asset management yearbook 2017 -...

Asset Management Yearbook 2017

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2017

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The past 12 months have been quite the roller-coaster ride for asset manag-ers. Even though market volatility has been high and managers have had to work hard to generate returns, the promise of Asia’s potential continue to persuade industry participants to keep expanding in the region.

Yet, amid a backdrop of consolidation in the wealth management industry, both global and Asian, asset management is facing some structural shifts.

While growth for the sector in Asia remains relatively buoyant, there is an increasing sense that many products in the region lack a sense of differentiation.

It’s an issue demanding a more urgent response, especially as more and more private banks, straining under high costs, are thinking about paring product plat-forms. And as large distributors look to develop deeper relationships with fewer partners, we are moving towards a situ-ation in which only the fittest will survive.

How, therefore, can product manufac-turers differentiate themselves from the rest of the crowd? Apart from having products that stand out, communication is important, according to the many product specialists we spoke to.

Foreword

The growth in passives is also injecting more competition among asset manag-ers. Active managers are increasingly feeling the pressure to prove they can truly deliver alpha. Meanwhile, several fund groups have launched a suite of ETF products recently, and judging by the upbeat sentiment on this, there will more launches in the months ahead. China also remains at the forefront of expansion plans for some asset manag-ers, which is understandable given that in a low-growth world, a fast-growing economy is attractive.

Nevertheless, the fact remains that fund penetration among HNW clients remains low. The heartening news is that more private banks are moving towards boost-ing recurring income via discretionary offerings, which could help in lifting fund penetration. It’s still going to be a slow, uphill climb but at least efforts are con-tinuing in that direction.

Of course, the digital effect cannot be forgotten. As digital becomes a buzz-word for the industry, all market par-ticipants are thinking hard about how to capitalise on this new trend.

I hope you enjoy reading these insights and derive value from them. We wish all our readers a very prosperous 2017..

This is the 4th edition of our flagship publication which explores the evolving relationship between product gatekeepers and asset management firms in Asia’s wealth management industry.

INDIRA VERGISEDITORHUBBIS

CONTENTS

Feature ArticlesDOING THINGS DIFFERENTLYAsia’s wholesale asset management industry remains enthusiastic and optimistic about growth prospects in 2017. But the recipe for success is changing.

HOW TO REMOVE THE FUNDS BLOCKAGE IN ASIAN PRIVATE BANKINGDespite efforts by most private banks in Asia to increase funds penetration to boost recurring fee income, a new White Paper finds average penetration across 23 firms in Hong Kong and Singapore – with a total Asia-based AUM of USD1.5 trillion – is 9%.

PASSIVE STRIDES AHEAD IN ASIAAsia is currently a relatively small market for ETFs but is poised for solid growth as the low cost of passive funds and the concept of diversification start to appeal to investors.

DISCRETIONARY DEMAND PICKING UP PACEMore private banks are introducing and expanding discretionary portfolio management (DPM) services in Asia in a bid to improve fee income, while clients start to realise the benefits of professional investment management. THE SECRET TO AN ENDURING CLIENT RELATIONSHIPTimely communication and digital strategies have become important factors for success in Asia for asset managers and their distributors.

DELIVERING INVESTMENT PERFORMANCE FOR YOUR CLIENTS TODAYNeeds-based conversations with clients are a basic but essential way for wealth managers to stand out in such a challenging investment climate. They must offer the right advice at the right time to deliver solutions which clients actually need.

GLOBAL FIRMS INK LOCAL BLUEPRINTDespite slowing economies and market volatility, international asset managers remain convinced about Asia’s potential. Their build-out in local markets across Asia is clear evidence of this.

A ROADMAP FOR DISTRIBUTION SUCCESS IN THE MIDDLE EASTAligning the interests of clients and advisers, not driving business via commissions and investing in the business, is one of the things that senior individuals from the asset management industry in the Middle East wish distributors can do to create a more sustainable business.

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CONTENTS

Expert InsightsDRIVING A TRANSITION TOWARDS PROPER ADVICELG Lim of UBS Wealth Management

HOW HEAVY COMPETITION IS HELPING THE FUNDS INDUSTRYMichael Levin of Credit Suisse

AN OVERHAUL FOR FUNDS DISTRIBUTION IN ASIAEdouard Hoepffner of UBP

TAKING A LOW-COST APPROACH TO BUILDING PORTFOLIOSLinda Luk of Vanguard

APPETITE FOR ADVISORYShrikant Bhat of Citi

HOW UOB IS ACCELERATING AN ADVISORY PUSHAbel Lim of UOB Bank

DELIVERING DISCIPLINE IN PORTFOLIOSIvan Wong of HSBC Private Bank

DELIVERING MORE BY DISCRETIONARY MANDATESPascal Meilland of Indosuez Wealth Management

BANKING ON A BOOST IN DISCRETIONARY DEMANDMaxime Pacan of CIC Bank Privée

A BIONIC BOOST FOR A NEW PRIVATE BANKING LANDSCAPEAdam Cowperthwaite of Citi Private Bank

SLOW STEPS TOWARDS BRIGHTER DAWN FOR PRIVATE BANKING IN ASIADamien Mooney of BlackRock

CATERING TO CHINESE INVESTMENT APPETITEAshley Dale of Harvest Global Investments

HOW TO KEEP THE PRODUCT PROPOSITION SIMPLERanjiv Raman of Cazenove Capital Management

REGULATION, EDUCATION KEY FOR UAE WEALTH GROWTHPeter Duke of Fidelity International

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leggmasonfunds.comleggmasonfunds.comleggmasonfunds.comleggmasonfunds.comleggmasonfunds.com

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Legg Mason is one of the world’s largest global asset managers. Designed around nine independent investment managers, we bring you expertise across equities, � xed income and alternatives. Legg Mason has helped clients achieve what they imagine for over a century.

Important Information This document is issued by Legg Mason Asset Management Hong Kong Limited in Hong Kong and by Legg Mason Asset Management Singapore Pte. Limited in Singapore (“Legg Mason”). This document is for information only and does not constitute an offer or invitation to the public to purchase any shares in any fund in Hong Kong or Singapore. Investment involves risks. Investors may not get back the amount originally invested. Past performance is not indicative of future results. Neither Legg Mason nor any officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this document or its contents. The information in this document is confidential and proprietary and may not be used other than by the intended user. This document may not be reproduced, distributed or published without prior written permission from Legg Mason. Issuer in Hong Kong: Legg Mason Asset Management Hong Kong Limited. This document has not been reviewed by the Securities and Futures Commission in Hong Kong. Issuer in Singapore: Legg Mason Asset Management Singapore Pte. Limited is the legal representative of Legg Mason, Inc. in Singapore. (Registration Number (UEN): 200007942R)This material has not been reviewed by the Monetary Authority of Singapore in Singapore.

Global value investing Real estate investment specialists Quality-focused equity

Global alternative investments Active equity specialists Systematic investment solutions

Global listed infrastructure investing

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CONTENTS

Firm ProfilesGETTING ALIGNED WITH A LONGER-TERM OUTLOOKKevin P. Barr of SEI Investments

SPEARHEADING SPECIALIST STRATEGIES FOR ALPHA GENERATIONSuresh Singh of Principal Global Investors

IT PAYS TO BE DIFFERENTMozamil Afzal of EFG Asset Management

A PLATFORM-LED APPROACH TO DELIVERING FUNDS IN ASIADavid Perez de Albeniz of Allfunds Bank

FINDING A NICHE IN ASIAN ASSET MANAGEMENTCarol Wong of Old Mutual Global Investors

Event Highlights

INVESTMENT SOLUTIONS FORUM 2016 - HONG KONG & SINGAPOREFinding investment solutions for challenging markets

Co-published ArticleWHY ALL LOW VOLATILITY APPROACHES ARE NOT EQUALWilliam Barbour of Eastspring Investments

DirectoryPEOPLE AND FIRMS WHO SUPPORTED THIS PUBLICATIONWe very much appreciate the participation and contribution of key individuals and organisations in the asset and wealth management communities to this publication.

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Published by Hubbis. Printed in January 2017 in Hong Kong. © Hubbis (HK) Limited 2015

All rights reserved. No portion of this book may be reproduced, duplicated or copied by any means without the prior written consent of the publisher. No legal responsibility can be accepted by the author or publisher for the content which appears in this publication.

Michael StanhopeChief Executive OfficerHubbisT (852) 2563 8766E [email protected] www.hubbis.com

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Principal Global Investors | Connect with us.

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20%

9%

In the past two years, Lombard Odier’s AUM and

revenue have grown by 20% each year,

being focused almost exclusively on the discretionary market.

Page 38

Average funds penetration across 23 firms in Hong Kong

and Singapore – with a total Asia-based AUM of

USD1.5 trillion – was 9%.Page 14

10%

Net flows to the funds industry in China and India

were up 10% year on year.Page 5

50,000

The Allfunds platform boasts 50,000 funds from more than

500 fund managers globally.Page 72

500

At two Investment Solutions Forums in Singapore and

Hong Kong in 2016,Hubbis brought together

over 500 senior individuals.Page 54

USD560 bn

A recent PwC surveyreveals that Asian ETF assets

are expected to grow to USD560 billion by 2021.

Page 22

Content colour coding - for Hubbis articles

REGULATION & COMPLIANCE

INVESTMENTS

FAMILY WEALTH

SKILLS

STRATEGY & BUSINESS

TECHNOLOGY

vii ASSET MANAGEMENT YEARBOOK 2017

EASTSPRING INVESTMENTSMOVING FORWARD

1 As at June 2016. 2 Eastspring Investments (excluding JV companies) companies are ultimately wholly-owned /indirect subsidiaries /associate of Prudential plc of the United Kingdom. Eastspring Investments companies (including JV’s) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America.

Luxembourg | Mumbai | Seoul | Shanghai | Singapore | Taipei | TokyoChicago | Ho Chi Minh City | Hong Kong | Jakarta | Kuala Lumpur | London

Eastspring Investments is a leading asset manager in Asia that manages over USD140 billion assets on behalf of institutional and retail clients.1

With on-the-ground expertise in 10 major Asian markets, we offer our clients an unrivalled understanding of local markets to access unique investment

opportunities in one of the world's fastest growing regions. We provide solutions across a broad range of asset classes including:

equities, fixed income, multi asset, infrastructure and alternatives.

Our investment teams are specialists in their respective fields, supported by the global resources made available through our relationship

with Prudential plc2 and are committed to delivering high-quality investment outcomes for our clients over the long term.

Discover more at eastspring.com

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A3 print ad for Hubbis booklet 2016 B v003 for printing.pdf 1 20/12/2016 6:53:26 下午

EASTSPRING INVESTMENTSMOVING FORWARD

1 As at June 2016. 2 Eastspring Investments (excluding JV companies) companies are ultimately wholly-owned /indirect subsidiaries /associate of Prudential plc of the United Kingdom. Eastspring Investments companies (including JV’s) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America.

Luxembourg | Mumbai | Seoul | Shanghai | Singapore | Taipei | TokyoChicago | Ho Chi Minh City | Hong Kong | Jakarta | Kuala Lumpur | London

Eastspring Investments is a leading asset manager in Asia that manages over USD140 billion assets on behalf of institutional and retail clients.1

With on-the-ground expertise in 10 major Asian markets, we offer our clients an unrivalled understanding of local markets to access unique investment

opportunities in one of the world's fastest growing regions. We provide solutions across a broad range of asset classes including:

equities, fixed income, multi asset, infrastructure and alternatives.

Our investment teams are specialists in their respective fields, supported by the global resources made available through our relationship

with Prudential plc2 and are committed to delivering high-quality investment outcomes for our clients over the long term.

Discover more at eastspring.com

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A3 print ad for Hubbis booklet 2016 B v003 for printing.pdf 1 20/12/2016 6:53:26 下午

http://eastspring.com/

FEATURE ARTICLE

4 ASSET MANAGEMENT YEARBOOK 2017

Doing things differently

Asia’s wholesale asset management industry remains enthusiastic and optimistic about growth prospects in 2017. But the recipe for success is changing.

Asia’s diverse economies may have experienced a slowdown in 2016, but optimism about the region’s long-term potential remains undimmed among most product manufacturers.

Even with the private banking industry in consolidation mode, evolving busi-ness models are undoubtedly creating new opportunities for providers.

That accounts for the upbeat sentiment of David Peng, head of Asia at Standard Life Investments: “We see opportunities from the rising number of regional private banks across North and South-east Asia.”

He also sees the potential for wealth creation for institutions and the wealth management platforms, and their con-tinuing need to divest investments both in their home markets and offshore.

“A lot of the strategies are region or country-specific, so we cannot use the

same yardstick and measure that across Asia,” adds Peng.

Within the region, despite its market and currency volatility, as well as the mixed pace of financial sector reforms, China is the big market that everyone wants to conquer. And why not? In a low-growth global environ-ment, it remains one of the world’s

fastest-growing economies, backed by a government that is taking steps to develop a private-sector asset management industry.

One of the key steps in that direction has been the implementation of the Mutual Recognition of Funds (MRF) scheme. Several international and re-gional asset managers are eyeing this

DANY DUPASQUIERStandard Chartered Bank

“The wealth management industry in Asia is going through a profound change in terms of how we will charge for our services.”

PAUL STEFANSSONUBS Wealth Management

ASSET MANAGEMENT YEARBOOK 2017 5

initiative to expand their presence in the mainland.

“One of our biggest priorities in 2017 is developing our MRF platform, which is potentially a game changer for fund managers with Hong Kong-domiciled funds,” says Alison Brown, who runs sales for the wholesale business at HSBC Global Asset Management in Hong Kong and China.

BRINGING HOPEIn general, Asia remains a bright spot for a global asset management indus-try which, in 2015, recorded its worst performance in terms of net new flows of assets, revenue growth and margins since the 2008 financial crisis, accord-ing to the Global Asset Management Report by The Boston Consulting Group (BCG).

In contrast, Asia saw a robust 10% growth in AUM, although it still lagged the explosion in the region’s private wealth creation. In particular, net flows to the funds industry in China and India were up 10% year on year.

No wonder then, that several interna-tional asset management groups are

now eyeing regional markets from Thailand to Australia in their quest for more AUM.

In the case of asset managers such as Hermes, for example, the excitement is about introducing Asian clients to strat-egies that have been highly popular elsewhere in the world.

Another strategy that has been in demand with clients was the global equities strategy, in particular, a version that has an ESG overlay.

Nilsson says this has been very well received in North Asia, especially Japan, where this theme is in demand.

Hermes is currently looking at new ideas in terms of investment.

“Hopefully we should be able to com-plement our product line-up. In 12 months or so, we expect to soft-close up to three of our most popular fund strategies,” he adds.

Yet, Nilsson is very clear that it’s not about growth at all costs. “We are very capacity focused and much of it is about quality control. While we continue to grow our business, we have strict con-trols over how fast and large we can grow our funds.”

JUNE WONGState Street Global Advisors

“Clients in fact are willing to pay for managers who

deliver the expected performance.”

ERNEST CHANMorgan Stanley

“Asia saw a robust 10% growth in AUM, although it still lagged the explosion in the region’s private wealth creation. In particular, net flows to the funds industry

in China and India were up 10% year on year.”

“Our Asia ex-Japan equity strategy, which was soft closed until August 2016, has been re-opened to new inves-tors as we decided to increase capac-ity,” says Jakob Nilsson, executive direc-tor, head of Asia Pacific, at Hermes. “However, that increase was only from USD2.5 billion to USD3.5 billion; we are already at approximately USD3 billion,” he adds.

For Mirae Asset Global Investments (HK), meanwhile, the developed market of Australia is the focus for early 2017. “We feel Australia is a key market and we’d like to build our presence and brand awareness there. Currently we are working on launching two locally-domiciled feeder funds by Q1 2017,” says president and chief executive officer Jung Ho Rhee.

FEATURE ARTICLE


CHRISTIAN ABUIDEStandard Chartered Bank

With a larger product range, the firm will also work to further expand its distribution channels across Asia, Europe, offshore US and Latin America.

“[This is] so investors around the world can access our products,” he adds.

A QUALITY CHALLENGEWherever they focus their strategy, ‘quality’ is indeed becoming a buzzword for the industry.

With almost all the big asset managers having a presence in the region offering an almost endless array of wholesale

products, there is a sense that many of these are becoming commoditised.

In fact, differentiation, or lack thereof, could become a key factor in the success or failure of a fund group.

“The key to success lies in the ability to decode different market signals and uncertainties – being very careful to understand the investment implica-tions,” notes Virginia Devereux Wong, head of Asia wholesale business at Standard Life Investments. “This is how we can help our clients; to fully com-prehend the changes happening in the

market and then, look at the long-term investment opportunities across geog-raphies and asset classes,” she explains.

ACTIVE VERSUS PASSIVEYet in a high-cost, low-return environ-ment, the ability of active managers to deliver out-performance is coming under greater scrutiny, even as demand for low-cost passives gathers pace.

Some fund experts see growing demand from clients to achieve a targeted yield, unconstrained by benchmarks. They also believe it’s a trend that will continue.

Unlike traditional active fund manag-ers who follow benchmarks and have limited leeway to deviate from them, the view of the manager is what really counts in the case of unconstrained strategies such as equity long/short, or any other alternative strategies like arbitrage or micro, where there is no benchmark.

“In the case of unconstrained bonds, fixed income strategies for instance, fixed income strategies for instance, there is no specific allocation targets to the various fixed income sectors, hence the portfolio’s positioning is solely depending on the manager’s views and the opportunities that he has been able to identify,” notes Dany Dupasquier, managing director and head of mutual funds and hedge funds, group wealth management, at Standard Chartered Bank.

For example, if the portfolio manager has the conviction that interest rates will rise, he can then position his port-folio with a negative duration exposure.

“The portfolio manager will obviously look very savvy if he is right and he is able to outperform peers in a typically

“We feel Australia is a key market and we’d like

to build our presence and brand awareness there.”

“One of our biggest priorities in 2017 is developing our

MRF platform, which is potentially a game changer.”

ALISON BROWNHSBC Global Asset Management

JUNG HO RHEEMirae Asset Global Investments (HK)


challenging environment that rising rate periods represent for fixed income,” explains Dupasquier.

“On the other hand, if he was too early or simply wrong, that will likely be a painful period for his fund. This is the double-edged sword that alternative managers have to deal with: the ability to use an unconstrained approach to run their portfolio can bring huge rewards but also potentially great risks.”

This is the reason why alternative strat-egies is an area where experienced, meticulous and sophisticated fund

selectors can add value by identifying and recommending managers who based on their expertise, process, re-sources and structure are well-equipped to consistently generate solid returns, adds Dupasquier.

At UBS Wealth Management, Paul Ste-fansson, head of IPS portfolio specialists for the bank in Singapore, says the focus in 2016 was on giving clients greater access to all kinds of alternative invest-ments, such as private equity.

“UHNW individuals need more than just traditional banking services,” he

explains. “It is important that we can provide them with a mix of investment banking, asset management and wealth management.”

MORE PENETRATION NEEDEDIn general, the asset management in-dustry’s penetration of the wealth management market in Asia continues to lag its penetration in other parts of the world.

This has held back fund houses in the industry in a region that is setting the global pace in terms of private wealth expansion, said the BCG report.

