Asian Private Banker, Twinkle Sparta (27.11.2023) - For many non-Chinese private banks and wealth managers like UBP, the first foray into the Chinese wealth market is to target local wealthy family office clients.
Wang Chao, head of wealth management (China), UBP, shared with Asian Private Banker how the Swiss pure play private bank has been forging its path in Asia’s largest economy by catering to family office clients.
Currently, UBP’s family office business in China mainly serves local clients in areas such as asset management, wealth management, and professional governance through workshops and partnership opportunities.
“We have a presence in both Shanghai and Hainan, primarily in the form of private equity funds. On the one hand, we leverage the Qualified Domestic Limited Partnership (QDLP) for cross-border business; on the other hand, we pilot some secondary market business through joint ventures. This approach enables us to explore how we can succeed and scale up our business in the Chinese market going forward. Our hope is that this diversified model will help UBP better understand the local market,” Wang said in an interview in Chinese.
“Foreign firms need to study and find out paths and models that work for them before engaging in cross-border investment. On this basis, they also must consider the level of policy support and cooperation as risk controls in these areas are also rather stringent.”
Strengths of QDLP cross-border investments
“Take our QDLP business for example. That has been a very good experiment. Even though we still need time to achieve scale (in light of quota restrictions), we have already seen progress after more than one year,” comments Wang.
QDLP is a scheme in which fund management firms that have obtained both the qualifications for QDLP pilots and approval for foreign exchange quotas establish QDLP funds within Mainland China and raise funds from qualified domestic investors, before exchanging the funds raised into foreign currencies for investment in target markets such as primary and secondary markets overseas. To put it simply, QDLP involves raising funds in China for investments outside China.
“The viability of QDLP depends firstly on stringent government review of the eligibility of applicants. Secondly, as private equity funds, QDLP makes end-to-end cross-border regulation more transparent, with a more precise review of each cross-border investment project.
“Furthermore, the series of detailed rules regarding the entry and exit of funds create a comprehensive management framework. Therefore, both the risks and the amount of cross-border investments in this category are very controllable,” explained Wang.
“Our clients are also more receptive to this scheme, and are willing to spend more resources and time on a scheme that is in compliance with regulations,” he added.
Investors still conservative
However, although the investment environment this year appears better than last year, according to Wang, investors are still relatively conservative. Many are in an early stage of learning and are still getting used to the concept of asset allocation.
“Chinese investors have become more cautious. When the market is affected by various uncertainties, investors tend to adopt a wait-and-see approach, while opting for more prudent strategies. Secondly, clients have become more familiar with the concept of asset allocation, and have realised that in terms of cycles and returns, as well as risks and returns, diversified allocation is the way to go in the long term,” Wang commented.
Localisation of foreign firms
Wang shared candidly that foreign firms face many challenges in the Chinese market and it will take a relatively long time for them to succeed.
“When foreign firms first come into contact with the Chinese market, they sometimes lack sensitivity in brand promotion. Our collaboration with Hurun Report is actually a partnership in exploration and innovation. We focus on client segments that have garnered more market attention, and aim to reflect the true state of the market to the greatest extent possible with extensive research and interviews,” said Wang.
He believes that it is important to blend “imported brands” into Chinese history and culture.
“We are looking at more comprehensive and innovative marketing solutions, such as launching a series of expert interviews via our official new media channels. We hope that UBP will be a key contributor driving the diversified and quality development of China’s wealth market in the future.”
In December 2022, UBP and Hurun Research Institute jointly published the 2022 Chinese Family Office Industry Trends Report.
A Chinese family office is different from other family offices in mature markets as it is rooted in China, adapts to the regulatory characteristics of the Chinese market, and serves Chinese entrepreneurs. Developing a “localisation” strategy has also been a priority for foreign investment firms such as UBP in the Chinese market in recent years.
