were sharp losses in the value of equities and realestate, which over the last four years have together accounted for around 50% of aggregateportfolios held by Asia-Pacific HNWIs9. The potential for gains on investments was also reducedby the tendency of investors to favor lower-risk investments designed primarily to preserve capital.

Asia-Pacific ecluding Japan is epected to grow at a good pace of 6.1% in 2012, driven byChina and India, which are still among the fastest-growing economies in the world despite their

recent slowdown. The diversity of the Asia-Pacific economy, its broad ties to important regionaltrade blocs, and the growth in key industries in the region are all expected to help offset thenegative impact of any weakness in the European economy.

Driver f Wealth: ASIA-PACIFIC WAS BUoyANT IN 2011,BUT gLoBAL AND DoMESTIC VARIABLES

CoNSTRAINED ECoNoMIES AND MARKETS




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ASIA-PACIFIC GDP FAR OUTPACEDGLOBAL GROWTH IN 2011, DESPITECHALLENGES

AiaPacif ic exc ludin Japan pted gDP rwth f

6.5% in 2011, far mre than the 2.7% rwth in Wrld

gDP, and inif icantl mre than an ther rein.Hwever, AiaPacific’ rwth wa dwn frm 8.3% in

2010 a the rein rappled with bth lbal and

dmetic ecnmic preure.

glball, Eurpe wa at the frefrnt. The ecnm

there wrened a the Eurzne debt crii draed n

thruhut 2011 and int 2012. A f Q2 2012,

greece, Prtual, Ital, Spain, Cpru, and the

Netherland were all technicall in recein—a wa

the U.K., which i nt in the Eurzne. Thi weakne

neativel impacted AiaPacific exprt, fund flw,and verall market entiment, and i likel t ubdue

the rein’ rwth prpect in 2012. Exprt t

Eurpe frm AiaPacif ic declined in 2011, with

manufacturer in cuntrie like Taiwan reprtin

harpl lwer rder fr electrnic device, fr example,

frm brand name like Dell, Lenv, and Nkia.

Hwever, the decline in exprt t Eurpe wa ffet

mewhat b riin exprt t ther rein uch a

Nrth America in Q4 2011. Additinall, exprt t

Latin America have been teadil riin, and nw

accunt fr abut 4% f ttal AiaPacific exprt.

Within AiaPacif ic, dmetic cncern created a

further dra n rwth, with man vernment

rapplin with the balance between inflatin and

rwth. China faced iue f dmetic CPI riin

abve 6% (fr everal mnth f 2011) and verheatin

prpert price, where lcal vernment were deepl

invlved. India uffered hih inflatin and plic

parali, which undermined entiment. Bth China

and India che t priritize the inflatin fiht ver

rwth, keepin ke interet rate at elevated level fr

much f 2011. In the firt half f 2012, China aw

inflatin abate, and initiated mnetareain meaure

deined t enineer a ft landin. India, while till

reelin frm hih level f inflatin, ha al een the

rate f inflatin decline.

While rwth lwed in AiaPacific verall, the precie

effect depended upn the tate f indutrial develpment.‘Emerin Aia’ ecnmie were till relativel mrereilient, with averae ecnmic rwth f 8.3% in 2011,dwn frm 9.7% in 2010 (ee Fiure 4). Hwever,cnumer pendin in China and India helped t ffetthe impact f ther challene. In ‘Newl IndutrializedEcnmie,’ rwth lwed t 4.0% in 2011, le thanhalf the rate een in 2010, due t the lwdwn inexprt, and uppl diruptin due t fld in Thailand. Ecnmic rwth in ‘Indutria lized Aia’remained tanant in 2011, neativel impacted mainl b the effect f Japan’ diater.




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FIgURE 4. Real GDP Growth Rates, Select Asia-Pacific Economies, 2009-2011

(%)

N: Aa a gdP wh as a bas n gdP wihs as aua b h eIU

Su: capini Anasis, 2012; enis Inin Uni, Jun 2012




10

Naina savins is qua a gdP inus h bin a f a pubi an piva nsupin

Still, the lbal and dmetic ecnmic challene hada tanible impact in 2011 n all tpe f ecnmie inthe rein—Emerin, Newl Indutrialized, andIndutrialized (ee Fiure 5). Fr example:

Japan, ne f the laret ecnmie in the rein,uffered cial and ecnmic hck after theearthquake, tunami, and nuclear diater f March2011, which reulted in inificant l f human lifeand a tandtill in indutrial activit. Japan’ gDPcntracted b 0.7% in 2011, after rwin 4.5% in2010. Hwever, vernment pendin helped theecnm t perfrm better than expected in theecnd half f 2011 in the aftermath f the diater,and that aided the rwth f the HNWI ppulatinand it wealth. Al, while Japan remain imprtantt the rein due t it ize, much f the HNWI wealth i in cah r illiquid real etate hldin thatchane little frm ear t ear. A a reult, the earnear hift in HNWI wealth are ften leprnunced than in the mre develpin market f the rein.

China’s ecnmic rwth lwed t 9.2% in 2011frm 10.4% in 2010, due t the exprt lwdwnand curb n peculative real etate activit.Inflatin averaed 5.5% fr 2011, well abve thefficial taret f 4.0%. Hwever, China i till nef the fatetrwin ecnmie in the wrld, with2011 markin the eihth time in the lat 10 earthat China ha reitered gDP rwth f three

time the lbal averae. India battled inflatin level, cupled with aplitical talemate that led t plic inactin, andaw ecnmic rwth lw t 6.9% in 2011 frm9.6% in 2010. Inflatinar preure al frced thecentral bank t hike interet rate 13 time betweenMarch 2010 and Februar 2012, befre it turned tmnetar eain in April 2012. Private cnumptinremained buant, hwever, which helped tinulate India mewhat frm the neative effect f external frce.

Australia remain ne f the mt reilient advancedecnmie a it ecnmic rwth wa nt hit t theame deree b the lwin lbal ecnm a thedevelped market f Nrth America and Eurpe.Hwever, the rate f gDP expanin in Autralialwed in 2011 t 2.0% (frm 2.5% in 2010), becauef the effect f fldin. At the ame time, mininindutr frtune are nw increainl tied tChinee rwth (with Wetern ecnmie lwindwn), and an further weakne in China pin arik t Autralia’ ecnm.

Man AiaPacific cuntrie al prved heavil exped tinternatinal capital flw in 2011, includin the related tfrein intitutinal invetr (FII), which help t determinethe fate f lcal equit market (ee Fiure 6). China aw US$1.60 billin in FII fund leave it market in 2011, whileIndia lt US$4.09 bill in, mre than an ther BRIC natin

(Brazil, Ruia, India, and China). Thee flw bthreflected and drve vlatilit in variu AiaPacific market,includin currencie, and helped t puh man equitmarketindice harpl lwer. Thi, in turn, fueled active prtflidiverif icatin amn invetr in the rein in 2011.

Other Economic Drivers of Wealth WereRobust in 2011

AiaPacific al aw trenth in ther driver f wealthcreatin in 2011, includin:

National savings10 a a percentae f gDP in AiaPacific

excludin Japan wa 34.1%, up lihtl frm 33.9% in 2010,and much hiher than the 22.7% lbal meaure. That rate wa al b far the hihet f an rein, reflectin thetraditinal fcu b individual n avin, epeciall iventhe lack f natinal afet net in man cuntrie in therein. The natinal avin rate increaed in bthEmerin and Newl Indutrialized Ecnmie (except Thailand and Hn Kn). Hwever, fr Japan, the declinein the natinal avin rate (f 110 bai pint) wa hihetacr the lbe due t the effect f the natural diater.

Government consumption re lihtl in AiaPacificexcludin Japan t reach US$1.9 trillin in 2011, up frm

US$1.8 trillin in 2010, pwered in part b infratructuredevelpment in China. Ttal vernment pendin watill far belw the level een in Wetern Eurpe (US$3.2trillin) and Nrth America (US$2.9 trillin), but therein have een public pendin tanate under the trainf heft vereindebt balance. Japan al witneedincreaed vernment pendin n the back f recver effrt in the ecnd half f 2011.

Private consumption jumped 6.1% in AiaPacificexcludin Japan t reach US$4.6 trillin, fueled b pendin amn the expandin middle clae. Pernal

pendin even rew amn Emerin Ecnmie, depitethe neative effect f a lwin lbal ecnm, and mef the Newl Indutrialized Ecnmie aw ubtantialain—uch a 8.1% in Hn Kn, and 6.4% in Sinapre. The rie in private cnumptin ccurred depite thedecline in cnumer cnfidence acr much f AiaPacificin 2011. Cnfidence wa epeciall lw in Japan and New Zealand in the ecnd half f 2011 after bth cuntrie hadt manae the effect f natural diater.