Some part of that lag can be ex-plained by volatile regional markets that don’t have the required depth for long-term investing.

Meanwhile, digital disruption and robo-advisory, which are a global phe-nomenon, is clearly creating a para-digm shift in client engagement for this part of the world too.

“I have seen some statistics on China about mutual fund distribution which show that more than six out of 10 mutual funds are now transacted via smartphones,” explains Lennie Lim, who is managing director and region-al head of Asia at Legg Mason Global Asset Management.

“That is a very high penetration rate,” he adds.

To make distribution platforms more appealing, there is a strong need for content, he adds, and that is where his firm works in close partnership with such providers.

The low funds penetration rate to date has also slowed the growth of

“The key to success lies in the ability to decode

different market signals and uncertainties.”

VIRGINIA DEVEREUX WONGStandard Life Investments

“We are very capacity focused and much of it is

about quality control.”

JAKOB NILSSONHermes

FEATURE ARTICLE


discretionary portfolio management (DPM) services among private banks in the region.

However, over the next year, many of these institutions are making a con-certed push in this direction.

Indeed, Ernest Chan, head of Asia in-vestment management services at Morgan Stanley, is a firm believer in the fact that thing are moving in the advi-sory and DPM direction.

And for his bank, one stand-out feature of its DPM service is its research.

“Relentless advisory from our strategists and swift response to Morgan Stanley Research calls help our DPM portfolio capture market opportunities in an efficient manner,” explains Chan.

“In contrast, advisory investors usually take time to digest the research and take action,” he adds.

“This response time can be crucial for investment opportunities stemming from events such as Brexit or the US presidential election given increasing market efficiencies driven by technol-

ogy and the almost instant flow of in-formation,” he says. With Morgan Stanley’s discretionary services offering, Chan says the bank has relentless dialogue with its research team to understand the rationale for their views.

“If we feel the research idea is able to fill any gap in our portfolio’s asset al-location, we can put the idea to work immediately,” he explains.

“As a result, our DPM has helped our clients to turn many of our investment research ideas into action.”

More broadly, if private banks are able to deliver the expected performance, the client benefits and should be willing to pay the fee.

“The wealth management industry in Asia is going through a profound change in terms of how we will charge for our services,” explains Stefansson.

“At UBS, we see increasing client inter-est in fee-based, as opposed to com-mission-based, pricing models. Many clients appreciate fee-based pricing as

it is simple, transparent, and aligns in-terests,” he adds.

A wider adoption of DPM services among Asia’s wealthy is likely to pave the way for more fund penetration.

That is good news for asset managers but only those who bring real value through their products.

A BIGGER SHARE OF DISTRIBUTIONFor asset managers to grow their of-fering, it is important to have close partnerships with distributors.

As the operating environment gets ever-tougher, regulations get tighter and cost increases, it is only natural that distributors opt to work with fewer partners.

“We also expect product producers to adapt to regulatory constraints and embrace required changes, build in the required disclaimers, proceed with any required registration, etc,” says Marco Kermaidic, head of investment counsel-ling for BNP Paribas Wealth Manage-ment in Hong Kong.

If distributors decide to work with fewer partners, it also means there are fewer competitors to share the pie.

“You may see more fee compression but we hope it will also translate into higher business volume,” adds Legg Mason’s Lim.

“As a firm, it’s vital that we clearly dem-onstrate our product propositions that is designed around our nine indepen-dent asset managers as well as our scalability and consistency in delivering quality services, to achieve what our investors can imagine,” he says.

“We also expect product producers to adapt to

regulatory constraints and embrace required changes.”

MARCO KERMAIDICBNP Paribas

Wealth Management

EXPERT INSIGHTS


Driving a transition towards proper adviceLeong Guan (LG) Lim of UBS Wealth Management has a clear vision for how the industry should approach clients in a different way, to help them better meet their long-term financial goals. But mind-sets and fee models need to change too, he tells Hubbis.

The whole business of Asian private banking is undergoing a transition, led by the desire of regulators to move the industry forward in what they see as the right direction.

While this has cost-related implications for institutions individually, the upshot should be higher-quality advice that is in the best interests of clients as well as banks’ profitability over the longer term.

“My concern is that private banks in general are not meeting the most im-portant needs of clients – their longer term financial goals,” says Leong Guan Lim, Asia Pacific head of capital markets and banking products at UBS Wealth Management, and head of investment products and services for the bank in Singapore.

This is mainly due to the transaction fee-based remuneration model at most insti-tutions, he adds, explaining that this

drives the majority of conversations about short-term investment. In reality, talking to clients about investment opportunities in Asian private banking today often just translates to short-term trading.

It is rare for a client to come to a bank and ask for the best chances of maximis-ing their returns over a five-year invest-ment horizon. As a result, Lim says the industry needs to offer more of a holis-tic, total wealth advisory approach over the longer term.

This will then require clients to be more highly diversified and to be willing to pay fees on their assets rather than their transactions – assuming that they really want the quality of advice to meet their real needs over the longer term.

LONG-TERM WIN-WINAspirationally, and as a leading industry player, UBS Wealth Management wants to move as many clients as possible

LG LIMUBS Wealth Management

towards a proper contractual arrange-ment where the bank is required to give them advice. “With this obligation, we


Driving a transition towards proper advice

would look to clients to pay us a fee for the assets on which we are providing advice, rather than for the transactions we do for them,” explains Lim.

“This truly puts us on the same side as our clients,” he adds.

The bank also wants to be more and more transparent with its clients in terms of how it approaches them to do business and make money from them in this way, he adds.

To be able to put all this into practice, Lim wants to develop a more holistic shelf of products and solutions which are longer-term focused and highly-diversified – but which also have a variety of styles to suit clients’ views or risk profiles, for instance.

For example, they could potentially mandate the bank to do asset alloca-tion based on a risk-weighted perspec-tive, rather than the traditional asset class weightings.

More specifically, in this way it could then adjust portfolio allocations to fixed income or equity, for example, based on the market outlook and riskiness of these assets.

UNITED FRONTYet for UBS Wealth Management to be able to make this approach to advice really work, the bank also relies on some external forces.

“A mind-set change is needed among all stakeholders in the industry, in terms of what is really in clients’ best inter-ests,” says Lim.

This also includes clients being made aware that banks need to be paid for

providing them with advice that matters. And banks need to play their part in that, he explains, by not creating the illusion that they work for free.

“With more transparency, I hope that clients will see that they should be pre-pared to pay a fair fee for advice – as-suming they can get back a better un-derstanding of the value they get for the fees they pay,” says Lim.

In turn, they should then become more focused on meeting their longer-term needs rather than short-term trading.

PROVIDING PROOFBeing able to prove the value and quality of advice will be the key over time for banks like UBS Wealth Man-agement to achieve the longer-term, fee-for advice model that Lim knows is the right way to go.

One would think that having such a conversation would result in an obvious outcome.

Yet Lim explains that a surprisingly large number of clients still veer towards – and often insist upon – short-term transactions.

This is despite the fact that the bank can show how its different strategy funds – or broader solutions – have performed versus any client’s individu-al portfolio.

“Many clients believe that maximising short-term returns equals maximising long-term returns. But that is a fallacy,” explains Lim.

This further highlights the pressing need to change investor and broader indus-try mind-sets within Asia, he adds.

Adapting to changing times

Until the transition towards fee-for-advice and long-term investing is complete, Lim and his colleagues still need to help their clients tackle a challenging market environment.

Today’s low interest rates, for example, requires investors to raise their allocations toalternatives such as private equity, hedge funds and real estate.

“The normal return environment is challenged, and therefore having a higher allocation toalternatives can raise returns over a longer-term timeframe without raising risks too much,” explains Lim.

In line with this, UBS Wealth Management has been increasingly looking to give its clients greater access to all kinds of alternative investments, including bringing on board more expertise to highlight the importance of the bank’s global scale and reach.

In particular, this includes a sharp focus on manager due diligence and selection.

“This is how we can really bring value to our clients,” adds Lim.

This is especially important for UHNW individuals, who need more than just traditional banking services.

This makes it key to provide them with a mix of investment banking, asset management and wealth management.

EXPERT INSIGHTS


How heavy competition is helping the funds industryIntensifying competition is changing the dynamics of the asset management industry in Asia – and that’s a good thing, according to Credit Suisse’s Michael Levin.

Intensifying competition in the product manufacturing industry will ultimately improve the standards of the players involved.

“We believe competition is beneficial as it elevates the level of quality in the industry and leaves no room for com-placency in delivery,” says Michael Levin, head of asset management, Asia Pacific, for Credit Suisse.

There are some specific positive out-comes of this. First, it ensures that clients get the best solutions that are most relevant to them. And secondly, it forces industry participants to become more focused in understanding what their value proposition is and whether they have a competitive advantage in the products and capabilities they offer.

A trend which Levin says has been rather detrimental to the industry in recent years has been the supermarket-shelf approach.

The aim has been to put as many prod-ucts as possible on a platform rather than offer curated solutions for clients.

But with growing market uncertainty and dispersion of fund performance, distributors need to pay more attention to due diligence. They also need to better identify and deliver the best so-lutions to the clients with the appropri-ate level of advice.

Moreover, cultivating deep relation-ships with dozens of providers is in-evitably challenging.

Not surprisingly, distributors are slowly opting to cut the number of product partners they deal with.

“Fewer partners means forging deeper and more strategic relationships, while ensuring they are the most relevant to the business,” explains Levin. “They can then be utilised to offer the best ser-vices to clients.”

MICHAEL LEVINCredit Suisse

In line with this, he believes the business is at the right stage of evolution. “Over time, competition and product ratio-


nalisation result in both higher quality products and better service.”

PASSIVE POWERThere are some other big trends trans-forming the asset management industry in Asia – including increased allocations to low-cost, passive products.

“That sets a benchmark for performance expectations and gives investors a clear delineation between beta, which you don’t have to pay a premium for, and alpha, which is worth paying for,” says Levin. “In addition, the bifurcation between passive and active, beta and alpha also hold managers to higher stan-dards, which I think is very productive.”

“We made great progress in 2016 and third-party distribution will continue to be one of our areas of focus,” ex-plains Levin. “We have signed up several new distribution partnerships, while remaining selective.”

The firm chooses partners it thinks it can work with most constructively and add value to their platforms. “Most impor-tantly, we can leverage the insights of what clients need and want from the proximity to our own private bank, and offer them to third-party distributors to help deliver value to their clients.”

Expanding the third-party distribution network remains a key component of

“Fewer partners means forging deeper and more strategic relationships."

Other goals for 2017

The strategic priorities for Credit Suisse Asset Management for 2017, remain broadly in line with those in 2016. “We have four basic priorities,” explains Levin. “These are: effective servicing of our existing clients; delivering innovative investment solutions that are relevant in the current environment; developing and enhancing distribution coverage across geographies and client segments; and adding value to our strategic partnerships, which are with ICBC in China, HDFC Asset Management in India and Kimco, a Singapore-based hedge fund manager for its Japan long/short equity fund.”

Despite the competition, fee pressures and product rationalisation measures underway, Asia remains a region brimming with opportunity.

Yet most investors are significantly under-allocated. “When you look at the global picture and ask investors where they are allocating money, you’ll find they have increased allocations to developed markets,” says Levin. “But if you ask them where they would prefer to invest – geographies with high valuations and low growth prospects or moderate valuations and high growth prospects, the answer is different.

“We see China as being particularly attractive on the risk-reward spectrum on the equities side, while India is compelling for both equities and fixed income. These are markets where clients don’t have exposures that are appropriate for diversified portfolios. We want to help bridge that gap.”

More specifically, this allows investors to assess whether managers who charge premium fees are really worth paying for.

Other factors which are shaping the funds landscape include the increasing transparency, more client-friendly terms, an increasing use of technol-ogy in disintermediation, and more bespoke solutions. “To me, those trends make the markets more efficient and serve our interests over time as well,” adds Levin.

OPEN TO THIRD PARTIES While Credit Suisse Asset Management has the ability to partner with its private banking unit, bulking up third-party dis-tribution has been a priority as well.

the fund house’s growth plans for 2017.But building a distribution network is one thing; managing them is quite another. The key to ensuring partners stay satis-fied, Levin adds, is after sales service. “I think service requirements have in-creased significantly at every stage, whether it’s communication of capa-bilities, investor education, product support, etc.”

Pricing matters as well. “The increasing prevalence of low-cost, passive solu-tions dictates that you have to price wisely. Asset managers also need to be candid about setting the right perfor-mance expectations versus the risks involved, so that clients understand their investments completely.”


THOUGHT-LEADERSHIP

How to remove the funds blockage in Asian private bankingDespite efforts by most private banks in Asia to increase funds penetration to boost recurring fee income, a new White Paper finds average penetration across 23 firms in Hong Kong and Singapore – with a total Asia-based AUM of USD1.5 trillion – is 9%.

As far back as the early 2000s, one of the key challenges for the private banking industry in Asia was how to increase funds penetration to ensure a greater proportion of recurring fee income. Nearly 15 years on, and the conversation is still the same.

Hendry of Westoun Advisors did in July and August 2016.

The objective was to discover suc-cesses and problems in the increasing-ly-urgent goal of reducing the domi-nance of transactional revenue.

fund AUM, given inconsistencies in discretionary portfolio management (DPM) offerings – and four obstacles.

Six steps for recurring revenue success

1. Firm-wide tactical asset allocation

2. Ease of access to funds 3. Recommended lists4. Fund-only events5. RM / CA coverage 6. After-sales support

And four obstacles

1. Product economics and RM / CA KPIs 2. Budget constraints and

outsourcing aversion3. Triple-hatting4. Changing staff and

organisational structure

“One of the key challenges for the private banking industry in Asia is how to increase funds penetration to

ensure a greater proportion of recurring fee income.”

In the vast majority of cases, these institutions have been struggling to move the needle in selling funds, managed solutions and discretionary mandates as part of longer-term port-folio construction.

This was the backdrop for proprietary research which Hubbis and Andrew

It ultimately resulted in interviews with 38 individuals representing 23 private banks in Hong Kong and Singapore – with a total Asia-based AUM of USD1.5 trillion. Average penetration was 9%.

The output, both from the interviews and further validation research, identi-fied six steps for success – in terms of


SIX STEPS FOR RECURRING REVENUE SUCCESS

Step 1: Firm-wide tactical asset alloca-tion (TAA) - respected and reiterated across all product silos as well as func-tional layers down from the chief invest-ment officer (CIO) through product gatekeepers, advisory teams, investment counsellors (ICs) and to relationship managers (RMs) / client advisers (CAs).

Step 2: Ease of access to funds - to implement the TAA, access to funds on three levels is needed in a total of six weeks:

Fund information – in particular the qualitative inputs of requests for proposals (RFPs), manager interviews, operational due dili-gence

Operational connection Commercial agreement

Step 3: Recommended lists – a focused Asian recommendation list created with 25 to 40 funds, including alterna-tives. These are the best-in-class in terms of investment and sale support.

Step 4: Fund-only event - a half-day offsite with three to five fund manag-ers with excellent presenters who are in line with the TAA view.

Mandatory RM / CA attendance, held (at a minimum) semi-annually in line with the selling seasons. For optimum fund penetration, repeat the same format with clients.

Step 5: RM / CA coverage - to maintain momentum after the events, promote funds in person at various internal meetings. For this to be possible, an appropriate ratio of fund specialists to ICs and RMs / CAs is necessary.

Step 6: After-sales support - to retain assets in funds, as distinct from new sales, after-sales support is needed from fund managers in addition to the effort internally.

Across all banks interviewed, few were consistently able to undertake these steps. The steps that were most chal-lenging – even absent in some cases – were ‘Ease of access to funds’ and ‘After-sales support’.

OBSTACLES

1. Product economics and RM / CA key performance indicators (KPIs) - to achieve revenue targets most effec-tively, RMs / CAs focus on the highest revenue-generating products – which are insurance and structured products. Funds, relative to these, are compli-cated to sell and generate much lower immediate revenues.

For the work of retaining existing funds, the economics are even poorer;

as there is no longer the sweetener of the front-end load.

2. Budget constraints and outsourcing aversion - to effectively execute on the six steps to success as above, what’s needed is either investment internally or outsourcing all but the valuable tasks.

Budgets at all banks (bar two of the largest), did not allow for appropriate internal resources. Interestingly, re-source-constrained banks were unable to outsource functions.

In a few cases, this was because the bank was not aware of outsourcing solutions, but for the majority there was a corporate aversion.

The outcome was that little resourc-es are being spent on tasks which do not contribute to fund sales or reten-tion. Compliance and regulatory issues (in steps 2 and 3) take up in-creasing bandwidth.

FOUR KEY OBSTACLES TO GREATER FUNDS PENETRATION IN ASIAN PRIVATE BANKING

Product economics and RM / CA KPIs Budget constraints and outsourcing aversion

Triple-hatting Changing sta� and organisational structure


THOUGHT-LEADERSHIP

Further, a related challenge when it comes to the ability of RMs / CAs to engage clients with needs-based con-versations about investing via managed solutions, is the lack of sales training.

This, too, partly stems from the short-fall in time and resources dedicated to such education or to continuing profes-sional education in this area. It seems a surprise that few, if any, institutions ensure their front-line staff have formal sales and presentation skills, to ensure they fully understand and then can implement required sales processes.

3. Triple-hatting - as a consequence of budget constraints, fund specialists have to wear several hats. From the perspective of ICs and RMs / CAs, the consequence is that they are either perceived as, or in reality are, a ‘jack of all trades’ and ‘expert of none’.

This undermines their credibility and thereby their ability to increase funds as a share of RM / CA sales versus competing products.

4. Changing staff and organisational structure - the average time that fund selectors or regional gatekeepers are in their respective role was found to be less than two-and-a-half years. Internal structures for reporting and responsi-bilities were changed approximately every three years – seemingly in-line with senior management changes.

Add to this M&A and HQ shifts of Asia private banking strategy (enter, expand, shrink, exit, etc) and it is no surprise to see that all firms have endured un-ending substantial modifications to their Asian businesses.

In this context, executing the six simple steps is understandably difficult.

WHO TO CONVINCEThe principle impediments to the goal of increasing recurring revenue were, and still are, ascribed to the end-clients in the region. Their investment behav-iour, characterised by short-termism, propensity for speculation and reluc-tance to delegate decisions are oft-cited.

Yet this seems a convenient excuse, reinforced by regional stereotypes and media, and it has served many banks well in being able to focus on end-clients – not the industry itself – as the root cause of low recurring revenues.

As a simple way to test the validity of the above – to determine whether it is a mere excuse or explanation – one may ask whether, from a high-level, what AUM would a private bank have in the extreme if it captured all and only the assets currently invested in funds through private banks.

To arrive at this, we apply a 9% pen-etration rate on a conservative value of USD2 trillion AUM of Asian private banking assets – giving us USD180 billion. This would be the third-largest private bank by AUM in the region.

In extremis, this shows there is enough demand for managed assets from Asian clients to allow any bank to achieve high recurring revenue. Indeed, this number shows the industry is somewhat suc-cessful at placing assets in funds.

As another sense-check, one may look at the pure-play asset managers in the region. The assets from individual in-vestors in Asia support a large and growing cohort of firms whose reve-nues are entirely recurring. If there were a true cultural aversion to managed assets, these firms would only have pension and sovereigns as clients.

