Uncertainty is widespread with top strategists throughout the industry showing little conviction in their investment calls, according to Hywin International chief executive Nick Xiao, noting that private banks face a threat from the shift away from public markets.
As of end-March, the MSCI World index was down 5 percent with various Asian markets suffering even more losses, most notably in China, with the CSI 300 down 15 percent year-to-date.
The downbeat sentiment is a challenge for global banks that often depend on public markets as their bread and butter, across sales, trading, research, and more.
«You can see all the confident and glamorous economists or chief investment officers talking about anything these days in a super-hedged manner because nobody’s sure,» said Hywin International CEO Nick Xiao during a recent conversation with finews.asia.
Paradigm Shifts
In addition to still large amounts of uninvested cash, higher return expectations and cyclical factors, Xiao highlights the effect that paradigm shifts have on markets.
«To put it in a blunt manner, I’m not sure people even know where they are in the cycle,» he explained, highlighting that deposit rates at top private banks have reached as high as 1.7 percent.
«Not just volatility but the rising opportunity cost of money and the apparent poor visibility into geopolitics and market dynamics will steer investors to private markets.»
Private Market Advantage
According to Xiao, external asset managers or multi-family offices have a particular advantage in private markets when compared to traditional global banks.
For example, non-bank wealth managers can exercise relatively more discretion and better avoid revealing the names of investors or assets for sensitive deals. Also, players like Hywin International have a legacy in the space because of their origins of competing against major banking giants that dominate business in public markets.
«Most private banks today, they talk about private markets as something new,» Xiao said. «They say: ‘Okay guys, public markets are too volatile and margins are too thin. Let’s try to do something with private markets in a gingerly manner.' But ever since Hywin's founding, we’ve been focused on private markets and relatively long-term, high-conviction, thesis-driven portfolios.»
Don’t Discount Private Banks
Still, Xiao stresses that he won’t be quick to discount private banks altogether with differentiators such as superior fundraising capabilities, citing strategic shareholder VP Bank’s newly launched investor-deal matchmaking platform ORBIT as an example.
«Private banks – for whatever complexities or inertia they may have given their sheer size – they can still uncover a lot of good deals,» Xiao said.
«And maybe more importantly, they can drum up very large scale funding to support the transaction, sometimes by getting money from clients and sometimes by extending credit.»