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FIgURE 5. Asia-Pacific Economies: Condition and Major Events in Key Markets, 2011 and Q1 2012

Su: capini Anasis, 2012

AUSTRALIA (5.1% of Asia-Pacific HNWI Wealth)

Resilient economy with 20+ years of positive economicgrowth

With Western economies slowing, any furtherweakness in China poses external risks to theeconomy

SINGAPORE (4.1% of Asia-Pacific HNWI Wealth)

Financial services and insurance industry witnessedstrong growth (up 9 .1% in 2011)

Economy showed signs of slowing down as the year

progressed and GDP contracted in Q4

JAPAN (39.5% of Asia-Pacific HNWI Wealth)

Government spending helped the economy to avoida possible collapse after the disasters of March 2011

Yen traded at historical highs, posing seriouschallenges to the manufacturing industry

HONG KONG (3.8% of Asia-Pacific HNWI Wealth)

Rising income levels and strong labor market boostedprivate spending, somewhat offsetting export decline

Hong Kong’s open economy, which has a sizeablere-export market, remains exposed to slowdowns inother parts of the world

INDIA (4.5% of Asia-Pacific HNWI Wealth)

Resilient private consumption made economyrelatively less vulnerable to external slowdown

Continued high levels of inflation kept interest rateshigh, and constrained economic growth

Policy inaction from the centrist coalition governmentadded to domestic concerns

CHINA (25.3% of Asia-Pacific HNWI Wealth)

Growing at more than three times the global average

Fiscal revenue and profits of domestic firms

Inflation was high in 2011, but came down in 2012

Poor performance of property sector

Banks overburdened by mandated investment inlocal-government debt

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FIgURE 6. Emerging Market Fund Flows, 2010–2011

(US$ miin)

-6,000

-4,000

-2,000

0

2,000

4,000

West Asiaand Africa

EmergingEurope

AfricaChinaIndiaRussiaBrazil

2010 2011

1,561

2,468

1,352 1,411 1,297

318

-442-60

-476

-1,599

-433

-2,340

-4,088-3,742

FundFlows(US$

Million)

N: Naiv nubs psn FII fun ufws; psiiv nubs a infws

Su: capini Anasis, 2012; ePFr gba Janua 2012




PERFORMANCE OF CERTAIN BUSINESSSEGMENTS DROVE FORTUNES OFMANy ASIA-PACIFIC HNWIs

A reprted in the Asia-Pacific Wealth Report 2011,buine wnerhip i the inle laret urce f wealth

fr HNWI in AiaPacific excludin Japan—accuntinfr 57% f HNWI wealth in 2010, far mre than inNrth America (32%), where alar i a bi urce f wealth, r Eurpe (52%). In AiaPacific,entrepreneurialim i evident acr buine ement,and even indutrie dminated b mammth tatewnedenterprie attract entrepreneur int ancillar mall andmediumized buinee. The perfrmance f ke indutrie therefre ha a inificant impact n thefrtune f HNWI in the rein—fr better r wre.

In 2011 in China, fr example, ke indutrial ectr

remained trn relative t develped market, but were weaker than in the recent pat, which helped t cntrainrwth in the HNWI ppulatin and it wealth. Inmajr AiaPacific ecnmie verall, the Service ectr

remain the biet cntributr t gDP (ee Fiure 7),fllwed b Indutr, which include minin, ener prductin, and cntructin, a well a manufacturin, which i enerall the reatet cntributr t theIndutr ectr.

In China, Service and Indutr tether accunted fr90% f gDP in 2011, but the rwth rate f cnumptin lwed dwn fr item uch a huehldappliance, furniture, and buildin material (which areall clel related t the prpert indutr, which weakened in 2011). Dmetic demand al fell frcertain indutrial prduct, while teel, buildinmaterial, autmbile, and me ther indutrie facedrwin preure frm vercapacit. The weakerperfrmance in thee buine ement helped texplain wh the ppulatin f HNWI in China rew le in 2011 (5.2%) than in 2010 (12.0%). Weaker

demand frm China in turn put preure n the Autralian ecnm, epeciall the minin indutr,helpin t explain wh HNWI wealth there cntractedb 6.9% after rwin well (b 12.1%) in 2010.

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FIgURE 7. Sector Contribution to GDP, Select Asia-Pacific Markets, 2005, 2008, 2011

(%)

0%

20%

40%

60%

80%

100%

201120082005201120082005201120082005201120082005201120082005

Australia China India Japan South Korea

Services

Industry

Agriculture

68 69 69

41 42 43

53 54 56

70 71 72

59 61 58

38 36 39

311 1 3 3

29 28 27

28 28 26

19 18 17

47 47 47

12 11 10

27 27 27

4 4 4

Sectors / GDP

(%)

N: Nubs a n a u unin

Su: capini Anasis, 2012; enis Ini n Uni, Jun 2012; W Bank, Auus 2012




11

S Asia-Pacif ic Weal th Re por t 2011, hp://www.apini./insihs-an-sus/b-pubiain/asia-paifi-wah-p-2011-nish/

In India, the dnamic wa much the ame a in China, with rwth in the HNWI ement neativel affectedb the pr perfrmance f ke indutrie uch ainfrmatin technl, retail, and healthcare. In Japan,b cntrat, rwth in the autmbile manufacturin andelectrnic d indutrie miht have helped t upprt

the wealth f Japan’ HNWI, hwever thee indutriefaced tiff cmpetitin frm Suth Krean firm thereb lwerin their ptential t upprt wealth rwth in Japan fr 2011.

Suth Krea’ HNWI wealth declined b 3.9%, but that wa le f a decline than me f the rein’ therexprtriented market, a me ke indutrie didrelativel well, includin autmbile, cnumerelectrnic, machiner, textile, and part and material.Hwever, hipbuildin, emicnductr, and teel wereneativel impacted b the lbal lwdwn.

HNWI in Sinapre and Hn Kn were heavil affected in 2011 b the pr perfrmance f the financialervice indutr, which i a majr cntributr t gDP inbth cuntrie.

gin frward, Indutr and Service will cntinue tdrive the next wave f rwth in AiaPacific HNWI wealth, thuh within the caterie, different ubement ma feature amn the tp perfrmer,dependin n the ecnmic maturit f the cuntr. Aemerin ecnmie prre, fr example, the indutrialfcu ma hift tward ectr that can ditribute wealthand welfare mre widel thruhut the ppulatin. Inuch cae, ement uch a financial ervice (creditcard and inurance), educatin, and healthcare are alllikel t feature, a well a valueadded manufacturin.Expanin in thee ement will cntribute directl trwth in the HNWI ppulatin and it wealth.

EqUITIES AND REAL ESTATE, KEy ASSET CLASSES FOR MANy ASIA-PACIFIC HNWIs, DECLINED IN VALUE

IN 2011

Equitie and real etate are critical aet clae fr AiaPacific HNWI, accuntin fr abut 50% f areate HNWI prtfli in AiaPacific includin Japan each ear frm 2007 t 201011. After excludinrelativel mre cnervative Japanee HNWI, thinumber i even hiher fr the ret f AiaPacific. The value f thee aet declined acr much f the reinin 2011.

Benchmark indice f majr AiaPacific equit marketank, larel due t cncern abut the Eurpeanecnm, but al becaue reinal and dmeticchallene, uch a inflatin, weihed n invetrentiment and cnfidence. Natural diater in Thailand, Japan, and New Zealand al cntributed t fear that

crpratin and ecnmie wuld feel the effect f uppl chain diruptin, epeciall in the aut andelectrnic buine ement. In areate, the rein’MSCI index ank 17.3%, but the wrt perfrmance wain India, where the MSCI India index ended the eardwn b 38.0%.

The reinal decline in equitie al demntrated thatemerin market are till ver uceptible t externalfrce, and have nt decupled themelve frm theperfrmance f develped ecnmie. The utlk frthe rein’ equit market remain hined n athruh relutin f the verein debt crii inEurpe and the ecnmic recver f Eurpe a a whle,a well a the efficac with which the rein’plicmaker are able t manae dmetic iue ucha inf latin and lwin rwth.

AiaPacific’ real etate market were imilarl affectedb bth lcal and lbal factr, and real etate pricedeclined in mt majr market (except Hn Kn,India, and Suth Krea), epeciall in Q3 2011.

Cautin prevailed amn rikavere invetr amid theturmil, and invetr headed int bnd and cahequivalent fr afet, drivin ield t near zer in 2011. yield culd remain at thee ver lw level fr me timeif the lbal ecnm de nt imprve, and cuntr iue liner.

The fl lwin were amn the develpment in mef the ke aet clae that drve HNWI wealth levelin 2011:

Equity markets declined in most Asia-Pacific markets.

The benchmark indice f mt AiaPacific equit market declined in 2011, and the reinal MSCI Indexfr AiaPacific ank 17.3%, cmpared t a drp f jut2.9% in the America. India’ index wa the wrtperfrmin in the rein (dwn 38.0%, ee Fiure 8), admetic inflatin, debt, plic parali, andinfratructure bttleneck hk invetr cnfidence inthe Indian rwth tr—which, in turn, had adevatatin impact n the Indian tck market. But thepercentae l in man ther cuntr indice wa al inthe duble diit.

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12

ein eas Asia inus china, Hn Kn, Innsia, Suh Ka, maasia, Phiippins, Sinap, thaian, an Vina

The MSCI China Index fell 20.3% a prpect f declinin cnumer demand frm the U.S. and Eurpe,and cnervative plic meaure tied t the dmeticinflatin fiht, fueled fear that the Chinee rwthenine ma experience a lwdwn, which underminedinvetr entiment. Market uch a Suth Krea and

Taiwan, which are amn the mre liquid market in therein but al have hih level f frein tck wnerhip, were the wrt hit b capital utflw. TheMSCI Taiwan Index ank 23.3%, and the MSCI KreaIndex drpped b 12.8%.

The declinin value f hare, cmbined with the l f net new capital, ent the value f hare tradin dwnharpl in man market. on the Taiwan Stck Exchane, fr example, the value f hare tradin (thenumber f hare traded multiplied b the tck price) wa dwn 54.5% in 2011, and the value wa dwn 49.6%

n India’ exchane.