Participating organisations

This was all on a strictly anonymous basis:

ABN AMRO Private Banking

Bank Julius Baer Bank of Singapore BMO Private Bank BNP Paribas Wealth

Management BOC International Bordier & Cie CA Indosuez Wealth

Management CIMB Private Banking Citi Private Bank Credit Suisse Private

Banking CTBC Bank DBS Bank Deutsche Bank Wealth

Management Goldman Sachs Private

Wealth Management Maybank Morgan Stanley Private

Wealth Management OCBC Bank Pictet Standard Chartered Bank UBS Wealth Management Union Bancaire Privée VP Bank

However, structural and human capital issues are at the root of this feature of the Asian private banking industry.

As a result of current models, incentive structures, processes and policies, therefore, a combined with the under-lying issues of stretched resources and consistency of people, the best efforts by firms to maintain and grow penetra-tion of funds is undermined.

XIE SharesStock Code: 3161.HK

XIE Shares Chimerica ETF

Stock Code: 3116.HKXIE Shares FTSE Gold Miners ETF

Stock Code: 3102.HKXIE Shares CLSA GARY ETF

http://3161.hk/

http://3116.hk/

http://3102.hk/

EXPERT INSIGHTS


An overhaul for funds distribution in AsiaThe funds industry is undergoing some sweeping changes which could lead to an exodus of providers along with a shake-up in terms of distribution channels, says Edouard Hoepffner of UBP.

In five years’ time, the investment funds industry in Asia could look vastly different from what it is today – via more specialisation and fewer players – in turn impacting the product plat-forms of private banks operating in the region.

More specifically, as far as asset man-agement firms go, increasing costs, tightening regulations and dwindling returns could lead to the exit of weaker players from the market.

“There is definitely more pressure on product manufacturers to rationalise their product range by decommissioning products that no longer bring any value to the table,” says Edouard Hoepffner, senior managing director and head of investment services at UBP in Asia.

To justify the higher fees associated with an actively-managed fund, it will need to strongly and consistently out-perform its passive counterparts, says

the Singapore-based product specialist. Those funds – and firms – which are not up to this task will be “weeded out”.

FOCUS AND SCALE THE KEYThe upshot of such a trend is likely to be a more specialised focus on strate-gies that work. “Fund houses won’t be able to offer the full spectrum of prod-ucts without having a particular edge in any one thing,” predicts Hoepffner.

As in private banking, AUM is key, so fund houses which expect to be able to run that on lower fees will have little chance of surviving unless they offer strategies that deliver consis-tent outperformance.

Scale will matter too. Without this, smaller asset managers will continue to find it difficult to secure a foothold in what has become a highly-competitive marketplace. Consider the area of re-search capabilities, for instance. Bigger firms tend to have a large number of

EDOUARD HOEPFFNER UBP

analysts to carry out extensive on-the-ground research compared with smaller firms who might have just a couple of individuals trying to do something similar.


“You may be an exceptional investor, but the amount of information you can gather will put you at a disadvantage vis-à-vis the bigger firms,” says Hoepffner.

Technology might also add to the pres-sures on product evolution and distribu-tion channels going forward.

Robo advisory services, for instance, are expected to eventually gain traction among private banking clients, espe-cially at the lower end of the pyramid. “Robo-advice, if anything, is likely going to push investors towards ETFs and traditional mutual funds,” says Hoepff-ner. This is also in line with his expecta-tions of seeing growth in passive product acceptance in Asia in the coming years.

“Clients increasingly want to speak to a specialist in the product that they want to consider,” adds Hoepffner. “This means someone with whom they can engage with in a genuine discussion.”

TOUGH TO FIND TALENTBut getting the right individuals to fulfil this role remains a challenge. Apart from the obvious cost of hiring and onboarding, there is also frequently a lack of expertise within internal support teams about compliance, legal and other requirements when it comes to selling products effectively and correctly.

“It becomes an increased risk that banks don’t want to pursue,” says Ho-epffner. “Outside of the traditional bonds, equities and mutual fund space,

FINDING FAVOUR WITH FUNDSNone of this looks likely to help deepen mutual fund penetration within private banks generally in Asia, which remains relatively low, on average, in the single digits.

However, some banks are bucking this trend. At UBP, for example, the penetration of funds is much higher than the industry average, according to Hoepffner.

He says this is the result of a concerted effort to encourage clients to look more deeply into active funds. “We have been engaged with our bankers to establish how best to position these funds using allocation grids,” he explains. “We’ve managed to create a bit more interest around investing in funds by highlight-ing their key benefits.”

The bank has also organised educa-tional forums for its bankers, including ‘fund days’ twice a year where bankers speak directly with fund houses to un-derstand why some strategies are per-forming better than the rest, and to learn how to have more needs-based conversations with clients.

“It doesn’t mean we don’t recommend individual or other products to our clients,” he adds, “but we are trying to promote the idea of diversification and active management to clients, where it makes sense.”

For 2017, meanwhile, UBP remains upbeat about generating more business after its integration with the interna-tional business of Coutts.

“The investments in Asia, both on the asset management and the private banking sides, will continue, so that’s a good message,” says Hoepffner.

“With the cost burden increasing for every bank, you could inevitably see a potentially smaller list of

recommended products.”

Scale will also be crucial for private banks, as many continue to struggle to grow amid tightening regulatory re-quirements and increasing cost pres-sures – either from hiring more people or maintaining large product platforms.

“With the cost burden increasing for every bank, you could inevitably see a potentially smaller list of recommended products,” he explains.

Yet this might not necessarily lead to lower performance if the due diligence is done right, and there is greater un-derstanding and expertise for those products which are recommended.

recommending anything to clients is a much more difficult proposition.”

This creates a Catch 22 for the banks. Given today’s low-interest rate, low-growth world, investors are becoming more interested in alternatives to po-tentially enhance yield.

“I think there is room to get exposure to those kinds of assets after looking into the client’s portfolio and adding these allocations to help overall returns. However, in terms of risk, it is getting increasingly difficult to deliver these types of assets within a private bank,” he adds.

EXPERT INSIGHTS


Taking a low-cost approach to building portfoliosA combination of high costs and low market returns is leading to growing demand for low-cost portfolios, which includes a focus on passive products, says Linda Luk of Vanguard.

Asset allocation is key to generating investment outperformance, yet too many specialists remain focused on individual products. That approach needs to change, says Linda Luk, man-aging director, retail and intermediary business at Vanguard in Asia.

“In-house research shows us that in mature markets, 70% to 80% of out-performance is due to asset allocation,” she explains. Yet it’s an idea which is only slowly gaining ground in Asia, where investors are predominantly trading-oriented with relatively shorter investment horizons.

For asset managers such as Vanguard, one of the world’s largest investment firms boasting a near-USD3 trillion business in index-linked funds, this represents a big opportunity to educate the market.

“Vanguard is not here to solely boost AUM or absorb investors’ cash flows,”

says Luk. “What we want to do is educate the market about the impor-tance of asset allocation.”

And an important component of this is promoting the concept of index-linked, or passive, product, to help investors seeking actual returns at low cost.

“We don’t believe there is any need to outperform massively because eventu-ally, you will underperform massively as well,” she adds. “If you look at most active funds [in 2016], they are strug-gling to beat market returns.”

DRIVING THE PASSIVE MIND-SETMore specifically, Vanguard is concen-trating on educating and engaging discretionary portfolio managers at private banks in Asia.

The US-headquartered fund group, founded by legendary Wall Street inves-tor John C. Bogle, first established a

LINDA LUK Vanguard

presence in Asia in 2000. Hong Kong then became the regional hub in 2011, Vanguard it launched its Hong Kong ETF platform in 2013.


Since then, Luk says the firm has made huge progress in its efforts to promote the idea of asset allocation. “Many [of these] managers have opened up to us; some have even called us to say they want to work with us.”

The reason is simple: it’s tough to find funds or managers which consistent-ly outperform, even though clients seek this.

High costs add to the pressure. “One of the key themes we find around the asset management industry is high costs. On the other hand, the markets have been plagued by poor perfor-mance,” she explains. “An environment of high costs and low returns is not conducive for investments.”

get it,” says Luk. “But when we explain the benefits of strategic asset alloca-tion compared with tactical, they start to understand.”

The firm also talks about its Adviser Alpha framework. “We emphasise that the adviser’s value comes from adding value for clients, not from churning portfolios or trying to beat markets. While managers may be hard-working, they can’t control the markets; what they can do is construct a portfolio and explain how they should look at a port-folio and what it is meant to achieve,” she explains.

Based on different risk/return profiles, there are then multiple model portfo-lios that can be used to monitor perfor-

“While everyone else is talking about active management, we talk about how to ensure consistent outperformance from the portfolio at lower cost, which is in the best interests of the client,” emphasises Luk.

The DPM business is also a more stable one, given that Vanguard’s products are mainly used as part of core port-folio holdings.

Nevertheless, the drive to encourage the inclusion of more low-cost index funds doesn’t mean excluding active funds from portfolios. “We are not only about passive products; what matters is cost,” says Luk. “If the cost is low and works in the best interest of investors, we advocate a combination of active and passive products.”

Indeed, of Vanguard’s USD3.8 trillion in AUM globally (as of September 2016), roughly USD1 trillion is in active funds.

Growth plans in Asia

In Asia, Vanguard’s biggest clients are private banks, followed by multi-family offices and brokers. Its intermediary business, launched four years ago, prioritises Hong Kong and Singapore, where all the key private bank teams are based.

But the firm is also now starting to look into opportunities in Thailand, Malaysia and the Philippines.

In 2017, investor education will continue to be one of Vanguard’s main goals, to drive deeper penetration into private banking and the multi-family office space.

“An environment of high costs and low returns is not conducive for investments.”

The firm has already made its intention clear in Asia in terms of lower costs. In October 2016, for example, it cut expense ratios on its five Hong Kong-listed ETFs by up to 18 basis points, reducing annual fees between 18 and 35 basis points from 25 to 45 basis points previously.

STICKIER SOLUTIONSIn challenging market conditions, therefore, discretionary managers are particularly attracted to making passive products part of a broader asset alloca-tion that can achieve better returns at lower cost. “We have a team that focuses on educating the bankers and in the beginning, most of them don’t

mance and work towards the desired investment objectives.

Luk says private banks appreciate this kind of approach.

“Almost no-one in the market has this type of training material. Everyone just comes in with the ‘shiniest product’, and a promise to beat the market or show-case a star fund manager.”

Although the discretionary pie has not grown significantly larger in Asia in recent years, the way the pie is being allocated is changing, which gives passive-focused players like Vanguard a greater opportunity to grow.

FEATURE ARTICLE


Passive strides ahead in Asia

Asia is currently a relatively small market for ETFs but is poised for solid growth as the low cost of passive funds and the concept of diversification start to appeal to investors.

Passive products such as ETFs and index funds have been gaining ground in Asia over the past few years. Two factors are driving this trend: a growing awareness of diversification leading to the inclusion of passive instruments in portfolios, and low cost of such products.

Asia currently represents a relatively small market for ETFs, but appears

poised for growth, particularly as markets become more integrated, believe various industry practitioners.

A recent PwC survey, for example, also reveals that Asian ETF assets are ex-pected to grow to USD560 billion by 2021, from USD208 billion in 2015, representing a compounded annual growth rate of 22%.

DIVERSIFICATION DIVIDENDSSeveral other studies, meanwhile, have shown that in mature markets, around 70% to 80% of out-performance is due to asset allocation. In Asia, this is an idea that is only slowly gaining ground, requiring a shift in mind-set among investors who are typically trading-oriented with relatively shorter invest-ment horizons.

For asset managers such as Vanguard, one of the world’s largest investment firms boasting a near-USD3 trillion business in index-linked funds, this represents a big opportunity to raise further awareness in this area. “What we want to do is educate the market about the importance of asset alloca-tion,” says Linda Luk, managing direc-tor, retail and intermediary business at Vanguard in Asia. An important com-ponent of this is promoting the concept of index-linked, or passive, products, to help investors seeking actual returns at low cost.

“Selectively, there are specific instances where we believe passive investments

should be favoured over active strategies.”

DANY DUPASQUIERStandard Chartered Bank


In the drive to increase awareness about asset allocation and the role of passives, Vanguard has targeted discretionary portfolio managers at private banks in the region.

The reception has been very encourag-ing, adds Luk. One reason for the easier acceptance of passive products is the fact that it has become increasingly tough to find funds or individual manag-ers that consistently outperform.

PASSIVE DRIVERSHigh costs are also adding to out-per-formance challenges. Even as costs are rising for the asset management indus-try, financial markets have been pock-marked by poor performance. An envi-ronment of high costs and low returns is not conducive for investments.

The use of technology is also changing the dynamics of the industry to favour passives. As investors become more tech savvy, they’re going online to search for investment opportunities and ideas.

And that’s leading to the slow but steady proliferation of robo-advisory services, at least among retail and mass affluent clients. While it still hasn’t become a pervasive presence in Asia, robo-advisory services are becoming a force to reckon with in developed markets. “Robo advice, if anything, is going to push investors towards ETFs and traditional mutual funds,” says Edouard Hoepffner, senior managing director and head of investment ser-vices at UBP in Asia.

It’s one reason why he expects to see growth in passive product acceptance in Asia in coming years.

Other fund selectors also have positive opinions about passives. “Selectively,

there are specific instances where we believe passive investments should be favoured over active strategies,” says Dany Dupasquier, managing director and head of mutual funds and hedge funds, group wealth management, at Standard Chartered Bank.

“Indeed, over short periods of time, even the most talented active managers might not have the suitable portfolio positioning for the prevailing market conditions and experience under-per-formance versus the benchmark,” he adds. “Finally, in environments that are not conducive to fundamental stock or credit pickers, getting a broad exposure to the markets through ETFs might be more rewarding for clients.”

ASIAN OPPORTUNITYThe increasing adoption of ETFs as a low-cost, transparent and flexible way to access asset classes around the world is the key reason why international asset managers State Street Global Advisors (SSGA) are firming up expansion plans in this arena.

“One of the many exciting opportunities in Asia is the growth of ETFs. We are already a leader in the local ETFs front

through the success of the Hong Kong Tracker fund and ABF Pan Asia Bond Index fund,” says June Wong, head of Asia ex-Japan at SSGA. “Against this strong platform, we continue to expand our ETF offerings so that they can be available to a wider audience in Asia.”

She says one of the biggest priorities for the group in 2017 is to work with existing clients to devise the most ef-fective plans and solutions. “Much of our discussions will centre on effective ways of configuring their portfolios for today’s investment reality, how to make the best use of broad beta, smart beta, alternatives, multi-asset and other ideas together to deliver the highest effi-ciency in investment management.”

GOLDEN INVESTMENTCurrently, ETFs in Asia are predomi-nantly those that track local equity and bond markets, followed by ETFs with foreign market exposures for investors interested in gaining overseas equity/bond market exposures.

In this part of the world, equity ETFs out-number fixed income ETFs. Some firms also offer index funds that allow investors to bet on other assets.

“One of the many exciting opportunities in Asia is the growth of ETFs.”

JUNE WONGState Street Global Advisors

FEATURE ARTICLE


“As investors become more sophisticated, demand for diversification is growing.”

LENNIE LIMLegg Mason

“We listed the Gold Miners ETF 3116.HK recently because we think investors need to be in gold given how overly indebted world economies have become.”

TOBIAS BLANDEnhanced Investment Products

“We listed the Gold Miners ETF 3116.HK recently because we think investors need to be in gold given how overly indebted world economies have become,” says Tobias Bland, chief ex-ecutive officer of Enhanced Investment Products. “Historically, correctly or in-correctly, gold mining companies trade at a very large discount to their proven reserves. This means they are very much geared to the price of gold. Histori-cally when the price of gold goes up by 1%, gold mining stocks in our index tend to go up 3%,” he explains.

The belief underlying this launch is that 2017 could be the year when investors finally wake up to the realisation that the credit markets are overpriced. When the markets start to tumble, investors will realise that developed market currencies are not a safe haven anymore and that could lead to an even larger depreciation in the Japanese yen and euro. Also, the easy monetary policies in Japan and Europe, and possibly fiscal easing and more debt-pile-up in the US under the new Trump administration, are leading to astronomical levels of debt.

Meanwhile, the possibility of rising rates in the US at a time when manufacturing

productivity isn’t high, is adding to the risk factors. Moreover, in the short term, a Trump presidency could mean more risk than reward for investors.

They form part of the reasons why Bland believes anyone who wants to protect themselves against inflation or credit events should be buying the Gold Miners ETF.

GETTING THE MIX RIGHTNevertheless, the drive to encourage the inclusion of more low-cost index funds doesn’t mean excluding active funds from portfolios. What matters, in

the end, is cost and suitability. “If the cost is low and works in the best inter-est of investors, we advocate a combi-nation of active and passive products,” points out Vanguard’s Luk.

It also depends on what clients are looking for in terms of investment goals. “As investors become more sophisti-cated, demand for diversification is growing,” adds Lennie Lim, regional head for Asia ex-Japan at Legg Mason Global Asset Management.

And depending on which client segment you are dealing with, there are different options available, he ex-plains. “Mass affluent clients might find multi-asset solutions appealing, while private banking and family office clients might opt for alternatives such as hedge funds, long short equity and infrastructure investments.”

Even where clients may want a particu-lar solution, a prudent, trusted adviser needs to give the right advice. “Depend-ing on their investment goals and risk appetite, there could be a better way of achieving those goals and it is our role to tell to suggest that that is what they should be doing,” says Lim.

http://3116.hk/

DO YOU KNOW SEI? You should.Wealth managers and implementers of investment solutions are

looking for comprehensive and innovative investment solutions.

For more than 40 years, we’ve anticipated changing market needs

and created innovative business solutions designed to help clients

meet the challenges of managing personal and institutional wealth.

›› We’re a leading global solutions provider with more than $2.18

trillion total assets under management, and $3.64 trillion total

assets under administration.*

›› Our unique approach offers a turnkey, actively managed, asset

allocation solution that can be tailored to specific goals, while

providing access to institutional and boutique managers that

otherwise may not be accessible.

›› We believe that using managers with different investment styles

and specific mandates can reduce volatility and potentially

increase long-term returns.

›› We build bespoke solutions that enable you to grow your

business and potentially enhance profitability.

Learn how we can help you build portfolios, manage risks and enhance returns by calling us at +852 3515 7500.

*Calculated 30 September 2016 with an exchange rate of 1USD to 7.75448 HKD.

Material is directed at Institutional Investors for information purposes only and does not constitute an offer or investment advice.

The value of an investment and the income from it may fall as well as rise and investors may not get back the amount originally invested.

The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution and if you are in any doubt about any of the contents of this document, you should obtain independent professional advice. Issued by SEI Investments (Asia) Limited (“SIAL”). SIAL is a company whose registered address is Suite 904, The Hong Kong Club Building, 3 Jackson Road, Central, Hong Kong, and is licensed in Hong Kong for Type 4 and 9 regulated activities under the Securities and Futures Ordinance (“SFO”). ©2016 SEI 162524

FIRM PROFILE


Getting aligned with a longer-term outlookProviding products and solutions that maximise efficiency and facilitate the delivery of advice will enable SEI Investments (SEI) to maintain its core beliefs about asset management while at the same time to align itself with distributors with strong brands, says Kevin P. Barr.

