By Abby Schultz
It's not just anyone who can be a client of Goldman Sachs
Private Wealth Management. To get in the door, you need US$100
million in investable assets -- that is, US$100 million not tied up
in your business or property. And you need to bank at least US$10
million of that with Goldman.
That may be higher than the barriers raised by many of Goldman
competitors, but the U.S.-based investment bank isn't exactly
having a tough time finding clients. The typical Goldman Private
Wealth customer in Asia has about US$150 million in investable
assets, and puts an average of about US$50 million of it with
Goldman.
Ron Lee, the energetic head of Goldman's Private Wealth group
for the last three years, and a veteran of Goldman in Asia since he
joined its sales and trading operations in 1998, borrows a
colleague's phrase in referring to these clients as
"insti-viduals." Get it? Part institution, part individual.
"They are individuals, but they are also leading figures in big
institutions, founding shareholders of companies, or chairmen and
CEOs of institutions," says Lee as he sits down with Barron's Asia
in Goldman's elegant offices in Cheung Kong Tower in Central Hong
Kong, just one floor below Cheung Kong Holdings chairman Li
Ka-shing's 69th floor perch. The meeting room shares some of the
auspicious feng shui of the renowned tycoon, with mountains to the
back and panoramic views of the entire city before you.
Most of these so-called insti-viduals are from China, the source
of about two-thirds of Goldman's private wealth clients. Goldman
also can reach customers in China through Gao Hua Securities, a
strategic partner.
Goldman doesn't break out its assets has under management for
Asia Pacific, but publications that track the industry says it has
about $45 billion, putting the private bank either in 11th or 13th
place in the region, depending on which rankings you use.
If you are a client of Goldman's, chances are you originally
sought out the global bank for its vast access to international
stock and bond markets. In Asia, traders with what was once called
Goldman Private Client Services began sitting on the trading desk
to manage transactions for the firm's wealthy customers since 1989.
The investment management division, which includes asset management
as well as the private wealth business, was set up globally and in
Asia in the late 1990s.
Wealthy Asian customers began to seek out more advice since Lee
has been at the helm, although he doesn't give himself credit for
this shift. The real impetus, he says, is the world has changed and
China no longer seems like a sure thing to many of his clients. "As
they become more wary of China's future, clients' receptivity to
the proposition of having a more traditional wealth preservation
strategy has really changed in the last few years," Lee says.
Just three years ago, clients might scoff at the prospects of
earning 6% to 8% in a diversified investment portfolio when they
knew they could get, say, a 35% return in their business, Lee says.
They also didn't see the point of investing in U.S. dollar-based
assets when it seemed the dollar would only depreciate against the
Chinese yuan. At the time, the U.S. appeared on the brink of
another recession and there was speculation about a European Union
breakup.
"People saw China as a very safe place to be, and the outside
world as more volatile," Lee says. "Fast forward to today, it
couldn't be more different."
As a result, wealth advisory services is the fastest-growing
part of Goldman's Asia's business, with fee-based services
generating just over 50% of business, up from just 10% to 20% three
years ago. "Revenues have been growing nicely the last few years as
well," Lee says.
Lee thinks this growth is only beginning. Not only do customers
want more advice from Goldman, they are looking to move more of
their money out of their businesses. Most people have kept 80% of
their wealth in their domestic Chinese enterprises, and 20% in
offshore investments. That smaller piece of the pie was viewed as
the safety net. "They almost have a natural, built-in way of
thinking about investment diversification and risk management from
that perspective," Lee says. As they become more wary of China's
future, "we see people willing to take out a little more
'insurance' and have more wealth offshore," he says, adding it
feels like many customers would be willing to move as much as 30%
or more of their wealth outside of China.
Many customers are also likely to move more money offshore
because their children have little interest in their business. "So
the executive who has worked really hard for the last 30 to 40
years wants to take it easy a little bit, and the kids are saying,
'Nice job, Dad, but how about we sell the company?' " Lee says.
Another reason for optimism is that Goldman's China customers,
unlike those in Hong Kong or the rest of Asia, tend to be
industrialists who don't pretend to have a point of view about
investments or markets. Affluent Hong Kongers typically have
opinions about markets, will spread their finances among as many as
a dozen private bank accounts and are actively involved in their
management; China's super wealthy are more like Goldman's U.S.
customers.
"Our U.S. business is filled with entrepreneurs and executives
who are very receptive to the notion of getting professional
support as it relates to how they think about their investments,"
Lee says. Today the U.S. is the biggest market for wealth
management services in the world, Lee says, but thinks the most
intriguing story in Asia is that "we think China has the
opportunity to be the second biggest or the biggest."
Because customers in China resemble those in the U.S. so much,
Goldman doesn't need to reinvent the wheel here. "We see so many
similarities in the underlying characteristics of the Chinese
wealth management opportunity and the US wealth management
reality," Lee says. "It's something people don't talk about very
much, but it's almost identical."
Clients come to Goldman's private bank for traditional financing
planning services, like estate and tax planning, as well as for
portfolio management. But another big attraction is access to the
firm's investment bank. "We act as the access point for wealthy
individuals to interact with all of Goldman Sachs," Lee says. But
the flip side is that the rest of Goldman Sachs knows where to turn
to find wealthy potential clients.
"People who come through private wealth have access to all of
the world-leading investment banking capabilities we have for their
company's financing or advisory requirements," Lee says. "They have
access to the same kind of ideas and execution on the sales and
trading side that large institutional clients would have."
Lee also points out that the firm's merchant banking division
"is a big source of value and partnership for our high-net-worth
clients as well." This last connection means clients have access
when Goldman has opportunities to invest to make private equity
injections, a perk that has allowed individuals to invest in
high-profile companies like Facebook or ICBC before they went
public.
Goldman's goal is for clients to benefit from the seamless way
the firm likes to operate - professionals at the firm see
themselves more as part of Goldman than from the specific divisions
where they work. After Lee started his career at Goldman in sales
and trading, he moved into investment banking and became
responsible for Goldman's Hong Kong's investment banking practice
(which, by the way, included his biggest client, the Cheung Kong
Group).
When it comes to investments, Goldman follows the advice of its
global investment strategy group, including its Asia-based experts
(For more on Goldman's private wealth investing strategy, see TK).
Allocations are based on individual risk appetites, but Goldman
stresses the importance of diversifying and Lee says embracing
diversity is the biggest trend among his clients. "If anything, we
see ourselves as being in the position of helping clients manage
the risk that they already have the appetite to take."
Email: abby.schultz@barrons.com
Comments? E-mail us at asiaeditors@barrons.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires