Strategy

From The Editor's Chair: Reflections On 2023

Tom Burroughes Group Editor 22 December 2023

From The Editor's Chair: Reflections On 2023

As the year-end approaches, the editor of this news service reflects on the major stories of 2023 and their significance.

Well, what a year this has been. Banks such as Credit Suisse and Silicon Valley Bank crashed into the arms of rescuers. Artificial intelligence made scary and sometimes more cheerful headlines. Bitcoin surged – confounding the naysayers. And ESG investing continued to be a theme, albeit in a more measured way. The world had to get used to higher interest rates – not before time, I might add. 

And geopolitics (Ukraine, Israel, etc) got worse and more worrying. 

When people started taking down their holiday decorations in January this year, I am pretty sure that one story that wasn’t expected was the demise of Silicon Valley Bank, First Republic, Credit Suisse, and Signature Bank. Credit Suisse was brought to its knees by a run of scandals and missteps, and the Swiss federal government arranged what amounted to a shotgun wedding to Credit Suisse’s larger rival, UBS. That move leaves the Alpine state with one universal bank raising questions in the medium term about banking competition in Switzerland, and the old “too-big-to-fail” regulatory problem.

As for the US names of SVB, Signature and First Republic, these lenders came unstuck as higher interest rates encouraged depositors to seek other places. SVB appeared to have misjudged the management of its surging pile of deposits and how higher rates would have affected it. Risk management lessons that arguably should have been learned from the 2008 financial debacle had to be revisited. And it reminded wealthy clients that having more than one bank account was smart diversification. 

What is worth noting is that unsettling though these episodes were, there weren’t more bank failures in 2023 in the US or elsewhere. And yet complacency cannot be indulged. China has problems in its indebted real estate sector, and it is often hard to work out what banks’ exposures are in that country. In Europe and North America, risks appear limited – for now. The eurozone is not out of jail when it comes to issues such as heavy sovereign debt, while the US, the UK and certain other countries’ public finances are still reeling from the pandemic, ageing populations, political paralysis (UK in particular) and a decade of poor growth.

Such thoughts are a bit depressing so where have reasons for optimism been? Well, say it carefully, but maybe AI holds some keys to better times. Artificial intelligence/machine learning can, so some proponents such as Silicon Valley figure Marc Andreessen say, boost productivity hugely. It could wring efficiencies out of sectors such as healthcare – a sector notorious for bureaucratic bloat. Digital technology continues to affect – hopefully for the better – the wealth management value chain. The unglamorous mid- and back-office operations continue to feel the tech imprint, and I expect more to come. 

Talking of tech, what about bitcoin and digital assets? A year ago, the shenanigans at scandal-hit FTX, the crypto exchange, and the demise of certain “stablecoins” (that weren’t very stable at all) led some to conclude that all this crypto stuff was pie in the sky. And yet, here we are with bitcoin up from $13,826 on 2 January 2023 to $34,674 now. The prospect of a possible peak in US/other interest rates, geopolitical worries, and the fact that bitcoin hasn’t died but managed to bump along at certain periods, means that bitcoin is finishing the year on a strong note. 

Other trends that created guarded reasons for optimism are the growth of family offices in Singapore and signs of Hong Kong’s return to financial health. It is true that Singapore, for example, is an expensive city to operate in, and there could be strains and stresses with its growth, but that city-state remains a financial hotspot. Hong Kong is battling to win business in areas such as family offices. Given mainland China's economic challenges, there is still a way to go before Hong Kong is the vibrant city of old.

Meanwhile, Dubai and Abu Dhabi have pushed themselves forward into the limelight this year, attracting business inflows, and were able to bask in some of the attentions of the COP28 conference about climate change. They’ll need to keep a close eye on compliance with so much money sloshing around. The geopolitics of the Gulf region hasn’t become easier since the 7 October attack on Israel, but on the flipside, they appear beacons of stability that clients find attractive. 