A slow but steady trend among Asian investors towards greater diversification and a longer-term approach to portfo-lios gives Kevin P. Barr good reason to be optimistic about his firm’s prospects in the region.

perfect alignment with our solutions,” he explains. This has been seen, for example, in the shift away from simply looking at real estate as the dominant component of portfolios in Asia, given the volatility.

KEVIN P. BARRSEI Investments

consists of balanced implementations as they look at single risk models and align them with a single implementation, or perhaps multiple implementations

“Asian investors have become more sensitive to globalised economies, and tying that with more

diversified, goals-based investment options.”

This is exactly the philosophy of SEI, where Barr is currently head of invest-ment management.

“Asian investors have become more sensitive to globalised economies, and tying that with more diversified, goals-based investment options, it’s a

In line with this, advice is becoming more important and therefore sought-after, says Barr, adding that the imple-mentation of a diversified portfolio is aligned with that type of model.

For example, roughly 80% of a typical client’s portfolio, all around the world,


of a balanced portfolio. “We promote a scenario where [a wealth manager] needs a proposal and advice process that really focuses on the clients’ needs, which are specific to goals they have within their life,” says Barr.

PLAYING TO ITS STRENGTHSThis goes to the heart of SEI’s core competency – the manufacturing aspect of investment management.

The company’s business model is centred on manager research, with the resources and systems to conduct thor-ough due diligence, monitor invest-ments and provide insights into what individual managers are doing differ-ently to give them an edge.

“We assign the task of building out asset allocation models and evaluating third-party managers to 120 dedicated people from an investment perspective,”

basis. It leaves the distribution and advice elements to the private banks, based on the view that they have wider networks and broader brand recognition.

“We are not building a big wholesale organisation, but instead are trying to find key partnerships as we have with select clients, build deep relationships with them, identify the complemen-tary areas between both firms, and leverage that capability going forward,” outlines Barr.

“We try to be aligned with clients’ objec-tives and ensure that we deliver against those during good and bad times in the market,” he adds.

More broadly, the investment manager believes that an asset manufacturing capability is more important than brand identity – which it looks for in its distri-bution partners. “We are looking for

More digital connectivity

The scope for robo-advice to play a greater role going forward is growing in line with the greater volatility in the marketplace.

Increasing transparency and desire for more market intelligence is also a symptom of changing demographics in the client base.

“There is a lot of wealth migrating from the baby-boomer generation to millennials, and oftentimes the advisers associated with the former are not the same advisers that the millennials are going to be comfortable with,” explains Barr.

In his view, digital should be looked at from the standpoint of the new levels of connectivity and interaction which are created.

“Everybody now carries hand-held devices, so has instant access to information in their holdings in a transparent manner,” says Barr.

As a result, the digital interaction which now happens between advisers and investors is often much more meaningful.

“We are looking for [distributors] which have strong brand identity and good distribution capabilities,

but who are looking for efficient and effective products and solutions that can make the distribution

more profitable and more meaningful.”

says Barr. “We are one of the largest global organisations doing research.”

SEI’s motive is based on this concept of asset allocation and behavioural finance, with its implementation tied to measur-ing progress to goals – rather than looking to sell individual funds or talk about fund performance on a relative

[distributors] which have strong brand identity and good distribution capabili-ties, but who are looking for efficient and effective products and solutions that can make the distribution more profit-able and more meaningful,” he adds.

In Asia, more specifically, SEI’s initial focus has been on Singapore and

Hong Kong, where it has already seen some traction. However, the firm is committed to expanding its presence in Asia and is seeking to establish partnership relationships throughout the region.


CO-PUBLISHED ARTICLE

Why all low volatility approaches are NOT equalGreater appetite for low volatility equity investing has mainly been driven by the attraction of lower draw-downs and the higher returns these indices have exhibited globally and in Asia, explains William Barbour, client portfolio manager at Eastspring Investments.

Since the global financial crisis hit in 2008, low volatility equity investing has received increased attention from inves-tors, prompting increasing flows into low volatility equity ETFs.

Investors in low volatility equity strate-gies have benefitted from higher returns

valuations for some low volatility equity indices and portfolios have edged higher.

This has prompted concerns that these strategies may have become victims of their own success as they appear to be expensive.

FACTORING IN CHANGING VALUATIONSThe MSCI Minimum Volatility indices are typically more expensive than their

WILLIAM BARBOUREastspring Investments

“Low volatility equity investing has received increased attention from investors, prompting increasing

flows into low volatility equity ETFs.”

than the broader underlying capitalisa-tion (cap) weighted indices with lower volatility, or risk.

As investors have sought to capitalise on this low volatility anomaly, the

At Eastspring, we recognised this issue some years ago and incorporated value filters that eliminate expensive companies from our portfolio universe. We discuss this and our improved valuation metrics in the second part of this narrative.


broader cap-weighted parent indices, and this warrants further investigation.

As per Figure 1, the Minimum Volatil-ity variant of the MSCI Asia Pacific ex Japan Index currently shows valua-tions to be rising rapidly, on a price-to-earnings (PE) basis.

However, it is important to note that valuations have in fact been rising across the board for equities in the Asia Pacific ex Japan region.

Interestingly, we also observe in Figure 2 that the valuation premium which the Minimum Volatility variant commands above the MSCI Asia Pacific ex Japan Index has in fact compressed.

The Minimum Volatility Index variant is constructed by MSCI and is but one of the many methods by which the low volatility anomaly can be exploited.Nevertheless, it maintains its merits as a reference point for the perfor-

mance of the strategy for clients and asset managers.

DIFFERENT APPROACHESIt should be noted that low volatility equity strategies are broadly catego-rised into two groups: heuristic and optimisation-based.

Heuristic approaches lean toward straightforward rank-based systems while optimisation-based approaches are more sophisticated and account for both volatility and correlation effects within the portfolio.

Within each category exists even finer segregation of methods, ranging in so-phistication and complexity in their implementation. It is no wonder that low volatility equity strategies can be misunderstood.

Many of the above methods are docu-mented well in academic journals and the purpose here is not to delve too deeply.

However, an appreciation of a true low volatility equity strategy begins with the understanding that there are many ways to exploit this anomaly.

Notably, not all methods are factor-based.

CAPTURING THE ASIAN OPPORTUNITYWe believe firmly that Asia’s growth story remains intact, valuations remain attrac-tive compared to developed market equi-ties and bonds in particular, and there remain significant opportunities.

However, we also recognise that the investment landscape is shifting. This is making it ever more challenging for in-vestors to remain invested amidst vola-tile conditions.

Source: Eastspring Investments, Bloomberg, MSCI, as at 30 September 2016. SD=Standard Deviation. The Harmonic Average is the reciprocal of the arithmetic mean of the reciprocal Price/Earnings ratios.

FIGURE 1 � MSCI ASIA PACIFIC EX JAPAN MINIMUM VOLATILITY INDEX, PRICE�EARNINGS RATIO

MSCI Asia Pacific ex Japan minimum volatility Harmonic average+1SD -1SD

12 Oct

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“The Minimum Volatility Index variant is constructed by MSCI and is but one of

the many methods by which the low volatility anomaly can be exploited.”


CO-PUBLISHED ARTICLE

Our strategy is not only designed to capitalise on the low volatility anomaly, but to do so in a reliable and system-atic manner.

The culmination of such an approach is potentially better risk-adjusted returns with a higher underlying port-folio dividend yield across market cycles, primarily through experiencing lower drawdowns during market down-turns compared to the broad market.

We also acknowledge that starting valuations are critical and drive future performance (Figure 3).

Valuation awareness is part of the port-folio construction process and this allows the portfolio to benefit from the valuation disparity currently benefiting Asian equities.

We are aware that the MSCI Asia Pacific ex Japan Minimum Volatility Index is currently more expensive than the broader parent capitalisation weighted index (MSCI Asia Pacific ex Japan Index). As a consequence, we

sive stocks and/or those with poor analyst sentiment that are more likely to underperform.

We seek to minimise volatility at the portfolio level and offer investors a low volatility solution for investing in Asia Pacific ex Japan equities, for which there is no ETF with a similar strategy.

Eastspring’s Low Volatility strategy ben-efits from a lower risk profile and a systematic approach which aims to ac-cumulate wealth over the longer term with a higher underlying portfolio divi-dend yield and lower drawdowns than the broad market.

Eastspring’s Low Volatility strategy is innovative. It is noteworthy that there are very few pure low volatility strate-gies in Asia and also no Asia Pacific ex Japan Minimum Volatility ETF cur-rently available.

Source: Eastspring Investments, Bloomberg, MSCI, as at 30 September 2016. Parent Index refers to the MSCI Asia Pacific ex Japan Index.

FIGURE 2 � MSCI ASIA PACIFIC EX JAPAN � MINIMUM VOLATILITY / PARENT INDEX �RATIO�

MSCI Asia Pacific ex Japan Harmonic average

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2016

1.1

1.2

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reduce this valuation gap by excluding stocks with poor valuation and senti-ment in our investment process.

Using value and sentiment filters helps to reduce the risk of buying into expen-

ASIA’S STRUCTURAL GROWTH IS INTACT¬

PRICE-TO-BOOKMSCI ASIA PACIFIC EX. JAPAN

% OF OBSERVATIONS

AVERAGE RETURNS (%)

1 YEAR 3 YEARS 5 YEARS

Less than 1.5x 20 28 43 86

1.5x to 1.75x 31 5 26 90

1.75x to 2x 24 1 25 24

2x to 2.25x 17 1 (8) 2

2.25x to 2.5x 5 (3) (4) 2

More than 2.5x 3 (33) (16) (15)

Cheap

Expensive

STARTINGVALUATION DRIVES FUTUREPERFORMANCE

Source: MSCI, Bloomberg, Eastspring Investments, 31 October 2016. Monthly observation period from 1 January 1996 to 31 October 2016. Returns are calculated on a monthly rolling returns basis on price change (%) from the period stated in above table. Past performance and any projection or forecast is not necessarily indicative of the future or likely performance. Charts are for illustrative purposes only.

FIGURE 3 � PRICE�TO�BOOK MSCI ASIA PACIFIC EX. JAPAN & AVERAGE RETURNS


1 Oct

2013Apr

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2016

1.1

1.2

1.3

Source: MSCI, Bloomberg, Eastspring Investments, 31 October 2016. Monthly observation period from 1 January 1996 to 31 October 2016. Returns are calculated on a monthly rolling returns basis on price change (%) from the period stated in above table. Past performance and any projection or forecast is not necessarily indicative of the future or likely performance. Charts are for illustrative purposes only.

FIGURE 3 � PRICE�TO�BOOK MSCI ASIA PACIFIC EX. JAPAN & AVERAGE RETURNS


1 Oct

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1.3

EXPERT INSIGHTS


Appetite for advisory

With advisory services gaining ground in Asia, one of Citi’s goals for 2017 is boosting usage of its tool to deliver more effective investment advice, explains Shrikant Bhat.

Boosting its client advisory offering is a key focus for Citi in Asia in 2017.

This comes on the back of some key initiatives which the bank has been working hard to roll out.

based conversations [with clients],” says Shrikant Bhat, managing director and Singapore-based regional head of in-vestments, Asia Pacific, at Citi. “It’s a big cultural change that we are driving through the organisation.”

SHRIKANT BHATCiti

how the portfolio value changes over time, as well as looking at the likelihood of the client achieving the stated fi-nancial goals.

“Our tools and sales processes are being geared towards having TWA-based

conversations with clients.”

Chief among them is an interactive tool called Total Wealth Advisor (TWA). This is based on the Citi Model Portfolio developed by the US firm’s investment experts, across Asia Pacific.

“Our tools and sales processes are being geared towards having TWA-

Developed in-house, the TWA is aimed at helping clients plan, monitor and manage all their investments in one place.

More specifically, it provides a real-time picture of their financial situation, portfolio and goals. It then analyses


“We have moved towards a total wealth adviser approach since testing [TWA] in a few markets,” adds Bhat. “And now it has become key to the way we have conversations with clients.”

ADVISORY APPROACH This evolution reflects the fact different clients have different sets of needs.

Citi, for example, segments its wealthy clients into three main categories – HNW, classified as Citigold Private Client (with investible assets over USD1 million and above); affluent, or Citigold (investible assets of USD200,000 and above); and emerging affluent, or Citi Priority (investible assets of USD50,000 and above).

Going digital

In line with its plans for its Total Wealth Advisor tool, a key focus for Citi in 2017 will be digitisation.

This is partly because clients themselves are demanding more tech-savvy services. With the smartphone becoming all-pervasive, for example, customer behaviour and preferences are changing dramatically.

They want information quickly and on demand, plus the convenience of speedy transactions, explains Bhat, adding that Citi has been investing heavily in terms of moving these conversations towards the digital space. It is also part of Citi’s strategy to be “mobile first”, he adds.

choose whether they want their port-folios to look like that or not.”

Further, and at the moment in Asian wealth management, there seems to be higher demand for advisory than dis-cretionary mandates. “What we see in Asia, and in most parts of the develop-ing world, is that clients prefer the advisory model,” he adds. “They don’t just hand over mandates to bankers and let them do what they like. Clients still prefer to be in control and engaged with their bankers.”

But advisory or not, all portfolios need to be reviewed regularly. “If an invest-ment is not performing well, the client has to decide whether that investment

own retirement, health plans, wealth, etc. That is one reason why you see clients far more engaged in terms of planning.”

To be part of this journey, Bhat believes this is where a strong brand comes in, as do multiple points for a client, and a strategy to offer a range of services to a variety of clients on the wealth spectrum.“A lot of our clients see value in sticking with the bank as they move up the wealth chain,” he says. Apart from wealth management solutions, the bank also provides several transactional ser-vices ranging from offering corporate accounts to credit cards to mortgages.

“When seen from a holistic perspective, the need to change banks might not be that strong as it would be in the case of a pure private bank, which primarily op-erates only via the banker,” adds Bhat.

“What we see in Asia, and in most parts of the developing world, is that clients prefer the advisory model.”

And across these client groups, the bank is seeing advisory becoming more sig-nificant. “The products themselves are moving more into the background as commoditised solutions,” adds Bhat.

In line with the advisory shift, Citi is also making use of model portfolios with clients in discussions about investments – even though discretionary mandates per se have a minimum ticket size and are commonly offered only at the highest level – the Private Bank. “We have always used model portfolios as part of the advisory proposition where clients have the option of comparing what we believe is the model portfolio for them,” explains Bhat. “They can

has to be changed,” he says. “Alterna-tively, if an investment has performed well and the achievement of the invest-ment goal is near, it might be time to move on to another goal. This is where the product conversation comes in.”

PLANNING FOR THE FUTUREAnother factor driving investment habits in Asia is the fact that most coun-tries in the region lack a robust social security net. As a result, individuals feel the need to create their own corpus, so need a plan in place to achieve that.

“That is when clients look at multiple solutions,” says Bhat. “By and large, clients are required to provide for their

EXPERT INSIGHTS


How UOB is accelerating an advisory pushA new advisory framework is expected to drive greater flows within UOB Bank’s wealth management division, says Abel Lim.

With momentum for advisory picking up in Asia, UOB Bank is confident that it has found the right time to launch a new approach to drive this part of its business.

edging an inescapable fact: everyone needs money to retire.

“You can’t avoid that fact, but the reality is that very few people recognise this

ABEL LIMUOB Bank

MEETING CLIENTS’ REAL NEEDSIt’s this core need which UOB seeks to tap. And to achieve this, it is not simply looking to adopt a more traditional

“We have structured our engagement process so we can get the customer to acknowledge his needs initially.”

The wealth management division is putting the finishing touches to a new framework, the UOB Investment Advi-sory Philosophy. This, believes, Abel Lim, head of wealth management, advisory and strategy, will be different from the traditional models in the market.

It aims to focus on retirement planning, gently nudging investors into acknowl-

very important need,” says Lim. “We believe awareness of this need is the first step in consumer education.”

This is inevitable, since most countries across Asia are sorely lacking in the provision of social safety nets. Many individuals are therefore left to plan for their medical and retirement needs entirely on their own.


How UOB is accelerating an advisory push

advisory approach by recommending a core portfolio and bolting on satellite or tactical solutions.

Lim believes this approach doesn’t always satisfy retirement objectives.

“Retirement planning is about adopting a risk-first approach to investing. Inves-tors are encouraged to create a portfo-lio that is able to generate passive Income in the long run. Therefore, the real question should be, where is the passive income coming from an inves-tor’s portfolio? Any proposed tactical solution should help in taking that re-tirement plan to the next level.”

That is why under the new UOB ap-proach, customers will be advised to build up passive income. “We have built an entire ecosystem of advisory around that and once it is done, we will go ahead and identify market opportuni-ties for the investor using the bank’s internal conviction model,” adds Lim.

Conveniently, his unit is also responsible for formulating the overall house view.

While the business strategy is centred on Singapore, publications and reports produced by the advisory team on a daily, weekly and monthly basis are shared regionally. “All our other markets, such as Indonesia, Thailand, Malaysia and China, customise our reports to suit their local market needs,” he adds.

He is well-placed to oversee this. He manages the overall wealth advisory portion of the business, including for mutual funds as well as fixed income and FX advisory. His business also works jointly with other teams to iden-tify gaps in the product/service offer-ings and then devise the most suitable solution providers to fill those gaps.

OUT WITH THE OLDThe new UOB framework also follows a philosophy beyond the traditional portfolio recommendation of the mix of global bonds/equities portfolio overlaid with financials or other assets. “This model has been found lacking over the years,” says Lim.

The passive income portfolio, mean-while, is sustainable because of the ecosystem around it, he believes. “Often, when you move into a tactical fund or act on a tactical idea without proper research and you may end up losing money, the customer loses con-fidence in you and stops investing. He might even move to another bank.”

Further, just like any business which targets a stable set of numbers rather than leaving things to chance, passive income models aim to build consistency into the bank’s investment portfolio.

This is done via a combination of assets such as mutual funds, cash bonds and insurance. Investing in a solution of multi-asset funds that generate yields of, say, 4% to 5% with low volatility, is what we aim to acheive, according to Lim.

The bank’s passive income model is known as the Income Builder. “The aim is to set up a concept first and follow that up with a suitable solution.”

Already UOB is the largest distributor of mutual funds in Singapore, says Lim, boasting an-industry leading funds penetration rate among its clients.

REVAMPING CLIENT ENGAGEMENTIn a similar fashion, Lim says UOB is focused on enhancing its client engage-ment experience. “We massively re-vamped our sales force training and created a new client engagement model.”

Retiring in Singapore

Research has shown that close to 90% of Singapore’s citizens will be unable to retire comfortably. Perhaps more alarming is the fact that most people are not taking any action to rectify the situation. It also doesn’t help that, until recently, most financial advisers, driven by revenue-based KPIs, were heavily-incentivised to sell products to their clients as opposed to have broader, need-based conversations with them.

But Singapore is at least making some attempt to change this. With the introduction of the Balanced Scorecard Framework by the Monetary Authority of Singapore, advisers are also graded – and rewarded – partly on their competence and advice.