AiaPacific’ equit market were al hihl vlatile,ntabl in late2011 when cncern abut the Eurpeanlwdwn and Eurzne debt crii reached their heiht.Vlatilit in AiaPacific market abated mewhatthruh Auut 2012 (thuh there were me extremel vlatile perid in the interim), but remain a rik withhih inflatin and lw rwth plauin certain reinalmarket, and with Eurzne iue till in flux. Still,lwer cmmdit price are helpin t eae inflatincncern, aidin prfit marin, and enablin mnetar eain t bein in me market, makin AiaPacificmarket attractive ver the mediumterm depite theehrterterm cncern.

Asia-Pacific’s real estate market followed global cuesand declined, a ref lected in the neative return n the AiaPacific Select REIT index. The huin market in AiaPacific perfrmed belw par in 2011, a cautinripped invetr amid the lbal lwdwn, intenifinEurzne cncern, weak cnumer cnfidence, andhih unemplment rate. In Autralia, where hue

price were quite reilient in 2010, averae inflatinadjuted hme price fel l 7.7% in 2011. In Japan, there itill n end in iht t the 20earln lump inprpert price, which fell 3.7% n an averae inflatinadjuted bai in 2011.

India wa the tandut exceptin t the real etatedecline, depite the cuntr bein riddled b bth hihinflatin and hih interet rate. Huin price therere in all majr citie, and areate huin priceended the ear up 25.3%. In Hn Kn, huin price

al cntinued t rie, and were up 5.3% in 2011, but theain were ubdued b vernment effrt t curb marketpeculatin. Develper in Beijin and Shanhai haveal adjuted price dwnward, with the price f primereidential unit in the citie reprtedl dwn b amuch a 30% in late 2011.

Local-currency government bond markets in Asia-Pacific saw strong demand from foreign institutionalinvestors. Frein hldin f lcal currenc vereinbnd re, in particular, in Malaia, Suth Krea, and Thailand. Bnd uttandin in the Emerin Eat Aia12 bnd market ttaled US$5.7 trillin a f December 2011, up 7% frm a ear earlier. Rbutrwth in crprate bnd iuance wa the main driverfr verall bndmarket rwth. Crpratebndiuance rew fatet in Vietnam (up 16.5%), Sinapre(13.1%), Malaia (10.4%), and Suth Krea (9.5%). B

cntrat, vernmentbnd iuance in the EmerinEat Aia rein fell 12.4% in 2011 a mt vernmentaencie either reduced r terminated fical timuluprram beun n after the 200809 lbal financialcrii t ffet it effect.

Yields on cash/deposits (and equivalents) were pusheddown to rock-bottom levels a plicmaker in man majr market, includin the in the U.S. and Eurpe,purued mnetar eain amid weak ecnmic rwth.Demand frm rikavere invetr fr capitalpreervatin intrument exerted further preure n ield. If the ecnmic ituatin in Eurpe and therwth prpect f AiaPacific d nt imprveinificantl, ield culd remain near Q4 2011 lw frme time.

Performance of other investments was mixed. Theperfrmance f ther invetment, uch a AiaPacificcurrencie, cmmditie, and hede fund witneeddiverent trend. Aain, the rapid decline f AiaPacificcurrencie aaint the U.S. dllar hihlihted that AiaPacific market are uceptible t the utflw f ht

mne. Emerinmarket currencie depreciatedinificantl aaint the U.S. dllar, epeciall in theecnd half f the ear when the Eurzne crii wrened, prmptin bank and crpratin baed indevelped ecnmie t liquidate emerinmarket aett repatriate fund and hre up their balance heet. TheIndian Natinal Rupee (INR) wa hit the hardet,depreciatin aaint the U.S. dllar b 16.9% in 2011,due bth t the lbal ecnmic trend, and acmbinatin f dmetic iue like widenin trade andcurrent accunt deficit, hih inflatin, declinin rwth,

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and plic parali. The en, hwever, re 5.1% aaintthe dllar, mainl due t buin frm Japanee firmrepatriatin prfit frm verea invetment and ale.

Wanin rwth in market like India and China plaed a

majr rle in the decline f man cmmditie market in2011, when demand frm the ecnmie wa nt arbut a expected. Demand fr ld remained rbut,hwever, with buin frm China tain trn, andld bein widel uht a a hede amid weakeninlbal ecnmic cnditin. gld price re 10.1% in2011, extendin their bull run t 11 ear, a turmil inthe Middle Eat and the nin Eurpean debt criifurther burnihed ld’ appeal a a afe haven.

Amn ther cmmditie:

Silver hit a new hih (f US$48.3 per unce) in April2011, extendin 2010’ trn ain, but crrected verthe remainder f the ear t end dwn 10% fr the eara a whle, mainl due t a decline in indutrial demandfr thi preciu metal.

Oil price re n eplitical tenin in the MiddleEat, and depite in f an ecnmic lwdwn.Crude price ma rie further in 2012 a Middle Eattenin remain, includin the tandff urrundinIran’ nuclear ambitin.

Price f agricultural commodities uch a crn and wheat initiall re inif icantl n expectatin f hrtae, which had driven up price in 2010. Crnprice cntinued t rie thruhut 2011 amid pr weather affectin U.S. utput, riin Chinee demand,

and demand frm ethanl prducer. Wheat priceeventuall declined in 2011 due t bumper harvet(thuh the were pikin aain in mid2012 amidcncern abut druht in the U.S. Midwet, and a lack f mnn rain in India).

Hede fund turned in a neative perfrmance in 2011,after tw cnecutive ear f pitive rwth. onaverae, hede fund lball lt 5.0% in value in 2011,13 mtl due t the market vlatilit that wa larel precipitated b the Eurpean debt crii. A lack f liquidit in AiaPacific helped t undermine AiaPacific hede fund, thuh the were till relativel reilient cmpared t the lbal averae. Accrdin t thelbal alternative reearch firm Preqin, AiaPacificinvetr cntinue t view hede fund pitivel, with37% plannin t increae their allcatin in 2012.14 In aPreqin urve, 23% f AiaPacific invetr al tatedthe wuld fcu lel n addin new fund t theirprtfli; mre than duble that f their lbal peer(10%) in 2012.

FIgURE 8. Growth in MSCI Equity Indices, 2009-2011, and Change in Housing Prices (Inflation-Adjusted),2010-2011, Select Asia-Pacific Markets

(%)

N: equiis an ra esa h aun f aun 50% f HNWI pfis in Asia-Paifi inuin Japan v a f 2007 2010. this nub wasuh hih f Asia-Paifi xuin Japan u h nsvaiv nau f Japans HNWIs

Su: capini Anasis, 2012; hp://www.si./pus/inis/un_an_ ina, ass Jun 26, 2012; gba Pp gui, Ju 2012

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13 As a su b h H Fun rsah In. (HrFI) Fun Wi h cp si In x14 Pqin Suv, hp://www.pqin./b/101/4952/asia-paifi-h-invss, 2012

-60 -40 -20 0 20 40 -20 -10 0 10 20 30

Taiwan

% %

South Korea

Singapore

Japan

Indonesia

India

Hong Kong

China

Australia

Equity Indices Growth, 2009-2010 and 2010-2011 Change in Housing Prices, 2010-2011

2010-2011 2009-2010

-14.8 -7.7

-3.2

-3.7

0.9

2.9

0.3

5.3

25.3

-8.7

10.0

2.3

13.4

31.24.0

18.3

25.3

18.4

19.7

19.4

-20.3

-16.2

-23.3

-21.0

-18.4

-38.0

-12.8




Interest in Investments

of Passion Grows Among

Asia-Pacific HNWIs

Many Investments of Passion (IoP), includingcertain categories in Art, Jewelry, and

Collectibles, have delivered higher returns thanequities since the global financial and economiccrisis, and have emerged as an importantcomponent of the overall investment strategy for Asia-Pacific HNWIs.

The growing buying interest from emerging-market HNWIs, including those from Asia-Pacific,has prompted the creation of more specializedfunds. For example, independent advisory firm Artvest15 values the Art funds industry at US$700million to US$750 million globally, with Asianfunds accounting for about one third of that total.

The IoP category does not count toward ourcalculations of HNWI investable wealth, but itdoes offer an indicator of spending by HNWIs—many of whom deploy at least some of theirinvestable wealth toward a variety of pursuits andcollectibles. In Asia-Pacific, the attraction of manytypes of IoP is enhanced by the aesthetic appealand esteem value for the young and newlywealthy, and HNWIs from the region’s emergingmarkets are making their presence known in allthe major categories of IoP.

Art

China (including Hong Kong) has overtaken theU.S. as the world’s largest market for art andantiques,16 but the breed of young HNWIs fromemerging markets is especially inclined topurchase artifacts with which they share a culturalconnection. That interest is pushing up the valueof indigenous works, as evidenced by the 20.6%

increase in 2011 in the World Traditional ChineseWorks of Art Index.

Asia-Pacific has also become a very high-end Artmarket, with 12.1% of works sold in the regionselling for between $100,000 and US$1 million in2011, versus 2.2% in the rest of the world.17 Those high revenues-per-sale put the region’ssales values above those of North America andEurope, even though those markets are bigger interms of sales volume. China, for instance,accounted for just 10.8% of global Art salesvolume in 2011, compared with nearly 15% in the

U.S. and nearly 16% in France, but in revenueterms, China’s market share is nearly twice thatof European Art auctions.18

China is certainly a booming market: It posted 774auction sales of more than US$1 million in 2011,compared with 377 in the U.K., and 426 in theU.S., and registered a 49% growth in Art auctionrevenues. China also accounted for six of the topten selling artists and five of the top ten cities forart sales in 2011, but other markets in the regionare also strong. For example, Singapore’s Artauction revenues increased 22% in 2011, andIndonesia’s by 39%.

