Singapore based Kwong Kin Mun, managing director, head of private banking Southeast Asia, at Deutsche Bank Private Wealth Management talks about the lessons learnt by private clients in the crisis and what it means for a global brand such as Deutsche

Innovative Investor - How has private banking been affected by the GFC? What were the main challenges faced by the clients of private banks?

Kin Mun - I think there are a number of lessons which have been learnt by both banks and their clients. Clients now understand a lot more about the power of leverage - both the upside and the downside - and the importance of risk management within clients' portfolios have been brought to the fore.

It is only natural there was a general misconception about structured products given the negative publicity they received last year. To this end, I am not saying any product is good or bad, it's just about doing it in the right amount and in the right context. In the context of structured products, they are purely tools to achieve a goal - basically as a means of achieving a bespoke solution to a client's needs. I like to use the analogy of a knife here; if you put a knife in the hands of a chef it could be used to produce wonderful food, but in the wrong hands it can be fatal. It is the same with some of the derivative products; they are just tools but when you begin to use them inappropriately or apply a lot of leverage then you can get hurt. But I think as we come out of the financial crisis more clients now understand the power of leverage.

Another thing to come out of the crisis was a change to the idea of fixed income versus equities. People were always taught in school that the fixed income part of the portfolio is the safer portion, something that carries lower risk than equities. However, given current market context, it is all about dynamic asset allocation and ensuring that clients understand the concept of taking on calculated risks.

To this end, our private bankers understand better than ever that communication and transparency are key and clients must fully understand all product risks. In this regard, we advise our private bank clients to be cautious and focus equally on the risk and the return aspect of any investment decision. They have more holistic conversations with their relationship managers around their overall portfolios and are focused on understanding and hedging out tail risks - risks which may have a remote possibility of happening but if they materialise can prove to be catastrophic for the portfolio.

Innovative Investor - How has Deutsche Private Bank fared as we emerge from the crisis?

Kin Mun - Before the crisis there was the notion that banks are the most stable corporate institutions in the world - that they were too big to fail. But these preconceptions have been challenged. Clients are looking more closely at the institutions, where they put their money and placing more emphasis on their financial strength, as well as diversifying their portfolio much more. In the past it was quite usual for Asian high net worth families to have three or four private bankers. And inevitably they would have their favourite who they might use to look at 50% of their wealth. But I think going forward this will change.

What they saw was that a number of global financial institutions were technically insolvent, and in the minds of private bank customers they will already be thinking about not putting too much of their wealth in any one institution.

This may not mean that they end up having more private bankers but the distribution between them is likely to be more equal. Put side by side with some of these other global banks, I think Deutsche really stands out as a major institution that has weathered the storm and maintained a very strong investment platform, especially in Asia.

Innovative Investor - You are responsible for the strategic direction of the South East Asian business, so what tangible plans do you want to achieve in H1 2010/year end 2010?

Kin Mun - It is clear that Asia is, post-crisis, the most exciting place financially in the world right now. Pre-crisis it was growing very quickly and post-crisis it has been the first to recover. As such Asia is one of our focus areas. We have made it known that we want to double the size of our business here in the next three years. So in line with our corporate goal we will be strengthening every area of the business, starting with talent. We need to hire the right people and retain good people.

We need to understand clients' needs and this is where senior bankers are very important. Deutsche has a pool of international talent, but there are a lot of senior bankers out there looking to put themselves and their clients into institutions like Deutsche Bank because it is well positioned, well capitalised, and has weathered the crisis and emerged as a stronger player in the industry.

We see an increasing focus on serving the enterprise and personal wealth needs of Asian entrepreneurs - and will continue to broaden our service and product platforms by working closely with Deutsche Bank's investment bank to connect private clients with the best in class institutional and retail products across all asset classes.

We also have a global initiative to roll out our new end-to-end platform by the end of the year. And we plan to launch a new system platform by the fourth quarter of the year.

Innovative Investor - What are the differences and challenges in the Asian markets in terms of the types of clients, their attitude to risk and the products they are demanding? How has this changed over the last 18 months?

Kin Mun - There are obviously inherent differences in the risk profiles of clients in North and South Asia. At the moment, there is a lot of new wealth being created in the North and clients there tend to be more speculative and adventurous at the moment because there are a lot of people who have established wealth but are in the cycle in their lives where they can undertake more risks.

In South East Asia - namely Singapore, Malaysia, Thailand, and Indonesia - we are seeing more steady growth through a higher proportion of second generation wealth. Generally speaking, in our business, the South provides us with safe, steady income whereas the North is more trading orientated. This is a good split and allows Deutsche Bank Private Wealth Management to leverage on our expertise to provide bespoke services and products that address the wealth creation and management needs of our private clients.

Innovative Investor - How do private clients feel about structured products at the moment? There appears to have been a slight return to accumulators, but less complex versions of these products, so has these been your experience?

Kin Mun - It is inevitable for investors to remain guarded about structured products. Given that we saw a return 'back to basics' investing in 2009 - which is a direct result of investment opportunities in asset classes such as equities and bonds at that time. There will be less easy money to be found going into 2010. This will help to focus clients on areas where there is money to be made and using structures to achieve this. I do not foresee a big take up of structured products in the first quarter of the year; maybe more by the second half of the year.

We think that in 2010, like in 2009, clients will continue to use derivatives to hedge unwanted risks from their portfolios, while keeping the 'smart risks' - basically risks which pay the returns. To this end, derivatives and structured products should continue to be an important element within clients' portfolios.

Accumulators are definitely coming back but we are seeing simpler structures. Our role is to help the client to understand how to use them. That is the role of private bankers. There is a place for structured products; it is up to us to explain how to use them appropriately.

We also think that multi asset class structures could become important. We maintain that these structures would try to leverage again on the dynamic asset allocation approach. We might also see clients demanding more of capital protected structures. To this end, the trend of de-constructing structured products into its components would continue.

Innovative Investor - What about ETFs? How important are they to private clients?

Kin Mun - Clients are finding ETFs increasingly useful and cost-efficient and in this part of the world, commodity ETFs have been much appreciated.

As well as being an appropriate way of accessing some parts of the market such as agriculture, and commodities such as gold and oil. This has proven to be popular with private investors and is expected to continue to be so going into 2010.

ETFs are especially useful for private clients as they allow them to invest in areas where it is a lot more difficult to invest in a conventional way. I think they will continue to gain popularity in 2010. Private investors also leverage on bespoke ETFs to get exposure to fixed income sectors like inflation, protection securities and high yield fixed income.

On the downside, there are always dangers with products. And there are so many ETFs out there now that if you don't get the right one then it can have a high degree of tracking error and those are the ones that can truly underperform. Private banks, such as Deutsche Bank PWM, have an advantage here with the depth of resources and wealth of expertise to find the products with the best tracking and the best liquidity and present them to clients.