An adviser who does not conduct his sales in a professional manner and recommends customers unsuitable products will be subject to a poor BSC grading, which will have material impact on his career and commission earnings for the full calendar quarter. The sales supervisor who reviews the documents will also be impacted via the BSC grading and penalised accordingly.

The training is comprehensive. It ranges from giving tips on how to set an ap-pointment with a client, to the engage-ment framework, to when to use a portfolio counselling specialist. “We have structured our engagement process so we can get the customer to acknowledge his needs initially. Once that is done, we introduce the concept of Income Builder before arriving at the solutions that may be suitable for individual investors.”

FEATURE ARTICLE


Discretionary demand picking up paceMore private banks are introducing and expanding discretionary portfolio management (DPM) services in Asia in a bid to improve fee income, while clients start to realise the benefits of professional investment management.

After decades of maintaining control over their investment decisions, Asian investors seem to be warming up to the idea of DPM.

The desire among private banking clients to be so closely involved in the buying process mainly stems from the fact that most of them, until recently, have been first-generation entrepre-neurs who, after building highly-suc-cessful businesses, believed they could use the same skills to become equally-effective investors.

Of course, history has shown that is not always the case.

Now, as Asia’s wealth moves into the hands of the second and third genera-tions, the perception of value of private banking is also undergoing an evolution. It is transitioning from being seen as simply a broker service to execute trans-actions to one focused more on longer-term, recurring-fee income products

such as funds, discretionary mandates and wealth protection.

DRIVEN TO DISCRETIONA challenging market environment may also be a catalyst for DPM, be-lieves Kevin Liem, chief investment officer of TTG Wealth Management. “Clients need to believe their invest-ment decision is inferior compared

with the DPM manager before they will enroll in such offerings. This can be due to time constraints and willing-ness to make investment decisions in addition to knowledge.”

Nevertheless, it is a slow climb uphill. “Asian investors are more flow oriented, and it takes time for client education to achieve results,” says Angel Wu, re-

“In the past two years, our AUM and revenue have grown by 20% each year, while being focused almost exclusively on the discretionary market.”

JEAN-LOUIS NAKAMURALombard Odier


“If there’s so much customisation, it’s because of lack of

options”

JUAN ARONNARBC Wealth Management

gional head of products and solutions at ABN AMRO Private Banking in Asia.

Further, advisers in Asia do not see DPM as a value addition to their overall of-fering, says Tuan Huynh, regional head of portfolio management, Asia Pacific, at Deutsche Bank Wealth Management

“As a result, they are reluctant to spend enough time in deepening relationships with clients and explaining to them the advantages of keeping funds in a dis-cretionary account,” he explains. “Instead, they like to take the easy way out by focusing on funds.”

For DPM offerings to work, communi-cation is very important. Explains Liem: “The client would need to understand the value proposition before they will commit and pay for such offerings.”

In addition to external factors like regulations, internal alignment between the relationship management team and investment team is also very important, he adds. “It would be best if proper incentives are in place to encourage such alignment.”

Indeed, this alignment of interests needs to be between clients, private

bankers and the institutions themselves – if the industry is to see an improve-ment in the recurring income product penetration rate.

Another reason could be the fact that KPIs of bankers vary among different players. “Clients may experience a sense of uncertainty when they do not feel their private banker is working in their best interests, inadvertently leading to lower discretionary investments, which is a large contributor to recurring incomes,” adds Wu. “It is therefore im-portant to ensure an alignment of ex-pectations of the role of private bankers, from both clients and banks.”

NEW SERVICES COMINGFor most private banks in the region, DPM accounts for anywhere between 1% and 30% of AUM.

At this higher and more successful end of the spectrum are firms like Lombard Odier, which is almost exclusively focused on servicing discretionary man-dates in Asia. But admittedly, these banks are far and few between in Asia.

Nevertheless, there is a definite thrust in that direction with more wealth managers introducing or expanding DPM services.

Albert Yuen, head of the product mar-keting department at BOC Interna-tional, says the firm is currently devel-oping a discretionary asset management proposition. “We already have profound capital markets expertise, both in the field of fixed income and equity. We are in the process of further strengthening our capabilities to cater to the managed accounts business,” he explains.

The group is also looking at offering HNW and private banking services in

“We are in the process of further strengthening our

capabilities to cater to the managed accounts business.”

ALBERT YUENBOC International

FEATURE ARTICLE


“The most important thing is whether a discretionary approach, involving delegation of investment decisions, suits the needs of the client.”

CHRISTIAN ABUIDEStandard Chartered Bank

London next year. It has already set up a wealth management unit in Luxem-bourg. “The goal is to target both over-seas Chinese and European clients. As a group, we aim to capture a slice of business from overseas clients seeking expertise on Greater China as well as from the 40% mainland Chinese seeking overseas opportunities,” adds Yuen.

Over the next year, the business is ex-pected to grow to around 3%, and 10% in three years’ time.

CIC Bank Privée is another example of a private bank that plans to launch DPM services as well as active advisory man-dates in Asia in 2017.

The firm will launch this enhanced of-fering using the expertise of Banque de Luxembourg, with which it has inked a service agreement. “Banque de Luxem-bourg has offered DPM services for the past 15 years with a great track record and we want to tap their expertise,” says Maxime Pacan, regional head of private banking advisory at CIC Banque Privée.

Key to the new service is the fact that the portfolio managers will be based in Asia. Assets will also be sourced from within the region. “The goal is not to simply replicate what Banque de Lux-embourg is doing; we want to adapt it to Asian clients,” explains Pacan.

The rationale for private banks in Asia to want to introduce DPM is simple: a client in Hong Kong, for instance, is likely to be knowledgeable about Hong Kong and Chinese stocks. A client in Indonesia, meanwhile, will be more aware of Indonesian and possibly Ma-laysian or Singaporean stocks. Yet these investors might have limited knowledge about opportunities in other markets.

“[A DPM service] helps clients get global exposure under professional manage-ment,” adds Pacan.

A factor that Huynh says helps Deutsche Bank stand out in the Asian market, for example, is its ability to go beyond stan-dardised fund-of-fund type solutions and offer more customised solutions. “When the markets are bad, that’s when our value add, our risk management capabilities, lend us an edge,” he says.

WHY SMALL CAN WORKBeing a smaller bank can sometimes give a boost to this type of business.

Lombard Odier’s Jean-Louis Naka-mura, for example, believes that the boutique nature of his firm has been a key reason for its DPM success. “The fact that we are a relatively smaller boutique private bank doesn’t stand in the way of getting business; instead, it’s viewed as a plus as there is no legacy business involving advisory or transac-tion-based operations requiring a shift in terms of resources and manpower,” says Nakamura, who is chief investment officer for Lombard Odier in Asia Pacific. “This is the right positioning for us and we believe it is the way forward.”

“When the markets are bad, that’s when our value add, our risk management capabilities, lend us an edge.”

TUAN HUYNHDeutsche Bank Wealth Management


In the past two years, the private bank’s AUM and revenue have grown by 20% each year, while being focused almost exclusively on the discretionary market. “We take full control over the portfolio, starting from portfolio construction and asset allocation,” says Nakamura.

The process of managing money under discretionary mandates is highly insti-tutionalised at Lombard Odier. “It’s probably boring in comparison to the interesting things you can do within an advisory mandate, where you can explain a product in terms of a ‘theme of the week’ or ‘FX play of the day’. But our job is to convince clients that sometimes, boring is better for their own wealth.”

Nakamura says with a 10% to 15% in-crease in the cost of the investment platform, the bank could easily double the 200 or so accounts it manages.

“On the fund selection side, we use a 60:40 mix of internal and external funds. We make use of in-house funds where they have proven to be out-performers, in other instances external funds are used. We use external funds in areas where Lombard Odier doesn’t have an edge. For example, these could be US or Japanese equities, where we resort to external funds.”

More broadly, having a dedicated pro-gramme to deliver specific solutions can be powerful, especially to differentiate a DPM offering.

According to Juan Aronna, managing director and head of portfolio solutions at RBC Wealth Management in Asia, special mandates which are highly-customised but not scalable – and potentially under-performing – are the product of a stiff offering. “If there’s so

much customisation, it’s because of lack of options,” he explains.

“The more options there are, the less customisation is required. We don’t have at RBC a single customised mandate; they are all different, using the same modules.”

NOT FOR EVERYONEOf course, the push towards discretion-ary doesn’t mean it’s heading towards universal adoption.

“Like with any other product, DPM will be the solution for some clients, rather than for everybody,” says Christian Abuide, head of DPM at Standard Char-tered Bank. “The most important thing is whether a discretionary approach, involving delegation of investment de-cisions, suits the needs of the client.”

For instance, if a client doesn’t have the time or doesn’t have the required in-vestment knowledge to manage his/her portfolio, and is comfortable giving his private bank the power over those investment decisions, then discretion-ary might be an appropriate solution.

“Our job as a bank and client advisers will then be to help the client make his

decisions more successful,” adds Abuide. “In this case, client satisfaction is not purely linked to financial portfolio per-formance. Indeed, financial out-perfor-mance is perhaps just one way of achieving client satisfaction, and some-times it might not even be the most important one.”

As the private banking model continues to evolve in Asia, there is little doubt that fee-based income via a discretion-ary or semi-discretionary model will gain importance.

While this perhaps won’t come as quickly as some banks and market practitioners would like it to, it does seem inevitable.

Under such a business model, client advisers will look to balance active and passive to create investor portfolios.

That will require asset managers to position their offerings accordingly.

Indeed, international fund houses with passive offerings are likely to benefit highly from the DPM trend as portfolio managers will look to such products as part of a broader diversification and asset allocation strategy.

“The client would need to understand the value proposition before they will commit and pay for such [DPM] offerings.”

KEVIN LIEMTTG Wealth Management

EXPERT INSIGHTS


Delivering discipline in portfolios

HSBC Private Bank’s focus on creating a robust and compelling platform for managed solutions will also enable it to ensure its product proposition is relevant, appropriate and suitable for clients.

Promoting managed solutions more actively is a key strategic objective for HSBC Private Bank in Asia.

Not only are managed solutions more likely to deliver the investment return outcomes clients want, but they are also more conducive to today’s tighter com-pliance regimes.

“Most of our clients have realised that trying to beat the market on their own is easier said than done,” says Ivan Wong, regional head of investment services and product solutions for HSBC Private Bank in Asia.

As a result, the bank is advocating a more disciplined asset allocation by

IVAN WONGHSBC Private Bank

long game – by investing and staying invested – is the best way to ensure that our clients capture opportunities,” he adds.

“Most of our clients have realised that trying to beat the market on their own is easier said than done.”

The potential for such a shift has become increasingly viable as more and more HNW clients appreciate both the value of advice, and the importance of proper asset allocation in delivering better and more stable investment returns.

taking a portfolio-based approach to fund management, including in the form of discretionary management or other fund solutions, he explains. “It’s impos-sible to accurately predict market move-ments or fluctuations, so playing the


This is why the bank’s approach to discretionary investing starts by mir-roring client needs, attitudes to risk and desired level of involvement. It then combines all this with its recom-mendations on the best way to realise client ambitions.

OFFERING CHOICEThe managed investment solutions offering has two in-house multi asset programmes and one open-architecture manager of manager programme. Also,

bank business leverages the capabilities of the broader HSBC Group to deliver the client outcomes it is targeting.

This is also in sync with the vision of senior management to drive more cross referrals by capturing identified oppor-tunities with the same clients.

Working with colleagues in HSBC Global Asset Management, in particu-lar, Wong and his team can generate ideas for clients and develop innova-

Building portfolios with discipline

A critical aspect of the HSBC Private Bank investment philosophy is discipline.

For all clients – whether they prefer a discretionary portfolio or more participation in their investment activities – the bank claims a rigorous process which is dynamic and integrated with each client’s specific needs.

Especially given the divergence of central banks’ monetary policies around the world, diversification across asset classes is ever-more crucial in driving portfolio performance.

To that end, and as part of the bank’s portfolio-based approach to investing, it is concerned about concentration risk, liquidity and leverage into some of the ‘riskier’ credits and certain assets in clients’ portfolios.

In seeking opportunities for investors, it believes the illiquidity of some credits means investors should, once they have made the necessary adjustments to their credit portfolio, pursue more of a ‘buy and hold’ strategy with a longer-term horizon.

“For the third-party option, HSBC Private Bank makes use of screened institutional quality managers.”

a number of new single-asset portfolio solutions will be available soon. And in all cases, they cover the full spectrum of asset classes: domestic, interna-tional and emerging markets, fixed income and equities, global liquidity including multi-currency, and alterna-tive investments such as hedge fund portfolios, private equity and real estate.

For the third-party option, the bank makes use of screened institutional quality managers, while the in-house multi asset solutions are a construction of actively managed funds, ETFs, hedge funds and other alternative invest-ments. A range of “pre-defined, and risk categorised strategies are made avail-able depending on [a client’s] invest-ment and asset-allocation objectives,” adds Wong.

COLLABORATION IS KEYThrough its intrinsic link with HSBC Global Asset Management, the private

tive portfolios that deliver results in a sustainable way.

For example, for single-asset strategies, to further customise exposure to global bond and equity markets, HSBC Private Bank provides a range of investment programmes with either regional and/or strategic biases.

“For clients with an appetite for a spe-cific asset class, regionally or globally, our integration with HSBC Global Asset Management offers a service with truly institutional discipline and a world class research foundation,” says Wong. Mean-while, certain investors need to pin-point exact risk exposures to comple-ment their overall portfolios.

“We therefore, in partnership with HSBC Global Asset Management, offer a highly-customised service for individuals with institutional needs,” he explains.

At the same time, HSBC Private Bank’s London-based global Mutual Funds team is working on a project to con-solidate the organisation’s relationships with external partners.

“This is a global initiative, but there remains the required flexibility for the Asian investment team to select those fund managers that are especially relevant to our regional client base,” he adds.

EXPERT INSIGHTS


Delivering more by discretionary mandatesProfiling private clients correctly has the potential to ensure a more durable relationship with discretionary portfolio management (DPM), says Pascal Meilland of Indosuez Wealth Management.

DPM has real potential to make more of an impact in Asia if private banks can create more achievable and real-istic objectives for this relatively small – but potentially very lucrative – part of their business.

markets are down, if the framework is clear, then I don’t see any problem with DPM,” he says.

While there are various hurdles for private banks in Asia to increase their

PASCAL MEILLANDIndosuez Wealth Management

away from relying on pure transac-tional business,” adds Meilland. But for him, DPM is more than this. “I have the conviction that we are in the

“DPM is helping us to generate stable revenues as we want to move away from relying on

pure transactional business”

This is according to Pascal Meilland, director and head of DPM for Indosuez Wealth Management in Asia, who be-lieves this way of working with clients offers more reliable and predictable revenue streams.

This is particularly effective in challeng-ing market environments. “Even if the

proportion of AUM under discretion, working in their favour has been the growing complexity and volatility of the markets.

These dynamics have made clients turn to their banks to provide professional advice. “DPM is helping us to generate stable revenues as we want to move


service and not in product business, and there is a need to bring expertise to the clients.”

DEVELOPING THE DPM PRODUCT MIXFor Indosuez Wealth Management, its philosophy on product choice for its discretionary mandates is based on achieving the return and risk objectives as stated by its clients.

Defining the mandate

According to Meilland, the current penetration of DPM in Indosuez Wealth Management’s Asian business is in the high single digits. Of these mandates, most clients opt for one which aims to preserve the capital the bank manages on their behalf, and to generate value in all market conditions.

For this reason, he says that all the portfolios it manages under discretionary mandates have an asymmetrical risk profile designed to benefit from market rallies and protect the invested assets during market downturns.

More specifically, under a DPM mandate, clients’ portfolios are built with a dynamic asset allocation that covers all asset classes and all geographical regions.

This includes direct investments in selected equities and bonds as well as investment funds that match the views of the more than 100 investment specialists within Indosuez Wealth Management Group or the best fund managers from around the world.

Inevitably, the bank also uses various financial instruments to hedge investment risks such as interest rates and currency movements.

“Once we come up with a proper solution and the RMs understand and are comfortable

with that, then we can expect to see more [DPM] success.”

This might lead to products being sourced in one of two ways, either in house or via third parties.

“Many components of our DPM are internal products and aimed at bringing expertise,” says Meilland.

“But if we cannot achieve this inter-nally, we go outside and, after due dili-gence, we select external funds or do structured products as long as they always meet the risk/return objectives of the clients.”

At the same time, he is a strong be-liever in tempering the desire to be fully open architecture.

After the 2008 global financial crisis, for example, he believes there should be an internalising of key aspects of the

investment and product selection pro-cesses – such as risk management, controls and transparency.

BRINGING MORE DPM TO CLIENTSThere is certainly scope for Meilland to be optimistic about the potential for DPM to grow in Asia.

For example, he says that he sees more and more relationship managers

(RMs) in Asia, for example, embracing the concept.

“Once we come up with a proper so-lution and the RMs understand this, and are comfortable with that, then we can expect to see more success,” explains Meilland.

This will also come from the more focused approach to client segmenta-tion which is underway at Indosuez Wealth Management, to better under-stand the portfolio mix for each client.

“We are finding an angle to make clients feel comfortable to give us their money to manage,” explains Meilland.

He believes that the way products are vetted and sourced, with more of an internally-minded focus, creates a

point of differentiation in the discre-tionary portfolio. “We explain the transparency and expertise, which creates a value-add.”

EXPERT INSIGHTS


Banking on a boost in discretionary demandCIC Bank Privée is gearing up to launch discretionary portfolio management (DPM) services in Asia in 2017, says Maxime Pacan.

CIC Bank Privée plans to launch DPM services as well as active advisory man-dates in Asia in 2017.

The firm will launch this enhanced of-fering using the expertise of Banque de Luxembourg, with which it has inked a service agreement.

“Banque de Luxembourg has offered DPM services for the past 15 years with a great track record and we want to tap their expertise,” says Maxime Pacan, regional head of private banking advisory at CIC Banque Privée.

A key element of the new service will be the fact that the portfolio manag-ers for CIC Bank Privèe will be based in Asia.

This is despite the firm’s European parent; it is part of Credit Mutuél and Credit Mutuél-CIC, a French banking group with more than 80,000 employ-

ees, and subsidiaries in insurance, retail banking, asset management, private banking, technology services and in-vestment banking. Banque de Luxem-bourg is also part of the group.

DELIVERING ON DEMANDThe assets will also be sourced from Asia. “The goal is not to simply replicate what Banque de Luxembourg is doing; we want to adapt it to Asian clients,” explains Pacan.

This is important given differences in investor appetite between the regions. In Luxembourg, Europe plays a large part in client portfolios.

In Asia, the client is more familiar with this region, which is where the growth will likely come from.

This is an important part of the rationale for the desire to customise the bank’s solutions accordingly.

MAXIME PACANCIC Bank Privée

In particular, CIC Bank Privèe believes DPM services offer a good value prop-osition to its clients. It helps them build


more diversified portfolios that are also professionally managed, explains Pacan.

A client in Hong Kong, for instance, is likely to be knowledgeable about Hong Kong and Chinese stocks. A client in Indonesia, meanwhile, will be more aware of Indonesian and possibly Ma-laysian or Singaporean stocks. Yet these investors might have limited knowledge about opportunities in other markets.

“[A DPM service] helps clients get global exposure under professional manage-ment,” adds Pacan.