15 hp://avs./

16 “th Innaina A mak in 2011: obsvains n h A ta v 25 yas,” issin b teFAF maasih, pubish mah 16h, 2012

17 A mak tn s 2011, Ap i. , 2011

18 Ibi




Luur Collectibles

Asia-Pacific is also emerging as a large market forCollectibles, especially luxury cars, with China andIndia driving the growth in sales. In some markets atleast, demand is especially strong among women—who bought nearly 30% of the 300 Porsches sold inSingapore in the first half of 2011, and account for onein three of the Maseratis and one in five of the Ferraris

sold in China.19

Besides, China has become a large market for luxurycars and yachts overall. Bentley’s export sales toChina almost doubled to 1,839 units in 2011, forexample, representing 95% year-on-year growth. Andaccording to a 2011 survey by the Hurun Report,China’s version of the Forbes Rich List, nearly half ofChina’s 875,000 millionaires want to buy a boat.

Luxury car demand is also surging in India, wherethe market is now sized at a billion US dollars, and isexpanding at a rate of 40% a year. 20 Lamborghini’s

Aventador LP 700-4 (priced at 36.9 million rupees, orUS$796k) was introduced into India recently, andreceived more than 20 orders and hundreds ofqueries despite a waiting period of 18 months.

Gems and Jewelr, Fine and Rare Watches

The 20% rise in diamond prices during 2011 wasunderpinned by demand from China and elsewherein Asia-Pacific while diamond production levelsremained flat. Gold is the only other investmentasset that posted such double-digit price increases,up 15% in 2011.

Demand was also strong for other Jewelry, includingFine and Rare Watches. For instance, Sotheby’s HongKong held a sale of Important Watches in October2011 totaling US$7.1 million. The auction was 79.9%sold by lot and 85.8% by value, establishingSotheby’s highest-ever total for such a sale.

Sports Investments

Asia-Pacific HNWIs continue to buy intoprofessional sports, despite the lack of purelyfinancial returns. In August 2011, Malaysianbusinessman and Air-Asia owner TonyFernandes teamed up with India’s Mittalfamily to acquire the newly promoted QueensPark Rangers Football Club in the U.K. In April

2011, Dempo SC entered into a partnershipwith Danish Superliga side FC Midtjylland,and then bought a 34% stake in the Danishclub. These acquisitions took place eventhough the STOXX Europe Football Index,which covers exchange-listed soccer clubs inEurope, fell by 38.2% between January 2011and January 2012.

Other Collectibles

Asia-Pacific HNWIs have also shown stronginterest in Fine Wine and Collectible Coins.

For example, an Indian gold dinar coin soldfor five times its pre-sales estimate at aBaldwin auction in October 2011, and acollection of Japanese and Korean coins soldfor US$6.8 million at Heritage Auctions inSeptember 2011. A Hupeh Province silver“Ben Shen” coin was sold for US$150,000(three times its pre-sale estimate) to a Chinesebidder at a Baldwin’s auction in Hong Kong,and a rare Chinese coin depicting the GreatWall of China sold for US$115,000 at aGoldberg’s auction in 2011 (when the pre-sale

estimate was just US$7,000-US$9,000). A Qing Dynasty Bank of Honan Provincebanknote was sold for a record price ofUS$300,000 at a Spink’s auction in HongKong (its pre-sale estimate was US$38,500).

19 hp://www.hannnwsasia./sis/sinapanws/viw/1149586/1/.h

20 “Nw fun wah fuin an f f ash as in Inia,” Paish Ain, Aabian B iz, Janua 5, 2012




OUTLOOK FOR ASIA-PACIFICECONOMy AND HNWI WEALTHREMAINS POSITIVE FOR 2012 AND BEyOND

AiaPacific will likel cntinue t face dmetic

challene uch a hih inflatin and declinin prpert price, and lbal factr uch a the weak ecnm inEurpe and fear f financial cntain, but the diverenature f AiaPacific exprt and ecnmie mean theutlk fr the rein a a whle remain trn. Theecnmic fundamental are expected t remain rbutverall, thuh exprtbaed ecnmie, uch a China,Sinapre, HnKn, and Taiwan, will be mre vulnerable t external rik.

Aumin the Eurzne remain intact, and n new temic crie emere, gDP rwth in AiaPacific

excludin Japan i frecat at 6.1% fr 2012 and 6.6% in2013, while Japan i expected t pt rwth f 1.7% in2012 and 1.2% in 2013 (ee Fiure 9).

China and India, depite their challene, are likel tremain the fatetrwin ecnmie in the wrld in thenear future, with China’ gDP frecat t rw b 8.5%in 2013, and India b 7.4%. Recent data uet rwthi lwin in bth f thee majr ecnmie, but theecnd half f 2012 i expected t be trner, withexpectatin fr inflatin t decline in India,infratructure pendin t rie in China, and dmeticdemand t be trn in bth. In the cae f China,analt believe the ecnm i tranitinin pat thebttm f it cclical truh, and equential rwtheemed t be imprvin in April/Ma 2012, after a ver difficult Q4 2011 and Q1 2012.

The balance heet f AiaPacific bank are alenerall trn, due t the rein’ cnervative bankinreulatin, thuh bank in China face increaed levelf nnperfrmin lan. Since 2009, the Chineevernment ha required bank t upprt the lcalvernment debt market with purchae and refinancin.Chinee bank were reprtedl hldin arund 9.1trillin uan f uttandin lan iued t lcalvernment financin vehicle a f September 30,2011,21 and man lcal vernment are till nt in apitin t repa their debt even a their maturit date

draw cler. In mt ecnmie, capital adequac ratiare abve reulatr minimum, even if a harpdeleverain ccur at Eurpean bank, majr bankhuld remain lvent. In additin, mt plicmaker inthe rein huld have ample rm fr areive actinin the frm f cuntercclical plicie and mnetar

eain, becaue, in eneral, benchmark interet rate arehih and verein debt level are lw.

gin frward, lbal, reinal, and lcalmacrecnmic cnditin will remain critical driver f the HNWI ement in AiaPacific.

Dmetic cncern in the rein are alread hwinin f abatin. Fr example, inflatin in China, whichha been a majr cncern, ha cme dwn. Al, Indiaha a new Finance Miniter, wh i expected t tackleplic iue mre practivel t vercme the plic

parali that ha undermined that cuntr’ ecnmicperfrmance. Develped market in AiaPacific, uch a Autralia, are expected t utperfrm develpedecnmie in ther rein, in part due t their relativel und bankin tem.

The perfrmance f variu aet clae will till drive AiaPacific HNWI wealth in the future, iven theheav reliance t date n equitie and real etate inprtfli allcatin. Hwever, ince entrepreneurfeature markedl in the rank f AiaPacificHNWI, the cnditin f the buine ectr in eachmarket will al have a direct and inif icant impact nthe cmpitin, rwth and wealth f the rein’HNWI ppulatin.

Japan and China, fr example, are the rein’ tw laretHNWI market. The rwth in Japan’ HNWIppulatin i expected t be driven b perfrmance in theautmbile and infratructure ement, while ervicebuine ement uch a financial ervice, healthcareand educatin will be critical fr China’ HNWI. InIndia, HNWI wealth creatin i expected t be driven b

ecmmerce and healthcare, while the financial erviceand minin indutrie will feature in Autralia. In SuthKrea, vernmentled initiative t fcu n the rwthf ke indutrie culd al upprt rwth in theHNWI ppulatin and it wealth.

drIVerS oF WeAltH

21

“china bs a vnn b an-up,” china..n, mah 2, 2012




drIVerS oF WeAltH

FIgURE 9. Real GDP Growth Rates, Select Asia-Pacific Markets, 2011–2013F

(%)

N: Aa a gdP wh as a bas n gdP wihs as aua b h eIU, assuin a ‘bas as’ snai in whih h euzn ains ina, ann nw ssi iss

Su: capini Anasis, 2012; enis Inin Uni, Jun 2012




Asia-Pacific offshore wealth centers, such as Singapore and Hong

Kong, are coming to the fore as the number and wealth of HNWIs in the

region epands and their wealth needs become more sophisticated. Asia-Pacific centers offer the region’s HNWIs geographic proximity, cultural andlinguistic alignment, and access to investment in developing but highlyregulated Asia-Pacific markets such as India and China. Proactive regulatorshave also worked to make these centers attractive to HNWIs from around theworld at a time when traditional offshore wealth centers such as Switzerland

and Luxembourg face increasing regulatory pressure. Singapore and Hong Kong are attracting increasing amounts of

offshore AuM, and outscore other centers in the region on overallattractiveness. The centers offer relatively stable currencies and politicalenvironments, favorable tax policies, transparent regulatory and legalsystems, and well-developed capital markets. Switzerland is still the largestoffshore wealth center in the world, and our scoring methodology22 shows itremains highly or moderately attractive on a range of key parameters (exceptthe unpredictable regulatory burden for firms). However, Singapore and HongKong are gaining ground in terms of their ability to attract offshore wealth.

The scarcit of skilled talent is the most critical challenge for firms

seeking to capitalize on the growth of Singapore and Hong Kong

offshore wealth centers. The shortage of talent constrains firms fromeffectively serving an increasing number of clients, potentially leaving HNWIsun-served or under-served. Other challenges include achieving product depthand service quality to meet global industry benchmarks, adapting to increasingclient sophistication, and managing the cost of regulatory compliance. It isalso difficult for many Asia-Pacific wealth management firms to makeoperations scalable when they face slim margins and low profitability levels.

