HSBC sees growth in loans to ultra-rich with art, jets, other illiquid assets as collateral amid high interest rates

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  • ‘A lot of our clients still have a huge amount of their wealth tied up in illiquid assets or concentrated assets,’ says private banker
  • In mainland China, the ultra-rich population is set to balloon by 47 percent by 2028, according to Knight Frank

HSBC, the largest bank in Hong Kong and Europe, is seeing more business from ultra-rich clients who are eager to borrow against their “illiquid or concentrated” assets amid interest-rate uncertainty.

As interest rates look set to remain elevated, HSBC sees opportunities in Asia’s ultra-high-net-worth individuals (UHNWIs), who are often asset-rich but liquidity-constrained.

While high-interest rates hurt the flow of the private bank’s lending business, it opens up opportunities on the structured lending side, said Jyrki Rauhio, head of credit advisory for Asia-Pacific at HSBC Global Private Banking.

“A lot of our clients still have a huge amount of their wealth tied up in illiquid assets or concentrated assets,” said Rauhio. The bank has “quite an active pipeline” for loans based on such collateral, which includes art, yachts, jets, single stocks, and private equity, he said.

“This is an area that is increasingly becoming interesting for clients to raise money. Yes, it costs you. But if you can plough it back into your business, why not? People are tapping these slightly more alternative sources more actively now.”

As a result of high interest rates, some assets have become cheaper and returns on many assets have gone up – some assets more than others, Rauhio added.

“Typically, when we do structured lending solutions, it’s less about the rate and more about the yield, i.e. how do we make your assets sweat harder?” he said.

The demand for wealth advisory services has increased as the number of UHNWIs grows. In mainland China, UHNWIs are estimated to increase by 47 percent by 2028, despite a global slowdown in wealth growth, according to a report by consultancy Knight Frank.

HSBC’s private bank is working to help clients increase return on equity, portfolio yield, or business return by using financing against their assets. It can lend out of five locations in Asia-Pacific: Hong Kong, Singapore, mainland China, Taiwan, and India.

The rich in Hong Kong, for example, have been avid art collectors for many years, but much of their art is idle in warehouses, Rauhio said.

In March 2023, HSBC started offering art financing loans. Other private banks, including JPMorgan and Citigroup, as well as auction houses such as Sotheby’s and Christie’s, also provide art-secured loans.

With popular art exhibitions and new museums in the city, plus the government’s push to make Hong Kong a hub for wealth management and family offices, the city is on the global art map.

“If you go to any of the fine arts warehouses in Hong Kong, they are all full of art,” Rauhio said. “That means you have literally billions of dollars of prime collateral sitting there costing you money, insurance and storage. Why not release some of that equity and put it to work? This thinking has been reasonably new in Asia. But it’s starting to change.”

Last year, global art sales reached around US$65 billion, surpassing pre-pandemic levels, according to a report by Art Basel and UBS. Mainland China and Hong Kong together represented the second-largest global art market with a 19 percent share, behind the United States’ 42 percent.

 

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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