Where does all this leave London, New York, Geneva and other capitals, such as Paris? The UK has had to confront new realities outside the European Union. The feared mass exodus of bankers and money after the 2016 Brexit referendum did not occur, and that might have led to complacency. There are problems: the London Stock Market needs to attract more listings; the quality of London's travel infrastructure isn't what it should be, and the regulatory climate needs to be updated. Assuming that there is a Labour government at some point in the next 12 months (if the opinion polls are accurate), changes to the resident non-dom system might make the UK less attractive as an international wealth centre, but much depends on detail. As for Switzerland, the country has had a decade now to adjust to a world after bank secrecy. There has been some loss of business to places such as Dubai, and the Credit Suisse saga has hurt its reputation. Rebuilding is the name of the game in that country, I think.

As for continental European centres such as Paris, Amsterdam, Milan and Frankfurt, they are significant hubs, but not global powerhouses. But, as appears to be the case, European centres score highly for quality of life, and that counts for a lot if one is a wealth manager.

US moves
In New York's case, it is still feeling the impact of lockdowns to handle the pandemic and there's been an exodus to lower-taxed places such as Florida. The internal moves of people within the US, such as those heading to Texas and Florida, is shifting the wealth management chessboard of the US. A question for the future is how and whether places such as New York can fight back and recover former glories.

We have written plenty of articles this year about intergenerational wealth transfer – a theme that rolls on – and the changing face of philanthropy. It is clear that philanthropy is steadily becoming more professional and focused on results, and there are moves – such as “sunsetting” foundations in the US – to reduce intra-familial conflicts that can arise. (See this feature on themes in philanthropy.)

Another continuing theme for the editorial team has been M&A activity in parts of the wealth space. The pace has been less frenetic this year and, of course, the UBS/Credit Suisse combo, which in more normal times would have been a very expensive wedding, turned out to be a rather more austere affair, given the circumstances. Rising regulatory costs and client expectations about service, combined with the retirement dreams of business owners, have fuelled M&A. Higher interest rates, and some private equity activity cooling, have taken a bit of the heat out of the market. 

New regulations came into force this year in Switzerland, the US and the UK. In Switzerland, regulations of the external asset management sector kicked in, and we have seen consolidation and changes to the EAM industry, with more moves likely. In the UK, the Consumer Duty took effect in late July, and appears to be prompting some firms to change their pricing policies. In the US, the Corporate Transparency Act takes effect on 1 January 2024, imposing new beneficial ownership disclosure requirements on corporates, and this is an issue that my contacts in the US tell me is taking up a lot of their time. There have also been moves in states such as California to restrict the use of out-of-state trusts as a way of mitigating tax – the use of trusts as tools continues to be a feature of the US wealth sector. Massachusetts unveiled new tax measures this year, and no doubt other states’ policies will need to be watched. 

And mention of tax reminds me that yes, 2024 is an election year in the US, Taiwan, Indonesia, Portugal, Belgium, Mexico, Russia and Iran, among others. (In the case of Russia and Iran, it is a matter of opinion as to whether they count as free elections.) Scores of other countries are due to hold polls, but dates aren’t fixed. The most significant one, arguably, is the UK, which could be in an election in the early summer.

The US presidential election will, as the way of these things, grab more and more media attention as the months roll by. As of the time of writing, we have President Joe Biden slated to run. And if the indicative support is correct, he is to run against former President Donald Trump. Whether that turns out to be the case in November, given Biden’s own low approval ratings and age, and Trump’s legal wrangles, remains to be seen. In view of issues such as trade, defence and relations with China, Europe, the Middle East, and Ukraine, the outcome of the race is likely to be important. 

But guessing all these matters is, to a certain extent, a fool’s errand. Ultimately, wealth managers know that what is timeless is the need for them to be a steady guide to clients in uncertain times; to frame clients’ expectations realistically; to provide solutions to complex demands; and convey a sense of perspective when it is all too easy to act rashly. 

And on that note, may I wish all our readers a very happy festive season and hopefully a safe, free, and prosperous new year. Thanks to you for your support for this publication. 

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