To thrive in Asia-Pacific centers, firms will need to focus on and invest in

several ke areas including advisory, legal and fiduciary expertise, productofferings, risk and compliance measures, and IT infrastructure. However, firmsmust continue to leverage their core competencies while building scalablebusiness models. For example, fee/advisory-based models (as opposed to

commission or transaction-based models), similar to those in regional offshorewealth centers such as the Channel Islands, could be winning propositions forfirms in Asia-Pacific centers. Firms will also need to engage in regular opendialogue with regulators in order to better anticipate and implement changesin regulatory requirements, and drive market developments to the benefit ofclients and the satisfaction of firms and regulators.

Sptliht ASIA-PACIFIC oFFSHoRE WEALTH CENTERS ARE RISINg AS REgIoN’S HNWIs gRoW IN

NUMBER AND INFLUENCE

22

S mh f ais




SPotlIgHt 2012

ASIA-PACIFIC HNWIs PERCEIVEMANy BENEFITS IN REGION’SOFFSHORE WEALTH CENTERS

Bank and ther financial firm in traditinal ffhre wealth center uch a Switzerland and Luxembur have

manaed wealth fr nnreident fr almt a centur.HNWI are drawn t thee lcatin b the wide arra f invetment prduct, trut ervice, wealth tructurinptin, tax advantae, table plitical envirnment,and financial cnfidentialit. Thee center al feature alare number f killed and experienced prfeinal.

AiaPacific ffhre wealth center have themelveexited fr decade, but have hitricall had limitedfferin and mall client bae. Hwever, thee centerare nw cmin int their wn amid the rapid increae inthe number f HNWI in the rein, and an aciated

increae in demand fr wealth manaement ervice. Thee center are attractive t HNWI in the reinbecaue f their prximit, cultural and linuiticalinment, practive reulatr authritie, and theacce the prvide t invetment in develpin buthihl reulated Aian market uch a India and China. AiaPacific HNWI favr nearb ffhre wealthcenter like Sinapre and Hn Kn jut a man frmthe U.K. prefer the Channel Iland, and the frm theU.S. ften pt fr the nearb Caribbean.

Hwever, AiaPacific’ ffhre wealth center will needt vercme certain btacle a the elevate theirfferin t the next level, epeciall challene related tthe expertie f their emplee (advir, leal, andfiduciar), prduct depth, and ervice qualit in rder tmeet lbal indutr benchmark (ee Fiure 10).

Underlying Demand for Offshore Wealth Center Services Is Growing Broadly

HNWI arund the wrld are eekin reater cntrlver their aet and want mre ptin fr preervinand rwin capital, diverifin and retructurin theirprtfli, hedin rik, and etablihin ucceinplan fr buine and famil wealth. offhre wealthcenter pecialize in prvidin uch ervice, whileaurin client cnfidentialit. Internatinalizatin f wealth ha al ccurred ver the lat decade with

individual and entrepreneur increainl develpinbuine and pernal interet in variu cuntrie. Thee HNWI increainl frm a ubtantial part f theclient bae fr ffhre wealth center, lkin, frexample, fr trut in multiple lcatin.

Traditinal ffhre wealth center uch a Switzerlandand Luxembur are facin inificant challene t theirperatin cnditin. Reulatr are requirin theecenter t dicle mre financial infrmatin abut their

Traditional Regional Offshore Wealth Centers Emerging Asia-Pacific Offshore Wealth Centers (APWR 2012 Focus)

Tradit iona l G loba l Offshore Weal th Centers Other Regional Of fshore Weal th Centers

FIgURE 10. Key Offshore Wealth Centers: Benefits and Challenges from Client and Firm Perspective

Su: capini Anasis, 2012; www.wax.n; daani; Swiss Banks Assiain

Channel Islands

Benefits:

Very low poli tical andcommercial risk

Proximity to London, a keyglobal financial hub

High level of financialconfidentiality andexpertise in trust servicesfor estate planning

Challenges:

Increased regulatoryscrutiny

Switzerland

Benefits:

Well-established and largestoffshore wealth center

Availabili ty of a wide range ofskilled talent

Challenges:

Increasing regulatory pressure todisclose private financialinformation

Negative publicity over perceivedreputation for tax evasion

Dubai (Middle East)

Benefits:

Potential for growth asIslamic banking center

Challenges:

Reliance on oil outputfor financial stability

Reputation as a financialhub for primarily MiddleEast clients

Malasia

Benefits:

Potential for growth asIslamic banking centeradherent to Shariah law

Proximity to developing Asian econ omies

Challenges:

Lack of skilled advisorsand variety of products

Singapore (APWR 2012 Focus)

Benefits:

Favorable tax laws

Proactive regulatory initiatives and single regulator

Gateway to investments in Asian economies

Challenges:

Lack of required number of skilled advisors

Capital markets not as well developed as Hong Kong

Caribbean/Caman Islands

Benefits:

Well-developed wealthmanagement industry

Availabili ty of skill ed talent

Challenges:

Negative publicity overperceived reputation for taxevasion

Increased regulatory scrutiny

Luembourg

Benefits:

Along wit h Switzer land, one of themost mature wealth managementmarkets

Availabili ty of skill ed talent

Challenges:

Increasing regulatory pressure

Negative publicity over perceivedreputation for tax evasion

Hong Kong (APWR 2012 Focus)

Benefits:

Well-developed capital markets

Gateway to investments in China

Favorable tax laws

Challenges:

Lack of required number of skilled advisors

Absence of a single regulatory au thori ty

Regulations not as business friendly asSingapore (but efforts underway)

HNWIs broadly prefer transactional ratherthan holistic wealth services




SPotlIgHt 2012

Sinapre, in which thuand f retail invetr facedmaive le n tructured prduct tied t bankruptU.S. invetment bank Lehman Brther.

The candal caued public utrae amid alleatin f fraud and miellin b bank and ther ditributr,

leavin reulatr t act n iue f cmpenatin anddiciplinar actin. Hwever, reulatr repndeddifferentl in each center.

In Hn Kn, the Securitie and Future Cmmiin(SFC) and Hn Kn Mnetar Authrit (HKMA)required ditributr t bu back the bnd, and makerefund t invetr. The Mnetar Authrit f Sinapre (MAS) barred ditributr frm ellin rivin advice n tructured nte fr a perid f tw ear but did nt hld them liable fr the f inancial leincurred b invetr. MAS did, hwever, utline a

threetep prce fr cmpenatin invetr, thereb retainin the trut f bth invetr and firm. Thitrut, and Sinapre’ reputatin a a hihl ethical andlawabidin center, ha helped make it mre attractive tHNWI utide AiaPacific, includin the frmLatin America.

Tda, Sinapre i bradl perceived t have mdernand wellreulated trut law, and prvide the reulatr underpinnin fr privatetrut frmatin, allwin frincreaed client cntrl ver inheritance thruh etateplannin. (Sinapre de nt et al lw fr fundatin,hwever.) It al ha a inle reulatr (MAS), makin iteaier fr wealth manaement firm t enae in dialuever reulatr framewrk. MAS al differentiate init reulatin n ervicin the ma affluent v. HNWI,makin it eaier fr firm t ffer pecialized ervice tHNWI. Fr example, firm are allwed t fferHNWI certain tpe f invetment prduct anddicretinar accunt that are fflimit t the withle net wrth (e.., in the ma aff luent cater).Sinapre al ha imple and tranparent tax reime,et individual and crprate tax rate belw rate in

develped rein, ha n capital ain r inheritance(etate) tax, and prvide additinal tax incentive frfirm t hift peratin (and headquarter) t Sinapre.(Sinapre ha vwed, hwever, nt t tlerate taxevain.) Sinapre al facilitate reident tatu frentrepreneur with requiite qualificatin thruh itglbal Invetr Prramme (gIP).

client and adhere t new and/r tihter tax reime. A number f bank have even hut dwn their Eurpeanffhrewealth dek and retructured their peratinamid the crutin, and at leat me f that buine inw in t independent aet manaer peratin inthe AiaPacific rein. HNWI have al mved fund

ut f thee traditinal center after tax amnetie b everal wetern vernment, includin german, theU.K., and U.S., prvided an incentive fr them t pa manaeable fine n untaxed wealth that had beeninveted in traditinal center. The fund have ftenthen been repatriated.

Bank in traditinal center are al ufferin the effectf lcal currenc appreciatin aaint the US dllar, which ha bted peratin ct, and made theecenter le attractive t HNW invetr frm ecnmie with weaker currencie. AuM and prfit are dwn a a

reult, and the weakne f the Eurpean ecnm haal undermined prtfli perfrmance.

At the ame t ime, demand fr wealth manaementervice frm within AiaPacific i rwin rapidl due t the riin number f HNWI within the rein,and ha led t the rwth f ffhre wealth centeruch a Sinapre and Hn Kn. (Japan i a minimalurce f ffhre fund, a it i a cled market, andmt f the HNWI wealth i in penin fund, whichare indirectl manaed.)

SINGAPORE AND HONG KONG ARE ATTRACTING INCREASING AMOUNTSOF OFFSHORE AUM

Sinapre and Hn Kn have exited a premierfinancial center fr decade, and alread feature tablecurrencie and plitical envirnment, favrable taxplicie, tranparent reulatr and leal tem, a wella welldevelped capital market. In the lat few ear,thee juridictin have al wrked practivel tpitin themelve a leadin ffhre financial center.

