Offshore, on course

It’s not only the small investor who is laughing all the way to the bank, but also the wealthy investors whose assets under management (AUM) in private banking zoomed from a mere $3.34 trillion to $7.6 trillion in 2007. These are the findings of a global survey by Euromoney magazine of close to 400 private banking and wealth management institutions.

Asia as a continent has a share of 13.3 per cent of the $7.6-trillion global AUM. The survey finding reveals that India ranks seventh globally in terms of net income growth and ninth in terms of AUM growth. Interestingly, new asset classes like hedge funds, private equity, real estate and structured products are now being demanded by investors globally. Says Clive Horwood, Editor, Euromoney magazine: “The change (in composition of AUM) has not been exactly dramatic but it is true that a number of asset classes are now regarded as a must in any portfolio; five years ago that wasn’t the case.”

The growth in AUMs in China and India is quite encouraging as the two fastest-growing economies in the world with near doubledigit GDP growth still face tighter capital account regulations and higher tax regimes. “Private banks in India and China obviously do not have the product range of private banks operating in the US or Europe. This is particularly the case in areas such as hedge fund investment,” believes Horwood. “The lack of a products suite encourages more wealthy Indians to keep their assets in offshore centres such as Switzerland and, increasingly, Singapore.”

The good news for the Indian private banking industry is the strong rupee appreciation of 12 per cent against the US dollar in 2007. Horwood says: “The rupee appreciation will, however, mean that wealthy Indians will think twice about investing in US dollar-denominated assets.”

What’s worrying him, however, is the global outlook for 2008. The clouds of uncertainty are already visible with a likely slowdown or a recession in the US with crude oil prices piercing the $100-a-barrel mark. These ominous factors may moderate the returns in the financial markets. While forecasting 2008 as “a year of increased competition”, Horwood cautions: “Markets look like they are in for a tough year, so AUM growth will probably moderate.”

— Anand Adhikari