Pursuing passions: how HSBC steers private banking clients towards acquiring trophy assets through credit advisory solutions

A paradigm shift in the lifestyle and investment strategies of ultra-high-net-worth (UHNW) individuals has led to a growing interest in the acquisition of luxury assets, such as superyachts, private jets and highly collectible art.

These assets, while generally recognised as valuable holdings, do not typically generate a traditional return on investment. However, a significant motivator behind their acquisition is a reassessment of core life values. “Art is a quintessential passion asset,” says Jyrki Rauhio, regional head of credit advisory, Asia-Pacific, HSBC Global Private Banking. “Our clients are often led by the heart rather than just their head. These assets reflect individual choices in how they want to spend their time and resources.”

Alternative value

The market for certain trophy assets was positively impacted during the pandemic, when ownership of a private luxury yacht, particularly in Hong Kong, made for an alternative vacation amid global travel restrictions. While interest in yachts has levelled, the desire to own a private jet is gaining momentum among HSBC’s UHNW clients – who the bank describes as increasingly sophisticated with assets, businesses and family members spanning multiple continents.

Rauhio says that while the market in the United States for private jets – the largest – continues to grow at an aggressive pace, in Asia the interest is certainly there. “While we have in the past had some hindrances – we don’t have a huge number of private airports here and we don’t have a lot of hangar space – this space is developing quickly. Private aviation is one of those things that will continue to grow strongly in Asia. Given the distances and geographical complexity of the region and its many islands, it is a natural place to use a private jet” he says.

While the rationale for trophy assets may lack strength from a traditional investment point of view, they offer a utility value that, in some cases, may help mitigate operational costs. “Buying a yacht is pure leisure. There’s no business case for it; it’s about falling in love with a way of life,” Rauhio says.

Aircraft, on the other hand, offer a mixture of both leisure and commercial use, as well as a time-saving value. “For those in sectors such as mining or oil, with frequent obligations in remote Indonesian islands or the Australian outback, private aviation can yield significant time savings.”

Heightened complexity

Beyond personal enjoyment, assets such as art can fulfil a strategic role in diversifying portfolios to manage risks in today’s volatile markets. “There’s a marked trend among clients to aggressively expand their asset base and diversify their business interests internationally,” Rauhio says. “This approach has long been adopted by some investors in Hong Kong, but it is now gaining wider traction.”

HSBC Global Private Banking’s role as a wealth partner comes into play by working with clients to structure a purchase and establish ownership frameworks. The focus of these discussions is not on prompting acquisitions, Rauhio adds, but on highlighting the complexities associated with owning high-value assets, as well as the costs.

“In our consultations with clients, the initial enquiry centres on the intended use of the aircraft,” Rauhio says, citing a recent conversation he had with a potential buyer at an air show in Singapore. “These discussions guide us in determining the most suitable size of jet. Given that typical private air travel in Asia is less than three hours, a plane capable of flying between continents is often unnecessary in terms of convenience or cost.”

Access to global ecosystem

Being a part of the ecosystem around these asset classes, HSBC Global Private Banking has the expertise to oversee large-scale projects and help clients navigate the complex world of owning a passion trophy. “On the aircraft side, we are connected with specialised legal advisers, original equipment manufacturers and brokers. On the art side, we are acquainted with auction houses, specialised lawyers, restorers, transport companies and storage providers,” Rauhio says.

When structuring transactions, the bank aims to ensure they can unlock liquidity. This may involve advising clients to contemplate strategies for extracting liquidity from depreciating trophy assets through a financing solution, and reinvesting it back into their businesses or financial assets to offset ownership costs. “You can also charter out your aircraft but that is unlikely to achieve a cash-flow-positive outcome. The objective through aircraft financing solutions is to make that asset sweat harder,” explains Rauhio.

HSBC’s global connectivity across its banking divisions provides its clients with worldwide, unified credit solutions. In Asia, the bank has more than 50 credit professionals with deep strategic experience. HSBC also draws upon its long history in helping clients structure trophy acquisitions to provide bespoke solutions. “We gain a deep understanding of our clients’ financial situations and offer the most appropriate credit solutions,” Rauhio says. “Right now, we’re working on a number of trophy asset transactions and have also done deals with a mix of assets to meet the clients’ needs. Transactions like these reflect how wealth managers like us can manage hard or soft assets and build an entire end-to-end solution for our clients.”

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