Reulatr in the rein are activel enaed indevelpin imple and tranparent tem and prceet help attract fund flw frm acr the lbe, and the have been quick t repnd t event, uch a the called Lehman ‘minibnd’ candal in Hn Kn and




SPotlIgHt 2012

ASIA-PACIFIC HNWI GROWTH ANDDEMAND FOR DIVERSIFICATION OFCOUNTRy RISK ARE KEy DRIVERS OFSUCCESS FOR THE REGION’SOFFSHORE WEALTH CENTERS

AiaPacific ha been leadin the expanin in HNWI wealth in recent ear, and nw ha mre HNWI thanan ther rein. Mt f thee HNWI hail frmecnmie that are far utperfrmin develped natin(gDP in China and India, fr example, rew at acmpund annual rwth rate (CAgR) f 10.5% and7.7% repectivel between 2006 and 2011), and a lareprprtin f AiaPacific HNWI are keen t keep theiraet in their hme rein. In 2010, fr intance,frecat hwed that 57% f AiaPacific HNWI’ aetare expected t be held in their hme rein in 2012, andat the heiht f the financial crii (2008), 67% f theiraet were held cle t hme.24

Sinapre and Hn Kn are well placed t takeadvantae f thi preference t invet cler t hme, incethee tw center ffer increainl hihqualit financialervice, and a table plitical and ecnmic envirnment. Thi tabilit i imprtant durin time f lbal vlatilit, but i al epeciall imprtant t HNWI frm AiaPacific, whe hme cuntrie ma be le table. AiaPacific ffhre wealth center therefre prvideHNWI frm that rein with me inulatin aaintthe currenc vlatilit and plitical rik inherent in man Aian cuntrie (includin India, China, Taiwan,Indneia, and Malaia), and ffer cuntrleveldiverificatin imilar t prtfli diverificatin. Frexample, while the majrit f Chinee HNWI til l favrffhre wealth ervice prvided b firm frm HnKn, me have tarted t invet in Sinapre with anee t diverifin (a invetin in Hn Kn i perceivedb man t be the ame a invetin in China).

on the capital market ide, Sinapre launched itglbal Depitr Receipt (gDR) prram in line with American Depitr Receipt (ADR) t enable freincmpanie t acce fund frm Sinapre. Several lbalcmpanie iue IPo thruh thi exchane.

Hn Kn al ha lwer tax rate than ther develpedrein, and ha ablihed the inheritance (etate) tax. Authritie are in the prce f mdernizin trut lawand ther reulatin t match the f Sinapre andther traditinal wealth center, and make it eaier tattract AuM. Hn Kn ha al made it eaier tbtain reidenc tatu under the Capital InvetmentEntrant Scheme (CIES).

The capital market ement ha been well develped inHn Kn fr ear, pitinin it well t captureinvetment fund. Hn Kn accunted, fr intance,fr mre new litin than an ther market in 2010 (withIPo wrth US$57.4 billin), and man f the litinare frm cmpanie in mainland China. Hn Kn’capital market therefre prvide mre invetmentptin fr HNW client, and eaier acce tinvetment, uch a IPo frm Chinabaed cmpanie, which ma be mre difficult t ecure thruh traditinalffhre wealth center. At the ame time, Hn Kn iable t bk aet denminated in uan, makin it aneaier ptin fr Chinee invetr.

Thee technical imprvement add t the appeal f AiaPacific wealth center at a time when the rein’HNWI ppulatin i rwin quickl, and an increainprprtin f that rwin rup i ptin fr ffhre wealth center cler t hme.

While Switzerland remain the wrld’ laretffhre wealth center, accuntin fr mre than aquarter f the wrld’ ffhre AuM,23 indutr analtenerall cncur that the amunt held in Sinapre andHn Kn cmbined ha been teadil riin—a trendcnfirmed in ur interview with wealthmanaement

executive in the rein.

23

hp://bi.bb./nws/2012-03-27/swizan-s-fina-ss-n-a-in-ffsh-wah-in24 S World Wealth Report 2011, hp://www.apini./insihs-an-sus/b-pubiain/w-wah-p-2011/




While bth Sinapre and Hn Kn emered ahihl attractive ffhre wealth center, there arecertain feature that differentiate ne frm anther (eeFiure 12). At preent, the perceived verall benefitffered b Sinapre lihtl utweih the f HnKn, but authritie in Hn Kn are takin tep t

bride an ap. In term f AuM, Sinapre attract wealth primaril frm Sutheat Aia (includin theIndian ubcntinent), while Hn Kn i the preferredcenter fr the in China.

GROWTH OF OFFSHORE WEALTHCENTERS IN ASIA-PACIFIC HAS WIDEIMPLICATIONS FOR CLIENTS, FIRMS,

AND REGULATORS

A ffhre wealth center in AiaPacific rw, HNW client frm the rein tand t benefit the mt a thefferin f firm in thee center are likel t becmemre clel alined t their ditinct need. AiaPacific juridictin ffer HNWI alternativepliticall and ecnmicall table lcatin in which tbk me r all f their wealth. A nted, HNWIcan al ue thee lcatin fr inheritance plannin—fr example thruh the privateclient trut tructureavailable in Sinapre—and t ain acce t uniqueinvetment ptin. Hn Kn, fr intance, prvidea atewa t certain invetment in the Chineeecnm, which ma nt be avai lable via ther ffhre

wealth center. Entrepreneur frm ther rein canal raie capital b tappin int the invetment pland wealth available in AiaPacific center.

Reulatr will need t be practive in prtectin thereputatin and credibilit f AiaPacific ffhre wealthcenter a cmprehenive wealth manaement juridictin, and nt jut taxefficient lcale.Reulatr will need t et and enfrce a rbut cde f cnduct fr advir and ther in the ectr, adhere tlbal tandard, and implement zertlerance pliciefr imprper buine practice. Reulatr will al

need t mve quickl t addre an mimanaementthat de emere, uch a the Lehman ‘minibnd’candal (dicued n p22).

HONG KONG AND SINGAPOREOUTSCORE MANy OTHEROFFSHORE WEALTH CENTERSON ATTRACTIVENESS

T aue the verall attractivene f variu ffhre

wealth center, we analzed a rane f parameter frmthe client, firm, and market25 perpective. All f thefllwin parameter were iven equal weihtin in theanali,26 althuh we cnider the in italic t bemt inificant:

Client attractiveness: Financial confidentiality,

favorable tax laws, access to structured products , thenumber f wealth manaement firm, qualit f livin,and eae f btainin reidenc/citizenhip.

Firm attractiveness: Growth in HNWI wealth, ease of

doing business, availability of experienced advisors ,

interactin between indutr and reulatr bdie, andcrprate tax rate.

Market attractiveness: Regulatory burden, depth of

capital markets, maturity as a financial center (in term f liquidit, breadth f prduct chice, marketinfratructure, and reulatr envirnment), lbalrankin f the lcal aet manaement indutr,capitalizatin f the lcal tck exchane, cuntr rik,and verall buine envirnment.

The anali cnfirm the trenth f Switzerland (eeFiure 11), which i deemed hihl r mderatel

attractive n almt all ke parameter, includinfinancial cnfidentialit, thuh that perceptin ma chane a preure munt n bank there t dicleclient infrmatin. That preure al explain wh Switzerland i nw amn the leat attractive in term f the reulatr burden, which ha rwn and becmemre unpredictable, preentin inificant neativeimplicatin fr firm plannin t d buine there—aparameter n which the cuntr i nw cnidered t benl ‘mderatel attractive’.

Sinapre and Hn Kn are al tartin t be een a

‘hihl attractive’ n man ke parameter in uraement, and utcre all ther AiaPacific ffhre wealth center, uetin that their abilit t attractffhre wealth i increain.

SPotlIgHt 2012

25

th ‘a k’ p spi v, ‘a k a aivn ss,’ inu s hs paa s ha a na appiab bh ins an fi s, a n ann b uni qu a ibu ih ins fis

26 S mh f ai




FIgURE 11. Attractiveness of Various Offshore Wealth Centers Based on Different Stakeholder Perspectives

Factors Switzerland Luxembourg Channel

Islandse

Singapore Hong Kong Malaysia Dubaib

C l i e n t

p e r s p e c t i v e Financial Confidentialitya

Favorable Tax Laws

Access to Structured

Products and Services

F i r m

p e r s p e c t i v e

Availability of

Experienced Advisors

Growth in HNWI Wealth

Ease of Doing Business

M a r k e t

p e r s p e c t i v e Regulatory Burdenc

Depth of Capital Markets

Financial Center Maturity

Stability of Assessmentd Pressure onfinancialconfidentialityand regulatoryfront expectedto increase

Pressure onfinancialconfidentialitylaws expectedto increase

Pressure onfinancialconfidentialitylaws expectedto increase

Depth ofcapital marketofferingsexpected toimprove

Regulatorydevelopmentto play role infuture growthof the wealthmanagementindustry

Overallattractivenessis likely toremain lowwith not muchgrowth incapitalmarkets

Growth inIslamicbanking mayincreasedepth ofofferings

a. Swizan was ank fis in h finania s inx, hwv, his u han as Swizan is f sha in s wih vnnsappin ua pssu

b. dubai, huh n bin a pa f Asia-Paif i, has bn inu in h anasis as i aas invsns f Asia-Pa ifi an h ins

. Hih ua bun ansas in w sin an w aaivnss

. Sabii f assssn ivs an sia f hw sab h k paas a ik ain v nx up f as; an han in hs paasis ik aff h aaivnss f h n

. Sin f h chann Isans paas was s n bas n sna sah sin i was n ank b an an, as chann Isans isn an inpnn un

Su: capini Anasis, 2012; gba Finania ns inx, 2011; eIU; Finania S Inx, 2011; W Bank

FIgURE 12. Key Differentiators of Singapore vs. Hong Kong in Attractiveness As an Offshore Wealth Center