Importantly also, the bank benefits from the recurring revenues that come from this type of approach.

to be happy with the portfolio’s perfor-mance. In time, they are therefore more likely to become more receptive to adopting completely discretionary man-dates. “It’s a good way to engage clients,” adds Pacan.

The bank also believes it has the re-sources now to start to offer an ex-panded set of services.

In Singapore, it has a booking centre and about 45 relationship managers (RMs), double the number on the payroll two years ago. In Hong Kong, meanwhile, it has 20 RMs. “Once we get the banking licence, we will increase our RM base and develop our private banking opera-tions in Hong Kong,” says Pacan.

Product breadth

The CIC Bank Privèe product platform is quite diverse, including full-fledged FX capabilities. “We deal with large institutional investors, and our private clients benefit from the best prices because of the large-volume trade execution we carry out on behalf of the institutional clients,” says Pacan.

Another in-house strength is interest rate products. It has a full dealing team in Singapore and offers CIC notes that are fully customisable.

For equities, the bank mainly carries out secondary research from its network of 10 brokers. CIC Banque Privée then aggregates the information and selects the best ideas to discuss with clients.

In the case of structured products, the bank shops around to find the best prices and products to offer to clients.

Advisory services, meanwhile, are offered in both Singapore and Hong Kong.

“Between pure advisory... and DPM, there is an enormous gap. An active advisory mandate is the way to bridge it.”

RECOGNISING VALUEFurther, and unlike some practitioners in Asian private banking, Pacan also believes clients are willing to pay for quality advice.

And this is one of the key reasons why the private bank is also preparing to launch active advisory mandates.

“Between pure advisory, where the client takes all the decisions, and DPM, there is an enormous gap. An active advisory mandate is the way to bridge it,” he explains.

If executed well, clients with active advisory mandates will be more likely

DEVELOPING ITS FUNDS PLATFORMFor now, fund penetration among the bank’s clients ranges from 5% to 10%.

Here again, it bows to the expertise of Banque de Luxembourg for product selection, tapping a five-member team of analysts in Luxembourg, with one more in each of Singapore and Hong Kong to help with the process. “We take the selection list of Banque de Luxembourg and use 85% to 90% of the names on the list. But if there is a reverse enquiry, for instance, about selecting a fund, we take the decision because we are closer to what is going on in the Asian market on a daily basis,” says Pacan.

Some of the funds it offers to clients certainly come from within.

The CIC group also has a traditional asset manager, Banque de Luxembourg Investments (BLI) which manages about EUR10 billion and is primarily focused on asset allocation and equity invest-ments. “Some of these funds are in the top decile and if they are good enough to be there, they are worth promoting to our clients,” says Pacan.

FEATURE ARTICLE


The secret to an enduring client relationshipTimely communication and digital strategies have become important factors for success in Asia for asset managers and their distributors.

In a world where news is available 24/7, investors are more demanding than ever before about the insights and informa-tion they expect from their asset and wealth managers.

Timely communication after signifi-cant market events, such as the recent win by Donald Trump in the US elec-tions, for example, is becoming a standard requirement.

It’s a trend that is only likely to get bigger, fuelled by the explosion in digital technologies.

Nevertheless, for service and product providers, it’s a challenge given the ever-tightening regulatory restrictions for the financial services industry in the aftermath of the 2008 crisis.

All communications to clients need to clear compliance hurdles; and when markets move quickly, it’s not always easy to do that.

But for the asset managers that do manage to continually update their clients, the reward is a more enduring business relationship, both with dis-tributors and end-clients.

GREATER EXPECTATIONSIndeed, many large distributors such as global private banks now view com-munications as a vital part of the after-

sales service they look for from their asset managers.

Rather than simply promote or on-board a fund on a product platform, the fund house needs to provide regular updates on what is happening to the fund, especially during volatile market periods. “If you can provide the right type of services, be forthright

“I think improving investor education is important and needs to be an ongoing process.”

ELEANOR WANBEA Union Investment Management


“It’s not just about cutting costs – even clients expect more digital solutions from

private banks.”

ANGEL WUABN AMRO Private Banking

about explaining under-performance and honest enough to tell them when they should or should not enter a fund or market, your credibility improves as an asset manager,” explains Carol Wong, managing director of Old Mutual Global Investors in Asia Pacific.

But it’s not just about market updates; there is also an increasing need to com-municate to clients about how returns are generated, despite regulations making that task tougher.

“We have to ensure clients understand exactly how we derive returns and what the risk parameters are,” says Wong.

“The investment horizon has to match the risk/return requirement, even though most of the time investors

themselves don’t know what they are looking for.”

It is understandably challenging to match these requirements. In the end, it all comes down to education.

BANKS JOINING INIt’s an effort that the banks are taking seriously too.

“One of our key priorities in 2017 is to improve communication with clients,” says Dany Dupasquier, managing direc-tor and head of mutual funds and hedge funds, group wealth management, at Standard Chartered Bank.

Right now, in terms of collateral, the documents that banks like his create are limited to internal communication

only. “We would like to show the entire process and rationale behind our recom-mendations to our clients. It’s some-thing we are working on and hopefully, early next year, we can start in either Singapore or Hong Kong,” he explains.

The need for information is echoed by Angel Wu, regional head of products and solutions for ABN AMRO Private Banking in Asia.

“Wealthy Asian clients typically have accounts with more than one bank, and they demand information from all of them, just to see who can provide the best information and market insight.”

Technology is also having a big impact on investor awareness levels and pref-erences. Wu believes the growth of digital solutions will be one of the big changes that will be seen in the private banking industry in coming years. “It’s not just about cutting costs – even clients expect more digital solutions from private banks.”

Eventually, it seems like private banks will need to offer a combination of digital solutions and attractive pricing to draw-in clients.

CHANGING CLIENT EXPERIENCE Indeed, the rise of robo-advisory is part of that trend.

In 2016, Invesco acquired robo-adviser Jemstep, while Goldman Sachs acquired Honest Dollar, a pension-planning robo-advisory service. Legg Mason, mean-while, also acquired an 82% stake in robo-adviser Financial Guard.

While no-one, as yet, believes that technology will replace the human ad-visory element, technology is expected to improve and enhance the quality of

“Many large distributors such as global private banks now view communications as a vital part of the after-sales

service they look for from asset managers.”

FEATURE ARTICLE


“We’re working closely with our clients to create

tailor-made investment solutions that are suitable

for their investors.”

AJAI KAULAllianceBernstein

the relationship between the adviser and client.

At the very least, technology is being widely used by many product and service providers to keep clients up-to-date on the latest market trends.

Many asset management firms have, of course, gone a step further. “We have established AB Labs to investigate op-portunities presented by technological disruption in the finance industry, in-cluding big data, distributed ledger technology and robo-advisory,” says Ajai Kaul, chief executive officer for Asia ex-Japan at AllianceBernstein (AB).

The fund house is representative of an increasing band of companies like it, trying to actively improve the client experience using different technologies

and platforms. “During the past few years, we’ve introduced interactive web channels, mobile sites, Line, WeChat, Facebook, YouTube, etc. Numerous other initiatives are also in the works to give our clients and investors the best in class digital engagement experi-ences,” adds Kaul.

“Our thought leadership is well-regard-ed amongst our clients. In addition, we’re working closely with our clients to create tailor-made investment solu-tions that are suitable for their inves-tors,” he says.

PUTTING THE EMPHASIS ON EDUCATIONMore broadly, however, in a region where financial literacy levels are low, many market participants also believe that apart from information, there is a pressing need to provide real education to investors.

“I think improving investor education is important and needs to be an ongoing process,” says Eleanor Wan, chief ex-ecutive officer of BEA Union Investment Management.

“While UHNW clients have some ex-perience in investing, in general, the growing middle-income group needs more education about the importance of investing, and what the investment objectives should be,” she adds.

The asset management industry has been providing training in a different way, such as emphasising the impor-tance of investing in China or India, for instance.

“Technology is being widely used by many product and service providers to keep clients up-to-date

on the latest market trends.”

“There is a pressing need to provide real education to investors.”

Besides these technologies, AB is also striving to deepen its engagement model and further improved client ser-vicing materials.

To be able to create a generation of more financially-savvy investors, however, this approach will, undoubt-edly, have to change.

It all began in 1991. Over twenty-five years of growth later, Investec Asset Management is a truly global company managing over $117 billion* for clients based all over the world.

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We offer a diverse range of investment capabilities:Equity: global, regional, emerging markets and frontier marketsFixed Income: developed markets, emerging markets, multi-strategy

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*Source: Investec Asset Management as at 30 September 2016.In Hong Kong, this document is issued by Investec Asset Management Hong Kong Limited and has not been reviewed by the Securities and Futures Commission (SFC). The company website has not been reviewed by the SFC and may contain information with respect to non-SFC authorised funds which are not available to the public of Hong Kong. In Singapore, this document is issued by Investec Asset Management Singapore Pte Limited (company registration number: 201220398M).

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EXPERT INSIGHTS


A bionic boost for a new private banking landscapeTechnology will play an increasingly influential role in helping relationship managers (RMs) – and institutions as a whole – become more efficient and productive, says Adam Cowperthwaite of Citi Private Bank.

‘Bionic’ advisory tools could be key to the future of the private banking in-dustry, augmenting the skills of the human adviser.

“At the UHNW level, it’s bionic advisers, not robo-advisers, that could have a greater impact,” says Adam Cowperth-waite, head of equities - Asia Pacific, at Citi Private Bank.

Most practitioners believe that robo-advisory is likely to be most relevant for the vast swathes of mass affluent across the region, and possibly people on the first rung of the HNW ladder.

For these clients, it can play a role in constructing a balanced portfolio.

Higher up the wealth pyramid, however, there is a greater require-ment to harness the power of technol-ogy in ways that make human advisers more efficient, and their institutions more relevant overall.

TANGIBLE OUTCOMESSuch ‘bionic’ advisory can, for example, be used to quickly assess which posi-tions in a portfolio carry more risk or deserve immediate attention.

“An automated platform will not tell you how to solve the issues, but in highlighting them, an experienced, smart adviser will be prompted to work out a solution that is suitable for the client,” says Cowperthwaite.

And given the vast amount of infor-mation contained in each portfolio, such technology can be extremely effective in driving that discovery process and, in turn, leading to better decision making by the individual adviser, he explains.

Without such support, UHNW clients with complex, diversified holdings, across multiple asset classes, can find it chal-lenging to assess their total currency, sector or credit exposures, for example.

ADAM COWPERTHWAITECiti Private Bank

Investment decisions need to be made on an ongoing basis, because investors need to continuously assess what they need or don’t need in their


portfolios, when to exit and when to seek protection.

“It can be difficult for an individual to do all of these things if he or she doesn’t have tools to assess the portfolio from a range of different perspectives. That’s where private banks bring the value of information and sound advice to the investor,” says Cowperthwaite.

ADDING REAL VALUE It is at times like now, when the operat-ing environment is increasingly chal-lenging for private banks, that finding more sustainable ways of doing busi-ness count most.

“If all the institution is doing is distrib-uting products by gathering assets and then filling portfolios, that is clearly the wrong approach,” says Cowperthwaite.

In order for private banks to take a more advice-led, solutions-based approach, they need to consider what the client wants (and really needs) to do with his or her money. Bankers must engage in a continuous, proactive process to help clients maximise the returns they get from their portfolio.

The relevance of this becomes clearer against the backdrop of the fact that a client might have multiple bank ac-counts and relationships.

In addition to basic factors like the client’s age or stage of life, the banker needs to really understand each cli-ent’s true investment objectives, ex-plains Cowperthwaite.

For instance, a client might have a busi-ness that delivers a stream of dividends every year, so income generation isn’t a priority; in this case, growing the capital base for future generations could

be the ultimate goal. “In the end, suc-cessful private banking is about deepen-ing the relationships with, and under-standing of, existing clients – as well as finding new ones. Both are important,” says Cowperthwaite.

NOT JUST ABOUT PRODUCT AND PRICEThere’s little doubt that the role of the RM is also evolving. One part of the job, at a firm such as Citi, is sourcing and onboarding clients; the other is to deliver the entire bank to the client.

“It is important to ensure that what-ever the client’s needs are, they are matched (where possible) to the broad

ties, so that we get very good pricing for our clients, while ensuring relation-ships with our selected counterparties are high-quality and well-managed,” explains Cowperthwaite.

Counterparty choice doesn’t just come down to pricing.

While price is important, he says, the bank only takes on a new counterparty if the product team can be sure that the service provided through the lifecycle of the investment will be flawless. Poor lifecycle management could lead to clients receiving less attractive unwind prices, or facing less beneficial treat-ment in the event of a corporate action.

“We are continually working to source the best products and services for the benefit of our clients.

This holistic approach is all part of the evolving landscape of private banking.”

range of products and services that Citi offers,” adds Cowperthwaite.

This also means providing them with relevant, immediately usable and high-quality advice that doesn’t just look at the outcome tomorrow or next week – but also over the longer term – and then matching those to the client’s own investment timeframe.”

At times, open architecture is also critical to allow the bank to source the right products for the client. “However, we aim to strike a balance between having enough counterpar-

So for Cowperthwaite, the selection of providers also takes into account a number of factors beyond price.

These include: service quality, useful market intelligence, interesting new ideas, and access to different markets and asset classes.

“We are continually working to source the best products and services for the benefit of our clients,” he explains.

This holistic approach is all part of the evolving landscape of private banking, he adds.

EXPERT INSIGHTS


Slow steps towards brighter dawn for private banking in AsiaThe industry can find a silver lining from its current plight if it can hold fast to current efforts to bolster advisory solutions and managed solutions, says Damien Mooney of BlackRock.

With uncertainty permeating global financial markets, private banks con-tinue to face an uphill struggle to maintain and satisfy client demands and expectations.

Damien Mooney, head of the US firm’s retail and wealth advisory business in Asia Pacific. “This can partly be achieved by using technology, to find easier ways of providing an information

DAMIEN MOONEYBlackRock

navigate investment opportunities amid different economic cycles. These solu-tions may come from various asset

“From our perspective, the challenge is always, how can we help private banks

operate more efficiently?”

Some of the more proactive asset man-agement companies such as BlackRock have expressed a strong willingness to help shoulder the burden.

“From our perspective, the challenge is always, how can we help these private banks operate more efficiently?” asks

exchange and support private clients need, as well as facilitating execution. With big data analysis, technology also helps private banks to understand their clients better,” he explains.

Asian clients are also increasingly looking for solutions that help them


classes, investment strategies or invest-ment providers. This is key, since a single firm cannot solve every problem for each private bank.

“Rightfully, private banks desire to have a model where they have the best-of-breed from across the marketplace,” says Mooney.

A JOURNEY TO ADVISORYWith this in mind, and partly to stabilise their revenue base, the private banking industry in Asia has made a concerted effort to grow the funds and managed solutions businesses.

This has seen many institutions invest-ing in their advisory capabilities. But it hasn’t been plain sailing.

of such services and advice more chal-lenging, is regulators taking a much closer look at what’s happening in the relationship between the provider of the service, the end-client, and the underlying product manufacturers,” explains Mooney.

This has therefore shed a bright light on product-related commission.

BANKING ON OPTIMISMDespite the challenges confronting private banks in Asia, Mooney is con-fident that a brighter dawn awaits the private banking sector.

He is certainly plotting BlackRock’s goals for the next 12 months based on this outlook. “I think that most private

wealth pie in Asia is already large and the pace of wealth creation along with the numbers of wealthy individuals continue to grow.

Specifically, Mooney sees China and Japan being most interesting, given where the majority of real growth is going to come from.

“Developing our onshore businesses continues to be a number-one priority for us,” he explains.

“We are looking to build our business in China, as well as grow in other markets where we have more of an offshore fund sales model, for example in Taiwan.”

Becoming more digitally-relevant is also high on Mooney’s agenda for BlackRock.

“This doesn’t just mean saying it, but actually doing it, and making sure we are being much more intentional around how we engage with investors and in-termediaries using our digital capabili-ties,” he explains.

This might be accomplished through the asset manager’s own websites and digital tools, or via those of third parties.

DIVERSIFYING THE BUSINESSAnother goal for BlackRock is to con-tinue to evolve its own business model, which is less about relying on mutual funds and instead diversifying the mix.

This translates to more ETFs and alter-natives, and more of what Mooney refers to as the firm’s portfolio solutions business, which specifically targets the wealth segment.

The firm is certainly setting itself some lofty objectives for 2017.

“We are looking to build our business in China, as well as grow in other markets where we have more of

an offshore fund sales model, for example in Taiwan.”

“It is also questionable whether indi-vidual HNW customers actually value the advice given, due to the control-delegation type of relationship,” ex-plains Mooney.

As a result, when a private bank looks to position itself as the client’s invest-ment adviser in order to deliver out-performance, there is a healthy dose of scepticism among clients. “The other element making the provision

banks in Asia will want to continue to grow this business, once they can address the challenge of how to scale up their offering in a fee-based envi-ronment,” explains Mooney.

This is also encouraging many asset managers to persevere in in Asia.

Various factors suggest this is a realis-tic expectation. First, it is a structural opportunity; the sheer size of the


Finding investment solutions for challenging marketsAmid highly-challenging markets, product manufacturers and distributors urgently need to get clients to use a broader range of portfolio and investment solutions. In particular, diversification and risk management are critical.

In today’s uncertain and volatile invest-ment environment, listening to clients to understand their needs and present diversified portfolio solutions to them will differentiate the winners and losers.

Indeed, against the backdrop of what seems to be the toughest year for a long time for wealth managers to make revenue – product manufacturers and distributors must guide clients to use a broader range of investments which are simpler, more suitable and relevant.

In line with this, across Singapore and Hong Kong, at two events in 2016, we brought together over 500 senior individuals – including leading product & fund gatekeepers from the top in-ternational and local Private Banks, Retail Banks, Multi-Family Offices and IFAs, as well as relationship managers

and investment advisers from within the industry.

There are clearly many uncertainties in today’s investment markets – ranging from individual economies to geo-po-litical issues to interest rates, and more. As a result, the focus needs to be on diversification of risk and rebalancing portfolios. At the same time, it seems that whatever assumptions people have about the past might not be relevant for the future. Advisers therefore need to question their assumptions before building portfolios for their clients.

An important consideration when managing portfolios today is also to continue to move in the direction of removing the responsibility for making investment decisions from the end-clients to the investment specialists

EVENT HIGHLIGHTS - INVESTMENT SOLUTIONS FORUM 2016 - HONG KONG & SINGAPORE

Thank you to our sponsors

BlackRock Eastspring Investments fundinfo Franklin Templeton

Investments Intellect Design Arena Leonteq Securities Societe Generale Commerzbank HSBC Global Asset

Management Morningstar RBC Capital Markets

– whether via a discretionary portfo-lio management (DPM) model or another format.

Advisers also need to re-align client expectations in terms of returns and performance with what the market is actually offering.

It seems that outcome-oriented invest-ments is the new name of the game. Increased certainty and visibility has the most appeal today. Further, clients don’t like prepared product pitches. They want someone that asks the right ques-tions, understands their needs and provides relevant solutions.


