The economic upheaval of the past decade has driven wealth managers to rethink their strategies in emerging markets. For one thing, major developing economies such as the BRIC nations (Brazil, Russia, India and China) are undergoing a transition from a decade of rapid, export-driven growth to more mature, consumption-based economies. At the same time, concerns over the future of emerging markets have produced heightened volatility in regional debt and equity markets. And demand from developed economic regions like the euro zone has continued to moderate, and investors have had to adjust their outlook and allocations.
For wealth managers, this is happening just as a newly minted affluent class in nations like India and Brazil achieves liquidity. The problem many investment advisers face is how best to approach these investors in their home markets.
For the premier private and investment banks, the decision to establish and build out local offices offering services for wealthy families resembles a macroeconomic investment call. “Creating the infrastructure to manage wealth is expensive,” says Tucker York, global head of the private wealth management division of Goldman Sachs Group. “When we go into a new market, we feel we need to be prepared to go all in.” Goldman operates dedicated wealth management teams in São Paulo and Beijing and, for the near future, has no expectations of expanding into other emerging markets. York says that Goldman’s strategy for the Brazilian and Chinese markets served by these offices is to focus on ultra-high-net worth families, typically those with wealth created through entrepreneurial pursuits, and to integrate closely with the bank’s trading, investment banking and asset management efforts within the region.
Industry experts agree that even for the largest banks, barriers to entry are significant. “The cost of entering new markets is increasingly high as more complex international compliance and operational requirements come into play,” says Christine Mar Ciriani, a partner in and head of Capco’s Swiss offices in Geneva and Zurich. “The days of simply assuming that you have to be active in every market has passed. Increasingly, we see major firms enter developing economies only when they are confident that they can fully leverage other business activities in those markets.” Capco (Capital Markets Co.) is a global consulting firm headquartered in Antwerp, Belgium, with practice areas spanning all aspects of financial services, including technology and capital markets. Ciriani acknowledges that regulatory and political realities of some fast-growing regions present reputational risks to international banks and asset managers that put boots on the ground. Yet many firms are discovering new ways to engage these new, well-heeled investors. “A rising trend we have seen in recent years is the adoption of purely digital investment advisory services by ultra-high-net worth families in developing Asia as well as other markets,” says Ciriani, who adds that investment banks with strong trading franchises are perceived to have a particular edge in reaching this audience, which tends to be more speculatively oriented than other international demographic segments.
For smaller firms, the cost of establishing a physical presence in even major developing economies can be prohibitive and the potential rewards slender. “We learned very quickly that customers in these countries, particularly in Asia, are incredibly brand conscious,” says Andrew Fisher, chief investment officer of Maxim Global Wealth Advisors, a Portland, Oregon–based investment advisory firm. “It doesn’t make sense for our business to put a dedicated office there.” Maxim, with offices throughout the U.S. and in Europe, was founded in 2005 specifically to cater to families with cross-border wealth management needs. The firm has more than 100 client families, including U.S. citizens, working abroad with overlapping tax jurisdictions who need help navigating regulations on overseas real estate and investment holdings. According to Fisher, opportunities for boutique firms remain huge, however, as a portion of the rising affluent class in markets like Brazil seek out U.S.- and European-based advisers. “Often they are seeking less volatile currency environments and a perceived stronger rule of law,” notes Fisher. “That creates opportunity which no wealth manager with a global reach can ignore.”
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