Key Differentiators Singapore Hong Kong

Regulatory view of wealthmanagement firms

Clear distinction between firms servicing mass affluent and HNWclients

This distinction was made clear only in 2009, after the regulator yrevamp post the Lehman mini-bond scandal

Independence of the

offshore wealth center

Singapore is perceived to be an independent nation, not

influenced unduly by outside forces

Hong Kong is perceived to be under Chinese influence which

could deter some HNWIs from investing there

Ease of dealing withregulatory bodies

Singapore has a single regulatory body, making it simpler for firmsto plan and implement regulations

Multiple regulatory bodies exist in Hong Kong, hence there is aperception of complexity for firms

Target client base Many Asian HNWIs prefer Singapore as it provides investmentavenues in several Southeast Asian countries

Chinese HNWIs, the second largest base of Asia-Pacific HNWIs,often prefer to invest in Hong Kong (e.g. a local IPO) for cultur aland business reasons

Level of regulatorypressure

Though the regulatory pressure is slightly higher than in HongKong, the laws are transparent and straightforward

Regulatory burden is lower, but the framework is not welldeveloped and is subject to change

Trust services Singapore has modern and well-regulated trust laws offeringadvanced trust services

Hong Kong still lags behind Singapore in tru st services as existinglaws are outdated

Other key beneficialfeatures

Singapore is perceived as a “White listed” jurisdiction, so canattract global HNWIs from regions such as Latin America andRussia

Hong Kong was the mo st active exchange in 2010, with initialpublic offerings worth $57 billion providing many investmentoptions for HNWIs

Su: capini Anasis, 2012

Highly Attractive Moderately Attractive Least Attractive

SPotlIgHt 2012




on a macr level, reulatr will need t upprt thepreervatin f tabilit in currenc and capital market,and et afeuard aaint temic rik and vlatilit. A well, the will need t enae in dialue with indutr takehlder t undertand evlvin client and marketdemand, and t dein plicie that enable the

juridictin t be cmpetitive with ther ffhre wealthcenter, thu aidin rwth in ffhre AuM.

The rwth f AiaPacific’ ffhre wealth center alpreent inificant pprtunitie fr reinal and lbal wealth manaement firm, thuh there are challenet—nt leat the ptential fr failure a lcalincumbent are ften trn, and calable buine mdelare nt ea t achieve. In particular, firm everwhereare rapplin with hw bet t achieve prfitable rwthfrm new market and prduct, withut an utizedincreae in ct.27 In emerin market and their

ffhre wealth center, it will be epeciall critical frfrein firm t realiticall ae hw much AuM ireall taretable, iven tiff cmpetitin (epeciall frmlcal firm), and the fact that man f the aet are inilliquid r unmanaed pl. Cmpetin uccefull aaint the lcal plaer t capture cutmer wallet hare will make it even mre imprtant fr firm t undertandthe cultural and behaviral pecific f each ffhre wealth center in which the perate.

Firm will therefre need t be deliberate in theirdeciinmakin abut hw bet t etablih r expandtheir preence in thee newl influential ffhre wealthcenter. Ke deciin will include whether t develppreence and capabilit b penin branche rcllabratin with lcal bank and firm, and identifin which prduct and ervice t ffer nw and in thefuture. Frein firm will al have t naviate reulatr retrictin n prduct, uch a limit n cmplexfinancial tructure.

AiaPacific firm that are currentl fcued nl nlimited market ma be miin ut n ptential client AuM that i ruted via ffhre wealth center. Theefirm can build calable peratin b fcuin invetmentin AiaPacific ecnmie in ffhre wealth center,prvided eential cre cmpetencie exit. Reinal f irm

that have a preence in thee lcatin culd etablihperatinal hub in ffhre wealth center fr invetmentin variu cuntrie t help reduce verall ct.

Firm frm utide the rein with a limited preenceculd increainl find their HNW client demandinmre expure t emerin AiaPacific ecnmie, andreater diverificatin f verea hldin—bth f which culd be prvided via ffhre wealth center in AiaPacific. The alread fcued n AiaPacific willneed t have a preence in emerin ffhre wealthcenter t upprt the need f client. Thee firm are in

a d pitin t brin lbal bet practice intemerin wealth center, while al helpin reulatr tdraft plicie that culd help t expand the wealthmanaement indutr in the rein.

Opportunity Exists for All Stakeholders

The rwth f AiaPacific ffhre wealth center createpprtunitie fr client, firm, and reulatr alike. Thee center prvide HNW client with a reater chicef lcatin, prduct, and ecnmie in which t invet.

Firm can leverae pecialized buine mdel, and/rpecialize in pecific ement f wealth manaement tcapture reater market hare and build a calablebuine mdel. The will need t develp and enhanceadvir expertie thruh invetment in trainin, thelp ffet the market hrtae f advir talent. Advir wh can thruhl undertand the culturalnuance and lcal client need in rder t ffer tailred wealth manaement advice and lutin will be in ad pitin t win client trut.

SPotlIgHt 2012

27

S World Wealth Repor t 2011, hp://www.apini./insihs-an-sus/b-pubiain/w-wah-p-2011/




Reulatr will have the pprtunit t enhance a center’reputatin a a credible and cmpliant ffhre wealthcenter. The will be able t learn frm the experienceand mitake f traditinal ffhre wealth center, andhelp t develp and implement reulatin effectivel andefficientl thruh dialue with takehlder. Thi

huld help t reduce the ct f cmplianceinif icantl, and alla the apprehenin f takehlder.

T take advantae f the benefit, hwever, firm willneed t vercme numeru challene. grwth f ffhre wealth i bund t attract reater reulatr crutin, and firm will inevitabl incur ubtantial ctin identifin and reprtin the urce f fund (e.., frantimne launderin cmpliance). Reulatin culdal place limit n prduct and ervice ffered, andreulatr are alread enurin ditinct eparatin exitbetween aet manaement and capital market team—relatinhip that have enerated imprtant client leadfr wealth manaer in the pat. With thee tpe f reulatr develpment, there culd be a direct impactn bth the tp and bttm line f firm peratin in AiaPacific’ ffhre wealth center.

The mt bviu challene i the carcit f killedtalent. The hrtae f expertie culd undermine theabilit f firm t erve lare number f client, rpend adequate time with client. Firm cannt impl imprt expert frm develped market, r therbuinee uch a retail bankin, a the advir willbe unprepared fr the cultural diverit and/rinvetment need f the rein’ HNWI. The killhrtae culd al puh up peratin ct aremuneratin rie fr experienced advir, and the ctf findin and educatin new talent increae. There ial a daner f lin experienced advir t cmpetinfirm, threatenin exitin client relatinhip.

Firm ma cntinue t face lim marin and prfitabilit level a man AiaPacific wealth manaementperatin are nl jut breakin even, but cntinue tperate larel due t the increae in the HNWIppulatin and wealth.

T be ucceful, firm will al need t manaeeffectivel a divere et f client backrund andexpectatin. Fr example, the majrit f AiaPacificHNW client are entrepreneur, wh require liquid rnearliquid invetment and impler prduct t meettheir hrtterm buine need. At the ame time, man f the rein’ wealth have nl recentl qualified aHNWI, and expect a hihl handn apprach tmanain their prtfli.

There i n dubt that an increain prprtin f HNWI aet i in t be held in AiaPacific ffhre wealth center a the number f HNWI in the reinrw, and the attractivene f the center themelveincreae. Hwever, fr wealth manaement firm tthrive in thee newl influential ffhre wealth center,the will need t act n everal frnt, imprvin theirtalent and prduct uite, invetin in rik andcmpliance, and IT infratructure, and alinin buinemdel with cre cmpetencie.

SPotlIgHt 2012




Wa Frward: To THRIVE IN ASIA-PACIFIC oFFSHoRE WEALTH CENTERS,

FIRMS CAN BoRRoW FRoM MoDELS USED IN oTHER

LoCALES, BUT NEED To LEVERAgE CoRE CoMPETENCIES

A an ffhre lcatin, Sinapre alread et tp markfr it maturit a a financial center, and ha cnitentl been ranked hihl fr it eae f din buine.Hwever, the carcit f experienced advir with wealthmanaement expertie i likel t be a majr challene frSinapre in frward. At the ame time, Sinapre iexpected t wrk n brinin reulatr tandard up tlbal benchmark in the near future, ptentiall

chanin cnditin there mewhat.

Hn Kn ha an etablihed pl f talent, and i aattractive a Sinapre in term f financialcentermaturit and eae f din buine, but la t date interm f bein practive n reulatin. (Authritie aretakin tep t imprve, hwever.) Hn Kn i alperceived t be even mre attractive than Sinapre interm f it capitalmarket depth. Hwever, there i tillme uncertaint arund the future f Hn Kn’rwth a a leadin ffhre wealth center ince there iperceived t be inificant Chinee influence ver

Hn Kn, and it i nt cnidered t be aindependent a Sinapre.

Neverthele, Sinapre and Hn Kn bth eem wellpitined t becme increainl attractive tHNWI relative t ther ffhre wealth center,epeciall if the can emulate the appeal f reinalffhre wealth center, uch a the Channel Iland.

Reinal center have ucceeded b fcuin primaril nprvidin wealth tructurin ervice and capabilitie tclient, and taretin HNW client frm neihbrin

cuntrie. That apprach i likel t wrk better fr AiaPacific center than the trate f traditinalcenter, which aim t attract a wide rane f HNWIfrm arund the wrld.