Jessica CutreraEXS Capital Asia

Marco KermaidicBNP Paribas Wealth Management

Adam CowperthwaiteCiti Private Bank

Anthony SiauKairos Capital Partners

Matthias Weberifund

Andreas VogelsangerAFC Vietnam Fund

Belle LiangHang Seng Bank

Ian MacDonaldEY

Ni YanIndosuez Wealth Management

Boon Peng OoiEastspring Investments

Jackie ChoyMorningstar

Lavanya ChariDeutsche Bank Wealth Management

Andrew ScottSociete Generale

Chetan PandyaIntellect Design Arena

Jaye ChiuEFG Bank

Lemuel LeeJ.P Morgan Private Bank

Philippe Banon RBC Capital Markets

Ken PengCiti Private Bank

Frank TroiseLeonteq Securities

Jean-Louis NakamuraLombard Odier

Kevin LiemTTG Wealth Management

Harold Y. Kim, Ph.D.Neo Risk Investment Advisors

Andrew HendryWestoun Advisors

Steve KnablSwiss Asia

Anthony J. HarperManaged Accounts Partners


Stephen KamHSBC Global Asset Management

Richard MakPictet Wealth Management

Robert ReidBlackRock

Steven MoellerBlackRock

Sally KwokBlackRock

Rohit JaisinghDBS Bank

Stewart AldcroftCiti Markets & Securities Services

Joel GascheLeonteq Securities

Sean CochranUBS Wealth Management

Michael Levin Credit Suisse

Christian Obrist BlackRock

“The event attracted a very good turnout, and with a good cross-section of speakers. So with a large number of people from diverse streams attending and sharing their views, this is a great experience for everyone.”Rohit Jaisingh, Head, Equity and Commodities Investment Products, DBS Bank


Arthur WuMorningstar

Leonardo DragoAL Wealth Partners

Jean ChiaBank of Singapore

Paul StefanssonUBS Wealth Management

Juan AronnaRBC Wealth Management

Juerg KienerSwiss Asia Capital

Franck FayardCommerzbank

Chinmay PatilLeonteq Securities

Arnaud TellierBNP Paribas Wealth Management

Prashant BhayaniBNP Paribas Wealth Management

Scott CollisonFranklin Templeton Investments

Patrick DonaldsonThomson Reuters

Roger MeierBank Julius Baer

Nicolas RigoisStandard Chartered Bank

Simon IpIndosuez Wealth Management

Dr Ekkehard J. WiekStraits Invest

Christophe AbaJPMorgan Private Bank

Hrishikesh UnniTaurus Family Office

Tuan HuynhDeutsche Bank Wealth Management

Akshay Prasad Deutsche Bank Wealth Management

Marc LansonneurDBS Bank

Conrad HuberCredit Suisse

Emmanuel GuillaumeUnion Bancaire Privee

Pankaj NagrathBarclays

Stanley SiaStandard Chartered Bank

FIRM PROFILE


Spearheading specialist strategies for alpha generationAlternative and other active specialist strategies are important components of investor portfolios in Asia, says Suresh Singh of Principal Global Investors.

The search for yield and the migration towards passive strategies is putting the offerings of active specialist manag-ers into focus. Specialist boutiques are weathering the storm better than some larger firms when it comes to the ability to generate alpha.

Says Suresh Singh, head of funds dis-tribution for Principal Global Investors in Asia: “Over the long haul, specialist strategies, including liquid alternatives, have a position in client portfolios and I believe the banks will recognise and allocate to that space. It’s already start-ing to happen. This will be particularly so as client advisers look to see how to effectively combine active and passive funds.”

The volatile market conditions make it more difficult to generate returns, and so the search for alpha-generating managers with innovative strategies is creating opportunities for specialist fund providers.

MULTI-BOUTIQUE ADVANTAGEIt’s through such specialist strategies that Principal, a global funds business, seeks to distinguish itself from its competitors.

Principal’s multi-boutique business model has a hands-off approach that allows the individual boutiques to run their own business and investments but at the same time provides the necessary institutional infrastructure, internal audit and oversight. The group has 14 such investment boutiques.

Singh, previously at BlackRock before joining Principal in August 2016, is focused on introducing the capabilities of the diverse group of investment bou-tiques that comprise Principal Global Investors. These boutiques cover strong, stable investment specialities in equities, fixed income, real estate and alternatives to deliver competitive investment outcome for key intermediaries, fund selectors and investment platforms.

SURESH SINGHPrincipal Global Investors

“For example, we have an open-ended private equity fund that invests in US commercial real estate, which can be a real benefit for clients who are looking


for exposure to direct US real estate market,” explains Singh.

The firm boasts one of the largest US real estate businesses, covering the four quadrants of private equity, public equity, private debt and public debt.

Another example of a Principal boutique is Spectrum Asset Management, with USD22.8 billion in AUM (as of 30 Sep-tember 2016). This makes the firm one of the world’s largest specialised man-agers of preferred securities – which are ‘hybrid’ securities that sit between senior debt and common equity.

SEEKING GROWTHIn a market teeming with fund manag-ers, Principal does not aim to become a ‘me too’ product manufacturer. Instead, it is focused on bringing to Asia a set of specialised strategies that can deliver desired outcomes to clients.

In the search for yield, for instance, Asian private bank clients are snapping up subordinated debt instruments such as additional Tier 1 securities and con-tingent convertibles directly. “That’s an area where our boutique, Spectrum, with over 29 years of track record fo-cussed on just this sector, has a lot to offer to clients,” Singh points out.

This specialty approach is also effective in supporting the wealth managers too. “We know that advisers can perhaps be a little uncomfortable about some clients buying these instruments di-rectly since they know what the risks are,” he explains. “So if we can offer them an actively-managed solution that offers a yield comparable with what clients receive from direct investments but through a high-quality diversified portfolio with active down-side risk management, it opens the door for us.”

This is reflected in a unique strength Singh brings to the table for Principal – his relationships with several discre-tionary portfolio managers. This strength is especially valuable when considering the drive towards discre-tionary among private banks in Asia, which is leading to a fundamental re-think of the business model for many fund houses. “We are in the business of helping advisers manage wealth for their clients as opposed to just selling products,” says Singh. “As the business model changes – and it is changing very fast – our clients will benefit from Prin-cipal staying true to its focus.”

GROWTH OF PASSIVE PRODUCTS Another trend influencing the invest-ment management industry in Asia is the growth in passive products. “These strategies are gaining ground but con-trary to popular belief, active manage-ment is not dead,” says Singh. “We believe that the approach which works best for most clients is one that com-bines active with passive.”

Although passive management starts from a belief that markets are largely efficient, and that the potential returns from capturing any inefficiencies will be more than offset by costs and risks, the reality is different. For example, there are many asset classes that can be considered inefficient.

“Our conviction is that, in the hands of the right manager, active investment not only pays for itself, but can make a material financial difference to the in-vestor,” he adds.

In Singh’s opinion, this makes active management an essential tool which can help investors better navigate the out-come-oriented investment world that is increasingly their choice today.

Asia operations, global teamwork

Successfully operating in Asia requires an understanding of the dynamics of the product approval process in the region. In the case of bigger global private banks, for example, due-diligence and on-boarding of strategies which are not Asian or that are managed outside of Asia, are typically taken outside of the region.

This is where the value of a global investment firm comes into play. The Principal team in Asia works together with colleagues in Europe and the US to strengthen client-centric product offerings. At the same time, the team partners with its teams in Singapore and Hong Kong for efficient distribution of products for the local private banks that are based in the Asia region. “In these cases, we work directly with the fund selection and due diligence teams based here.”

The other segment of the market that Principal is engaged with is independent asset managers, including multi-family offices. Geographically, Singh remains focused on Singapore and Hong Kong where these private banks and multi-family offices are based. For other markets in the region, Principal works with its joint venture partners: CIMB-Principal for ASEAN and CCB-Principal for China.

“We believe as market challenges persist, ‘client-orientated thinking’ is sure to remain a key driver to success,” adds Singh. “We have a broad distribution footprint that provides direct access to the markets and companies in which we invest and close proximity to the clients we serve. We believe that successful investing involves adding fresh ideas and a specialist mindset with a global presence.”

FIRM PROFILE


It pays to be different

Stand-out products and a good client experience are key to thriving in an intensely competitive industry, says Mozamil Afzal of EFG Asset Management (EFGAM).

The relentless pressure on fee income and continuing flows into passive in-vestments is changing the dynamics of the asset management industry around the world.

One of the obvious consequences is that smaller active managers who don’t have stand-out products are exiting the market.

And the pressure will continue, predicts Mozamil Afzal, global chief investment officer of EFGAM globally and chief executive officer of its UK business.

As a result, fund houses need to adapt to survive. “You have to show clearly differentiated products and investment performance that delivers alpha,” he says.

In line with this, Afzal says EFGAM has proactively taken steps to adjust to the changing environment. “We have lowered the fees on our products in some cases, but we have also focused

on differentiating ourselves in the market,” he explains.

The firm has also made it clear that it will stick to its active roots.

PASSIVE CHALLENGEThis approach is different from the ap-proach of various other product manu-facturers who are reacting to the demand for passive products.

Some of the bigger players in the indus-try are jumping on the bandwagon and launching their own line-up of index products, for example.

The mid-sized active asset managers, meanwhile, are struggling to cope with the pressure of increasing passive demand coupled with sliding fees.

However, the biggest impact seems to be on the smallest active asset manag-ers, which are opting out of the busi-ness. Adding to the challenges is the

MOZAMIL AFZAL EFG Asset Management

fact that several private banks are start-ing to rationalise their product plat-forms. They are trimming the number of partnerships they have.


The private banking arm of EFG Inter-national, for instance, of which EFGAM is also a part, is doing the same.

“This pressure in itself is leading to some of the boutiques to shut down,” adds Afzal. “Previously, private banks didn’t mind supporting boutiques but now they are less happy to do so.”

NEW DEMANDSWhat private banks increasingly want nowadays from their product partners, is a wide enough product range.

Afzal says these institutions are no longer content with one or two products from each fund house; instead, they are looking for six or seven for the relation-ship to be meaningful and sustainable.

weaker players are getting pushed out the market.

For EFGAM, however, Afzal believes this all represents a huge opportunity. While the firm’s scale isn’t huge, with fewer competitors there is more room for growth.

SURVIVING IN ASIAIn Asia, the group has a funds distribu-tion team based in Hong Kong, from which it has four funds registered for sale locally – a US growth fund, a global bond fund, a China equity fund and Asian equity income fund.

In Singapore, the firm’s funds are tar-geted towards accredited investors, so the prime distribution channel is private

2017 goals

EFGAM is planning to consolidate its range of funds in 2017, as its parent company continues to digest the acquisition of BSI.

“We have launched 12 UCITS funds to date, and there may be a few more launches in 2017 – a Japan fund, an unconstrained fixed income strategy and, possibly, European credit,” says Afzal. Event-driven strategies also look interesting from an investment perspective.

Geographically, he says his team is closely following updates on Singapore’s initiatives to boost the mutual funds industry.

Earlier this year, the city-state’s regulator said it would introduce an open-end investment companies framework for mutual funds, which is expected to encourage more funds to be legally domiciled in Singapore.

Another initiative is to enhance the external fund manager programme, under which private sector fund managers can manage a portion of the reserves with the central bank.

Regionally, another interesting development for EFGAM is the proposed ASEAN funds platform, similar to the UCITs platform in Europe. “If we could passport funds to Thailand, the Philippines or Malaysia, it would really improve the investment climate in Asia substantially for the asset management industry,” adds Afzal.

““We have lowered the fees on our products in some cases, but have also focused on differentiating ourselves.”

Further, in the case of the large Swiss private banks, Afzal says there is an extra requirement: they need to ensure they can offer tax transparency for their client base, so any fund that comes on their platforms needs to offer that.

In Europe, in particular, tax transpar-ency requirements across multiple platforms is becoming critical.

Size also matters. Distributors are no longer keen to pick funds that have less than USD100 million in AUM, adds Afzal. For the bigger banks, he says the entry ticket is about USD300 million in AUM. No wonder, then, that several

banking or independent asset managers and family offices.

Afzal believes that to survive and thrive in the asset management busi-ness, apart from outperformance, it is also important to continually enhance client experience. “One way of improv-ing this is by communicating regularly,” he says. “One of the ways in which we do that is by providing timely updates of macro-economic views and strate-gies. By providing such information, we are helping clients make sense of what is going on in the markets. It leads to better education and more informed clients.”

EXPERT INSIGHTS


Catering to Chinese investment appetiteAshley Dale of Harvest Global Investments discusses some of the trends in terms of investment habits and demands from mainland Chinese investors, and how to deliver products to meet it.

As the Chinese economy continues to evolve at a fast pace, understanding the rate of change is key to servicing invest-ment and buying appetite.

For example, wealthy consumers are no longer just spending their money by going to Hong Kong to buy luxury goods. They are now travelling around the world and are consuming a wider variety of products and services.

More specifically in terms of investing, there is greater sophistication among these individuals when it comes to buying product – beyond just a simple Chinese equity or fixed income fund, explains Ashley Dale, chief business development officer and chief marketing officer for Harvest Global Investments.

And with money held offshore, Chinese investors are increasingly looking to diversify their risk, as well as seek the kinds of returns they used to get in the past, he adds. This includes via real

estate and developed market equities, for example.

DEALING WITH VOLATILITYWith the mainland’s financial markets being volatile for the last 12 months or so, most allocators have gone under-weight China.

But this doesn’t impact the Harvest strategy. “In many ways, this shows where and how we can make a differ-ence,” says Dale. “We have 200 invest-ment professionals on the ground, so we see the trends early, as well as the sectors and areas of differentiation.”

From a product perspective, the firm can beat the broad market indices on a relatively consistent basis, he adds.Harvest is also taking advantage of the various government initiatives between Hong Kong and mainland China.

Further, in addition to traditional product, the firm is looking to develop

ASHLEY DALEHarvest Global Investments

more tailored offerings. ESG is appeal-ing to Chinese investors, for instance, given the spotlight on the environment, says Dale.

FEATURE ARTICLE


Delivering investment performance for your clients todayNeeds-based conversations with clients are a basic but essential way for wealth managers to stand out in such a challenging investment climate. They must offer the right advice at the right time to deliver solutions which clients actually need.

Given that delivering performance for clients is fundamental within wealth management, especially during difficult and uncertain market conditions, the starting point needs to be figuring out what the client needs and wants.

Yet these might not be the same thing, so relationship managers (RMs) and client advisers need to be able to assist clients in this discovery process.

Although the industry as a whole has proven itself to be effective at deliver-ing to clients what they find interesting, the real focus needs to be on the correct management and construction of the portfolio to begin with. This needs to be based on a premise of delivering returns for clients across a realistic time frame that is agreed upon – not just what can make money for them in the next few months.

With this in place, it then becomes pos-sible to manage client expectations

about what they expect their bankers to help them achieve in terms of results,

explains Adam Cowperthwaite, head of equities - Asia Pacific, Citi Private Bank.

“With the correct management and construction of a portfolio to begin with, we will deliver returns for clients, and across a realistic time frame.”

ADAM COWPERTHWAITECiti Private Bank

“Today’s era of instant gratification when seeking information applies to investments too. As a result,

the advice game has changed.”

FEATURE ARTICLE


FOCUSED ON SOLUTIONSToday’s era of instant gratification when seeking information applies to invest-ments too. As a result, the advice game has changed.

As a result, speedy responses and rel-evant information, delivered as effi-ciently as possible, is now part and parcel of the expected client service.

Yet a mid-2016, Hubbis-commissioned survey of the gatekeepers and fund selectors at 23 private banks (represent-ing 77% of AUM in Asia at more than USD1.5 trillion) show the reality of their challenges in evolving the advisory proposition in Asia.

Part of this is moving conversations with clients beyond short-term perfor-mance towards what is good for their

portfolios. For the next 12 months, this probably means a bias towards capital preservation, even if this isn’t popular.

In line with this, rather than continuing to try to sell product, now is good time

“We need to have conversations with clients with a bias towards capital preservation.”

MICHAEL THOMPSONPIMCO

for to sell a ‘story’ as part of a solution that they can continue to implement over time with their clien, adds John Cappetta, head, managed solutions advisory for Singapore, Bank Julius Baer.By reinforcing this with clients, the RM

Needs-based conversations with clients

?

Making Needs-basedconversations with clients

Offering the right adviceat the right time

Stand out in this challenginginvestment climate.

Deliver solutions whichclients actually need


“We need to sell a ‘story’ and solution clients

that we will continue to implement and reinforce.”

JOHN CAPPETTABank Julius Baer

“Depending on risk tolerance, investors should probably aim for mix of strategies where they can generate some yield.”

GEBHARD GISELBRECHTCredit Suisse

Some of the best advice that RMs and client advisers can offer their clients in uncertain and volatile markets include:

Having conversations with their clients on a daily basis

Being available and not shying away from clients or staying silent until there is a specific development to inform them about

Focusing discussions on the driver(s) for them to invest in the first place

Knowing where the investment is going to go, over what timeframe, and the justification for that

Delivering solutions that address their needs

“We need to sell a ‘story’ and solution clients

that we will continue to implement and reinforce.”

JOHN CAPPETTABank Julius Baer

can follow a more structured approach to the client portfolio and more clearly communicate with them in this way.

At the same time, more of the tradi-tional asset managers might need to

start changing how they manage client money. With massive inflows into ETFs, and away from long-only active equity strategies, there is a need to think outside the box to help clients meet their future performance expectations.

This also needs to include them trying to get better and more consistent in terms of talking about outcomes, not products.

PORTFOLIO POSITIONINGFurther highlighted by the challenges in finding attractive investment oppor-tunities, a needs-based conversation with client needs to start to incorporate the word ‘sell’.

Rather than continuing to focus on buying, market environments like today’s potentially call for at least half – if not more – of the advice that bankers give their clients to be focused on what isn’t working in their portfolio.

This will enable them to exit invest-ments that perhaps no longer fit with their goals or portfolio objectives.

“Market environments like today’s potentially call for at least half – if not more – of the advice that

bankers give their clients to be focused on what isn’t working in their portfolio.”

EXPERT INSIGHTS


How to keep the product proposition simpleIn a complex world, wealth managers should stick to what they know best if they want to ensure a long-term, sustainable business, especially when it comes to the product offering, says Ranjiv Raman of Cazenove Capital Management.

Keep it simple; that’s the advice from Ranjiv Raman, head of investments and treasury at Cazenove Capital Manage-ment, for wealth managers looking to achieve profitability and sustainable operations in an increasingly-tough market environment.

“Sticking to what you do best and keeping it simple is the way to go,” he explains. “In a world that is getting quite complex, people are constantly coming up with new ways to make money. But what they don’t realise is that clients are getting a bit tired about hearing the same thing dressed up in different ways.”

Moreover, tighter regulations to encour-age more transparent reporting of assets are also putting a dampener on the viability of financial engineering.

“We confine ourselves to the areas in which we know we can deliver,” says the Singapore-based investment spe-

cialist. “One of those areas is discretion-ary portfolio management (DPM).”

This is instead of structuring a leveraged portfolio that can potentially deliver an enhanced yield of 10%, for instance – which is not Cazenove’s expertise.

MORE MEANINGFULIndeed, DPM is a core offering for Ca-zenove, which the wealth management business of Schroders.

In Asia, it does this as well as advisory services, charity fund management, and banking and treasury services.

