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.
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