As wealth management firms plot a

path to growth in Asia-Pacific

offshore wealth centers, they will

need to leverage the strengths of

the jurisdictions in which they are

operating, while making sure not to

compromise their own corecompetencies. This is especially

the case for global firms seeking to

compete with local players, as they

cannot succeed simply by

establishing a local presence; they

must establish trust through brand

reputation or other capabilities to

attract clients and wealth.




cHAPter NAme

Hwever, reinal center ften pecialize in nicheervice uch a crbrder tax plannin r certaintrut ervice, and AiaPacific center will need t fferthe breadth and depth f ervice fund in traditinalcenter in rder t prperl erve the divere AiaPacificHNW client bae, and it varied preference anddemand. (Frein plaer miht trule t cmpete with etablihed incumbent in an allervice

apprach, hwever.)

given the peratin realitie and the intrinic trenthand weaknee f AiaPacific’ ffhre lcatin, man firm will need t increae their capabilitie t thrivethere. The fllwin are amn the area that will needfurther attentin and invetment:

Expertise. Firm will need t enure the haveufficient expertie, nt nl in the frnt ffice, butal in back and middleffice peratin. Thi willmean cntinuu educatin f exitin advir tenable them t addre chanin client need, andtrainin f new r uner advir, wh ma havelcal market experience, but will need mre educatinn develpin and maintainin ucceful lntermclient relatinhip.

Product offerings. Man firm will need t enhancetheir dicretinar fferin in rder t have mreflexibilit t cutmize prtfli tailred t thepecific need f their client. In AiaPacific center,dicretinar prduct accunt fr nl abut 5%10%f all prduct, cmpared t abut 30% in traditinal wealth center. Hwever, invetable wealth amn

AiaPacific HNWI i ften trapped in real etate andbuine wnerhip, HNW client will need treleae mre f that invetable wealth befre it can bedepled in dicretinar prduct.

Risk and compliance. Reulatr in AiaPacificare raduall mvin tward tricter tandard in rik and cmpliance, in line with the prevailin indevelped market. Firm will need t enure theirrik and cmpliance framewrk are n a par withlbal tandard.

IT infrastructure. Different tpe f IT mdel exit,but pen platfrm are becmin the nrm fr lbalfirm. Firm in AiaPacific center culd till pt frprprietar mdel, but the require far hiher level f invetment, and ffer le flexibilit than mre penmdel. Apprpriate IT mdel will al be critical tenablin calabilit.

Fcuin n thee area will be critical t the abilit f firm t thrive in AiaPacific ffhre market, but it ial imprtant that firm d nt cmprmie their crecmpetencie while buildin calable buine mdel.Fr example, fee/advirbaed mdel, imilar t thein reinal ffhre wealth center uch a the ChannelIland, culd be mre uitable t firm in AiaPacificcenter. There i al a mve awa frm ubidiar mdel t branchbaed tructure, but thi i nl a lealchane t achieve reater cntrl ver ct than ccurin the ubidiar mdel. Jint venture ma al be a wa fr me lbal firm t leverae cmplementar

trenth f indutr expertie and lcal knwlede.

While develpin their trateie, it will al be criticalfr all firm t enae in a cntinuu pen dialue withreulatr the are in a pitin t anticipate chanein reulatr requirement. Firm huld al participateactivel in dicuin ver hw thee market can betdevelp t benefit client and reaure reulatr, whileal creatin pprtunit fr firm.




We would like to thank thefollowing people for helping tocompile this report:

William Sul livan, Karen Schneider,David Wiln, and Chira Thakral frmCapemini, fr their verall leaderhip frthi ear’ reprt; Maheh Bhattad,Saurabh Chudhar, Sivakanth Dandamudi,

Santh Ejanthkar, Rajendra Thakur, and Jackie Wile fr reearchin, cmpilin,and writin the findin, a well a prvidin

indepth market anali; Claire Sauvanaud,Mark Wale, and member frm theCapemini Wealth Manaement Practice,fr their iniht and indutr knwlede.

Additinall, Matt Hebel, Surav Mkherjee,Sunj Vazhapill, MarEllen Harn,Vanea Baille, Erin Riemer, and UnniKrihnan fr their nin upprt lball.

Stuart Rutlede, Mark Fell, Kath Enle, Aimee Wn, Patricia Crawfrd, AihlinCullen, Paul French, Peter Hflich, Claire

Hlland, and yen T frm RBC Wealth

Manaement, wh prvided directin, acce,indutr perpective, and reearch t enuredevelpment f tpical iue bein addreedin the Financial Service indutr, a well aplannin t upprt the launch f the reprt;Barend Janen, Jhn Mntalban, Paul

Pattern, Andrew Turczniak, Eric Lacelle, Alex Khein, yji Takeda, Hilar Ma, Ja Rbert, Mar Sumner, Janet Enel, SimnN, and ther RBC Wealth Manaementenir executive, wh prvided expert advicen indutr trend. Additinall we wuld liket thank: Sanam Alahband, Jennifer

DelaCruz, Edith galinaiti, Bev MacLean,and Jamie Steiner fr their upprt lball. We wuld al like t thank the reinalexpert frm Capemini, RBC WealthManaement and ther intitutin whparticipated in executive interview t validatefindin and add depth t the anali.

We extend a special thanks to those firms that gave

us insights into events that are impacting the

wealth management industry on a global basis.

The information contained herein was obtained from varioussources; we do not guarantee its accuracy or completeness

nor the accuracy or completeness of the analysis relatingthereto. This research report is for general circulation and isprovided for general information only; any party relying onthe contents hereof does so at its own risk.

The Asia-Pacific Wealth Report 2012 focuses on 10 core markets: Australia, China, Hong Kong, India, Indonesia, Japan, Singapore, SouthKorea, Thailand, and Taiwan. The market-sizing model includes 18countries and territories in its Asia-Pacific coverage.

We estimate the size and growth of wealth in various regions using theCapgemini Lorenz curve methodology. It is updated on an annual basisto calculate the value of HNWI financial wealth at a macro level.

Our methodology involves three steps. We estimate total wealth bycountry, using national account statistics from recognized sources suchas the International Monetary Fund and the World Bank to identify thetotal amount of national savings in each year. These are summed overtime to arrive at total accumulated country wealth. As this captures

financial assets at book value, the final figures are adjusted based onworld stock indexes to reflect the market value of the equity portion ofHNWI wealth.

We then estimate the distribution of wealth across the adult populationin each country, based on formulized relationships between wealth andincome. Data on income distribution is provided by the World Bank, theEconomist Intelligence Unit and countries’ national statistics. We use theresulting Lorenz curves to distribute wealth across the adult populationin each country.

To quantify investable wealth as a proportion of total wealth, we usestatistics from countries with available data to calculate their investablewealth figures, and extrapolate these findings to the rest of the region.We iterate our macroeconomic model each year to account foradditional domestic economic factors that influence wealth creation. Wealso work with colleagues and partners around the globe to bestaccount for the impact of domestic, fiscal and monetary policies overtime on HNWI investable-wealth generation.

Our investable-wealth figures include the value of private-equity holdingsstated at book value, as well as all forms of publicly quoted equities,bonds, funds and cash deposits. The figures exclude collectibles,consumables, consumer durables and real estate used for primaryresidences. Offshore investments are theoretically accounted for, butonly insofar as countries are able to make accurate estimates of relativeflows of property and investment in and out of their jurisdictions. Weaccount for undeclared savings.

Given exchange rate fluctuations over recent years, especially withrespect to the U.S. dollar, we assess the impact of currency fluctuationson our results. From our analysis, we conclude that our methodology isrobust and exchange rate fluctuations do not have a significant impacton the findings.

To score the overall attractiveness of offshore wealth centers, weemployed a model that analyzes 20 sub-parameters (listed on p24).Each parameter was ranked on a scale of 1 to 5 (1 being the lowest and5 the highest). To convert this score into attractiveness, we rated thecenter as highly attractive if it scored a 5 for that parameter; securing ascore of 4 or 3 would give it a rating of moderately attractive whereasanything less than 3 would make it unattractive. The Final Center Attractiveness score is a simple average of all the parameter scores for

each offshore wealth center. The analysis is based on a number ofcredible sources, including Mercer, the EIU, and the World Bank.

Methdl




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Capemini, ne f the wrld’ fremt prvider f cnultin, technl and uturcin ervice, enable it client t tranfrmand perfrm thruh technlie. Capemini prvide it client with iniht and capabilitie that bt their freedm t achieveuperir reult thruh a unique wa f wrkin, the Cllabrative Buine Experience™. The grup relie n it lbal deliver mdel called Rihthre®, which aim t et the riht balance f the bet ta lent frm multiple lcatin, wrkin a ne team tcreate and deliver the ptimum lutin fr client.

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Capemini’ wealth manaement practice can help firm frm trate thruh t implementatin. Baed n ur unique iniht intthe ize and ptential f taret market acr the lbe, we help client implement new client trateie, adapt their practice mdel,and enure lutin and ct are apprpriate relative t revenue and prfitabilit expectatin. We further help firm develp, andimplement the peratinal infratructure—includin peratin mdel, prcee, and technlie—required t retain exitinclient and acquire new relatinhip.

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thruh it RBC glbal Aet Manaement buine (which include BlueBa Aet Manaement). RBC Wealth Manaement hamre than C$560 billin f aet under adminitratin, mre than C$322 billin f aet under manaement and apprximatel 4,300 financial cnultant, advir, private banker and trut fficer.

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* Spi Panship Piva Bankin Bnhak 2012. this asun inus a ba rBc Wah manan affiias inuin h U.S. ivisin. In h Uni Sas, suiisa ff huh rBc Wah manan, a ivisin f rBc capia maks, llc, a wh wn subsiia f ra Bank f canaa. mb NySe/FINrA/SIPc.

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