(Bloomberg Markets) — Wang Feng is the kind of successful tech entrepreneur whom private wealthbankers from Goldman Sachs to Credit Suisse would love to land as a client. He’s chairman of Beijing-based Linekong Interactive Group, a Chinese mobile and online game developer valued at about $194 million — and Wang, 46, owns a 20 percent stake.
What’s more, five years ago, Wang co-founded Geek Founders Capital, which has since raised 300 million yuan ($45.7 million) in three financing rounds and invested in more than 60 companies. Last year he and a partner, Zhang Xiaowei, a former Huawei Technologies executive, raised $60 million from venture capitalists to launch a home-console game company to take on the likes of Microsoft’s Xbox and Sony’s PlayStation in China.
“Fast technological innovations have created waves of opportunities,” says Wang, whose rectangular black glasses, slim build, and red sweater seem inspired by the hipsters of Silicon Valley. “As long as you’re smart, you’re going to make money.”
And if you’re going to make money, you need to do something with it. The rise of Wang and others who’ve built fortunes in technology reflect how China’s great wealth machine is changing, Bloomberg Markets magazine reports in its forthcoming issue.
This expanding group of high-net-worth individuals (HNWIs) — people who have investable assets of more than $1 million, excluding property — presents both an opportunity and a monumental challenge for global banks. Among them: Morgan Stanley, UBS, and Credit Suisse, which are seeking to make inroads into the country’s deep wealth management market.
True, China’s economic slowdown and stock market turmoil this year have spooked global investors. And there are signs the white-hot venture capital enthusiasm for Chinese tech startups is cooling over valuation worries. However, private bankers with a longer time horizon still eye the country with boundless optimism.
Since paramount leader Deng Xiaoping kicked off the country’s modernization drive in the late-1970s, China has evolved into a $10 trillion-plus economy with vast sums of household wealth. In 2014 the country’s HNWI population grew by 17.5 percent, to 890,000; the elite group’s combined wealth came in at $4.5 trillion, according to Capgemini and RBC Wealth Management. Swiss private bank Julius Baer sees HNWI wealth reaching $8.2 trillion by 2020.
Tech entrepreneurs are one of the fastest-growing groups within China’s swelling ranks of 1 Percenters. Four of the five richest Chinese are in the tech sector. China’s second-richest man isn’t an industrialist or property developer.
It’s Jack Ma, founder of the Alibaba Group, a Chinese mashup of EBay and Amazon.com. He was worth $27 billion on Feb. 22, according to the Bloomberg Billionaires Index, more than Hong Kong business magnate Li Ka-shing, whose flagship companies CK Hutchison Holdings and Cheung Kong Property Holdings have interests in real estate, ports, and infrastructure.
Private banking in China is a huge market—and a devilishly tough one to crack for a foreign bank. The country’s first wave of multimillionaires and billionaires tended to be factory owners and exporters who started businesses in the 1980s and 1990s, when China clocked double-digit growth rates and the export sector boomed.
As a general rule, they’ve invested their wealth in property and financial assets and prefer to deal with private bankers at local institutions such as China Merchants Bank.
Although some foreign banks — including JPMorgan Chase, Goldman Sachs, and Citigroup — have licenses or joint ventures that give them partial access to China’s wealth management market, they don’t have the branch footprint and scale of Chinese banks. “They have very, very low market share, largely because they don’t have distribution,” says Sameer Chishty, a Hong Kong-based partner at Bain & Co., who co-leads the firm’s financial services for Greater China and its global wealth management practice.
The new entrepreneurial class amassing great wealth at a younger age provides another opening for global banks. These risk-takers are sophisticated, often Western-educated, and comfortable working with foreign banks at home and dabbling in investments abroad.
They research investments on their smartphones, and “when they go to meet their private bankers, they’ve done a lot of homework,” according to Chishty.
These clients need help not only managing their money but also building their businesses. Because of that, says Chen Shi, a personal banker based in Hangzhou with China Merchants Bank, “the relatively younger generation are probably more open-minded about using [products offered by] foreign banks.”
That provides several potential revenue streams for full-service banks offering wealth management along with investment banking services such as equity underwriting and merger advice.
“From zero to billionaire can be as quick as six years in this new tech sector,” compared to more than 20 years in a more traditional industry, says Francis Liu, a Greater China manager for ultra-high-net-worth clients at UBS. “The ultimate goal is to help entrepreneurs grow their wealth. We don’t just come to you when you are really rich. We want to support you across all life stages.”
In January, Liu’s boss, UBS Chief Executive Officer Sergio Ermotti, told Bloomberg TV that, recent market turmoil aside, “China is a great opportunity, like it has been for the last 20 years.” The Swiss bank plans to double its staff in the country within five years. Private banking is an attractive business for global banks in China and elsewhere, because it doesn’t tie up huge amounts of capital and generates a steady return.
Typically, private bankers charge clients a percentage of the assets they manage and extra fees for customized products. Credit Suisse CEO Tidjane Thiam also wants to expand in Asian wealthmanagement and boost the lender’s presence throughout China.
He’s not alone. “Every bank is getting out of capital-intensive activity,” Thiam said at a financial industry conference in Paris on Jan. 12. “Every bank is going into asset management and wealth management, and that worries me.”