On the discretionary side, the firm is not greedy, but rather more realistic about the share of wallet it is likely to get.

For example, out of a typical USD10 million HNW portfolio, of the half which is not sitting with one of the large Swiss private banks, a relatively smaller but specialised boutique bank like Cazenove

RANJIV RAMANCazenove Capital Management

might expect to get around USD2 million under a discretionary mandate.“But that USD2 million tends to be more sticky, as opposed to the USD5 million


which can come in and go out more easily,” Raman points out.

Not having a product-centric approach also helps, he adds. “We don’t sell prod-ucts. We only buy them on behalf of our clients as part of managing their money in their best interest.”

This marries with the approach more fundamentally of Schroders. “It is a family-owned business,” explains Raman. “As a conservative manager that manages over cycles, Schroders doesn’t raise money and invest in something in a hurry, and therefore endanger what it stands for.”

The approach involves a mix of both process and technology, working in a complementary way.

“Technology helps the process work more efficiently, but it can’t replace a process.”

While it also cannot replace the need for human engagement with clients, what it can do, he explains, is create certain points of differentiation for wealth managers.

“It provides a powerful way of screening companies and funds, for example. For us, we see the future as being technol-ogy-driven.”

Trump’s victory. That presents an entry point, and investors can trade at that attractive level,” he points out.

A PUSH FOR PASSIVEMore broadly, Raman’s desire for sim-plification in the product offering is perhaps reflected by the trend towards more passive investments in Asia.

“We find that the use of passives is increasing. If you want a mid-cap or some form of asset tilt, ETFs have done a good job of taking away the need for more complexity,” explains Raman.

Gone are the days when investors pack active funds into their core portfolios and use ETFs as a tactical element. Increasingly nowadays, it’s a mix of both, he says.

In line with this, with clients becoming more aware of total expense ratios (TERs), a good way or product providers to compete is to lower TERs.

And this is where low-cost passives are helping product specialists like Raman deliver better value to clients.

Not chasing the latest investment fad is another way of delivering value. “One of my priorities is to keep away from consensus trades, which are dangerous,” he says.

For example, he says many investors are gung-ho at the moment about the fact that inflation is going to be extreme as central banks become aggressive about raising interest rates.

Yet the world is still inherently deflation-ary, because most central banks are still printing money or facing deflation, barring the US.

“Essentially, we want to give clients the same experience wherever they are in the world.”

BUILDING BLOCKSCazenove has also structured its invest-ment process to follow what Raman describes as a “building block” approach.

“Essentially, we want to give clients the same experience wherever they are in the world,” he explains.

“So, for instance, if you were to walk into our offices in London, Hong Kong or Singapore, you would see the same investment process in action. If you wanted to construct a fund of funds portfolio or a segregated equity mandate, you draw on the expertise of the same investment process and the views are aligned.”

As a practical example of this, Cazenove has introduced a more trading-oriented portfolio solution, which Raman says has appeal in the current landscape.

“It started off as advisory and then there was enough demand from clients, so we are now offering it as a top-20 best ideas solution,” he explains.

The aim of this more actively managed approach is to take advantage of today’s trading environment while maintaining a core portfolio that could be a more balanced mandate.

“For example, financials have gone up, while technology stocks sold off after

FEATURE ARTICLE


Global firms ink local blueprint

Despite slowing economies and market volatility, international asset managers remain convinced about Asia’s potential. Their build-out in local markets across Asia is clear evidence of this.

There’s no doubt about it: China is a big prize for asset management companies taking aim in Asia.

As the biggest economy in the region, it holds magnetic appeal for interna-tional fund houses.

Rising affluence, a need for investment products to generate wealth, reforms of the pensions market and the develop-ment of a private asset management market, have all combined to create a sweet spot.

The implementation of a Mutual Rec-ognition of Funds (MRF) initiative between Hong Kong and China has also lifted sentiment about the mainland.

In general, groups with a strong Hong Kong presence, a joint venture with a Chinese partner and a wholly foreign owned enterprise (WFOE) in Shanghai, are believed to be better positioned to capitalise on the growing market.

Indeed, despite a global slowdown, interest in China – along with various other key local markets in the rest of the region – remains high among asset managers from around the world.

For Principal Global Investors, for example, China has been a huge success story. “Our joint venture with China Construction Bank has been very suc-

cessful in raising domestic AUM,” says Kirk West, the US-based firm’s global head of international offices.

“The next stage,” explains West, “will be leveraging that relationship to become hopefully one of their pre-ferred suppliers as they start to deliver more international products for their client base.”

JEAN-LOUIS NAKAMURALombard Odier

“We are keen to provide the wealth management community with more access and exposure to our overseas experts.”

KEN TAMRBC Global Asset Management


“Our joint venture with China Construction Bank has been

very successful in raising domestic AUM.”

KIRK WEST Principal Global Investors

TARGETING CHINAChina is a focus market also for Cana-da’s RBC Global Asset Management. “There are a growing number of wealth management platforms in China,” says Ken Tam, head of Asia at the firm.

And these platforms are developing fast. Most of them already have or will establish offices in Hong Kong, he explains. “Their vision is clear: it is just to introduce global investment op-portunities and to bring suitable over-seas solutions to their clients. I think these market players are relatively new but have huge potential for us as part-ners to work with,” says Tam.

Another way RBC’s funds business is trying to tap the vast China market is via education.

The idea of global investments is still relatively new to onshore domestic wealth management firms. Currently, the investment perspective is still China-centric, so when they move off-shore, there is often a gap in terms of knowledge and expectations.

“What we can do is engage in more communication and help with educa-

tion. We have been bringing our port-folio managers, economists and strate-gists from Canada, the US and London to speak with them on a regular basis to help them understand the global investment markets,” says Tam.

“We are also keen to provide the wealth management community with more access and exposure to our overseas experts,” he adds. Joint ventures are also the way to go for France-headquartered AXA Invest-

On the wholesale side, the tie-up brings AXA IM several opportunities in China as well as Hong Kong, says Terence Lam, managing director, head of sales and marketing in Asia Pacific.

“Shanghai Pudong Development Bank is well connected in China and, more importantly, most of the big Chinese banks and insurance companies are expanding massively across the region. China Life, for instance, is growing in Taiwan. Even in Singapore, these banks are starting to be very active.”

David Peng, head of Asia at Standard Life Investments, is also is a firm be-liever in the opportunities emanating from China.

However, he points out that any firm seeking to do business in the mainland must also consider the challenges that the market faces.

These include the outflow of funds, limited Qualified Domestic Institu-tional Investor quotas and the evolving regulatory environment in the local fi-nancial services landscape.

“There are a growing number of wealth management platforms in China.... These market players are relatively new but have huge potential for us

as partners to work with.”

ment Managers (AXA IM). The firm has a few tie-ups in the region, including with Shanghai Pudong Development Bank (SPDB) in China.

“But as a firm headquartered in the UK, seeing the deepening financial and economic ties between the UK and China, we see significant opportunities

FEATURE ARTICLE


“Over the past three to four years, the [Thai] market has

been doing quite well.”

TERENCE LAMAXA Investment Managers

“When we choose partners, we seek financial intermediaries who may be indigenous to the domestic market.”

GRANT LEONCapital Group

and are actively exploring this market,” he adds.

A SOUTH-EAST ASIA CALLINGOther from China, there is also growing interest in parts of South-east Asia.

AXA IM, for instance, is also interested in the liberalising Thai market.

“There have been some ups and downs for the local feeder fund market, but over the past three to four years, the market has been doing quite well,” ex-plains Lam. “We will continue to engage with that market. We have also launched several products there: for instance, we were the first manager to bring US high yield into Thailand three years ago.”

Lam says Malaysia is also of growing interest. “It is a market I want to grow in 2017.”

Principal Global Investors also has a tie-up in Malaysia with the CIMB group.

“While it has been a troubling year for Malaysia, internally, we’ve seen our col-laboration with CIMB strengthen and it uses us as a sub-adviser for locally-launched funds,” says West. “Even in Thailand, with CIMB Principal, we have launched locally domiciled funds.”

The US group has also successfully applied for a DIM (discretionary invest-ment management) license in Korea and is in the process of talking to distribu-tors there.

DEALING WITH DISPARITYWhile the opportunities are no doubt plentiful in Asia, every market partici-pant eager to tap opportunities in this region must face one big hurdle: diverse regulatory regimes.

“Asian countries are at different stages of financial reform and development in their capital markets. This makes it tricky to venture into new markets within the region,” says Peng. “It is crucial to have a robust risk, compli-ance and legal team in place, to under-

“While the opportunities are no doubt plentiful in Asia, every participant eager to tap opportunities in this region

must face one big hurdle: diverse regulatory regimes.”


stand all the local rules and regula-tions,” he explains.

UK-headquartered Standard Life Invest-ments can speak from experience.

It has strategic partnerships across the region – Sumitomo Mitsui Trust, the largest trust bank in Japan, and a joint venture with HDFC Mutual Fund, one of the largest asset management firms in India.

SEEKING DOMESTIC EXPERTISECapital Group, another US-based asset manager, also has lofty ambitions for growth in Asia.

“Our focus over the next few years will be two-fold,” says Grant Leon, managing director of financial intermediaries for the firm in Europe and Asia.

“[We want] to continue to establish strategic partnerships to make our prod-ucts available in these markets and to fill out the fund family available to retail investors by introducing successful long-term strategies from the US.”

When Capital Group chooses partners, he explains, it seeks financial interme-diaries which may be indigenous to the domestic market.For example, it has done this with Samsung Asset Manage-ment (with which it formed a strategic partnership in October 2015).

Or it eyes firms which have long-stand-ing experience in the market and know it well, such as HSBC (with which it reached a distribution agreement in September 2016).

“We seek partners who share our values of long-term active investing, rigorous bottom-up fundamental research and

are committed to advising their clients to achieve their financial objectives,” says Leon.

“In addition, we have a comprehensive adviser training programme in the US that we are leveraging to deliver train-ing and education to financial interme-diaries in Asia,” he adds.

AUM ADDITIONSat the same time, Asia is an important contributor to AUM and profits for Al-lianceBernstein (AB) too.

“Our commitment to the local markets and our clients have driven our success in the region,” says Ajai Kaul, the firm’s chief executive officer for Asia ex-Japan.

In China, for example, the fund house is actively engaging with partners through mutual funds in Hong Kong and a mainland WFOE.

The firm also sees pockets of opportu-nity in smaller markets in South-east Asia, namely Thailand, Malaysia and Indonesia.

In these markets, regulations have been changing to allow the sale of cross-border funds either directly or under a sub-advisory model.

“Overall, we are pleased with how our Asian business has evolved and we remain confident of its long-term growth,” adds Kaul.

“In Thailand, Malaysia and Indonesia... regulations have been changing to allow the sale of cross-border funds

either directly or under a sub-advisory model.”

“We see significant opportunities [in China] and are actively exploring this market.”

DAVID PENGStandard Life Investments

FIRM PROFILE


A platform-led approach to delivering funds in AsiaAllfunds Bank plans to launch a funds platform in the region which could make it easier for banks to offer a suite of fund offerings at relatively low cost.

Europe’s largest mutual fund platform is set to make a splash in Asia in early 2017, in a bid to help drive change in the region’s distribution dynamics.

After Allfunds Bank’s regulatory bless-ing, all major efforts in terms of a strong local infrastructure are going to be ready by Q1 2017, including staffing, IT set-up and commercial infrastructure.

“Our aim is to create the largest base of Asian offerings and we intend to localise as much as possible because that is what will distinguish us from the competition,” says David Perez de Albeniz, general manager of Allfunds Bank in Asia. In addition to Hong Kong, Singapore and Taiwan, the platform, which boasts 50,000 funds from more than 500 fund managers globally, will initially focus on Thailand, Philippines, Malaysia, Indonesia and China, which are less advanced in offering such solu-tions. It is also interested in cross-border distribution, adds de Albeniz.

“So if a Malaysian asset manager, for instance, is interested in selling its funds outside of the country, we would help with that as well.”

FILLING A NEEDThe rationale for introducing its plat-form now is linked to the woeful condi-tions in the wider market. At the end of a volatile 2016 and amid an operating environment in which regulatory con-trols – and costs – are increasing, whole-sale entities such as banks are struggling to turn a profit.

While some observers might think it an unusual time for a funds platform to be opening shop, de Albeniz has a different perspective.

“When banks, insurance companies, wealth managers... at the end of the day, any given financial distributor, are going through turbulent times and are forced to take a hard look at their bottom lines, this is when they start

DAVID PEREZ DE ALBENIZ Allfunds Bank

thinking about focusing their efforts. They realise they can concentrate on other tasks and hand over mutual fund services to someone else.”


A platform-led approach to delivering funds in Asia

The near-term objective of Madrid-based Allfunds Group is to bag three distributors in its target local markets during 2017, plus another three in each of Singapore and Hong Kong. DOING THE HARD WORKThe mutual funds platform is propped up by three key pillars: asset servicing; data analytics; and fund research.

For an individual distributor to carry out any of these functions on their own requires well over USD600,000 a year in fixed costs. In addition, there are transactional costs.

Not surprisingly, the platform has therefore traditionally been well-em-braced by the middle segment of the banking industry, as well by smaller institutions with limited resources to offer the full suite of services associ-ated with fund offerings.

Yet this doesn’t stop the firm from also engaging with big global financial groups with a global presence. In such cases, it has become a global partner whenever these financial groups want to develop fund distribution at a local level.

More specifically, the platform allows distributors to open accounts, trans-act funds for end-clients and have a comprehensive workstation where they can pull out confirmations, cor-porate actions and other matters related to middle- and back-office operations involving the funds busi-ness. Further, it provides bespoke solutions in terms of reporting as well as with fund research.

De Albeniz says distributors ap-proach Allfunds mainly because of the cost savings it offers, especially in relation to the gamut of fund pro-cessing activities. There is also a clear

identification of Allfunds as a spe-cialised service provider, being an expert on mutual funds.

The firm also has a standardised form of discretionary portfolio management (DPM), which is used quite frequently by distributors in Europe. “The concept of industrialised DPM is quite wide-spread in Europe,” he explains. “The bank runs three to five model portfo-lios, and each customer, depending on their profile, is mapped to one of these model portfolios.”

The platform allows the banks to work at the model portfolio level, which is

to turn on the funds they are interested in,” he explains. “They may have an in-terface to connect to their clients, who will only see those funds that have been selected by the bank based on the regulatory restrictions and risk appetite of each client.”

The firm embraces the B2B concept, and it supports financial distributors, but there is no conflict with these clients, as there is no interaction with the end-client. “We provide tools and solutions but the relationship with the final client is still controlled and managed by the financial distributor,” says de Albeniz. “We are just the engine and our

“We intend to localise as much as possible because that is what will distinguish us from the competition.”

linked to the back office. Every time a weighting is changed, a sell and buy order is triggered automatically.

In essence, this allows banks to offer DPM-type services to affluent customers for a minimum portfolio size of USD50,000. Further, the firm also strives not only to adapt to local needs, but also to help in exporting positive experi-ences to its clients, enhancing financial product design and, ultimately, bringing the best solutions to end-clients.

What the platform is not, emphasises de Albeniz, is a supermarket of funds.

“Our client is a bank, which has a head of products, a head of wealth manage-ment, etc. These executives ask us to actively open a certain number of ac-counts with certain fund managers and

clients decide the best way to drive and control their product distribution.”

ASSISTING ASSET MANAGERSThere are benefits for asset managers, too, of getting on to Allfunds’ platform, especially when it comes to meeting compliance requirements. “Asset man-agers don’t have to go to individual distributors for information on KYC because we provide that on a yearly basis, so they can sub-contract that part of the process to us,” says de Albeniz. “There is the potential to save costs as well, since we can aggregate orders to the transfer agent, which then charges them a lower fee.”

Since the client remains with the asset manager, fund houses can concentrate on selling their funds while the rest is taken care of by Allfunds.

FIRM PROFILE


Finding a niche in Asian asset managementCarol Wong of Old Mutual Global Investors (OMGI) explains what it takes to become a preferred product provider in Asia, especially at a time when the industry needs to stop churning out ‘me too’ products.

In markets such as Hong Kong and Singapore, which are teeming with fund houses, the key challenge for an asset management firm is to identify its niche and become one of the best in that space.

“If you look at the product offerings in Hong Kong, so many of them overlap,” says Carol Wong, managing director at OMGI in Asia Pacific. “Some of them might outperform over one year, or three years, but if you are a long-term investor, I don’t think it makes a huge difference because these funds are similar in general.”

The big challenge for providers is coming up with funds that embody good ideas. “Currently, even big fund houses with more than 200 products continue to churn out new products.”

“But the key to success is having a product with the right features at the right time,” explains Wong.

CHANGING LANDSCAPETighter regulations are also making the operating environment difficult for firms like OMGI.

“We have to ensure clients understand exactly how we derive returns and what the risk parameters are,” she says. “The investment horizon has to match the risk/return requirement, even though most of the time investors themselves don’t know what they are looking for.”

It is understandably challenging to match these requirements. In the end, it all comes down to education, adds Wong, based on answering some key questions at the outset.

“On one hand, can clients understand the investment product? And on the other, do front-line staff know if they are selling to the right clients?” she says.

“This adds a layer of effort for both fund houses and distributors.”

CAROL WONGOld Mutual Global Investors

Meanwhile, large wealth management firms such as private banks are starting to downsize their product platforms and reduce the number of third-party


Finding a niche in Asian asset management

relationships. The aim is to focus on those which bring the most benefits to both sides.

This makes the competition to be the chosen product partner more intense, but Wong believes it’s a healthy devel-opment. “By increasing penetration with a particular distributor or partner, a fund house will eventually understand the clientele better and offer more relevant solutions.”

But it also means product providers have to work that much harder to become a preferred partner.

“Asia is the fastest-growing market in the world and mutual fund penetra-tion is still very low compared with Europe, the US, Japan or Australia,” explains Wong. “So there is much room for growth.”

In addition, Singapore, where the firm recently opened an office, is a hub for offshore assets, and the growth is faster than that in Switzerland, she adds.

OMGI’s focus on Asia over the past three years has resulted in what Wong describes as a continuous increase in AUM, as well as net new flows.

Plans for 2017

After opening its Singapore office in 2016, OMGI’s priorities for 2017 include bulking up operations in more local markets in the region, such as Thailand and Malaysia.

China is another big opportunity for the firm to tap. The fund house recently hired Richard Mo, the former head of the China retail business at JP Morgan Asset Management, to expand operations in the mainland.

Another goal is expanding distribution channels to include more retail insurance companies and family offices. Enhancing the product offering for Asian investors is also on the cards.

offers a generally consistent rate of return with low volatility.”

Although the strategy to date has de-liberately targeted private banks, next on the list are the insurance companies, retail banks and institutions such as pension funds, endowments and sov-ereign wealth funds.

Retail banks might take a little longer to penetrate, however, given the need for funds to be locally registered. But OMGI’s range of Hong Kong-registered funds gives it a good starting point.

With insurance companies, mean-while, the conversations Wong and her team are having go beyond just investment-linked funds to include the proprietary money.

“By increasing penetration with a particular distributor or partner, a fund house will eventually understand the

clientele better and offer more relevant solutions.”

“You need to have a smart product at the right time. Then, apart from perfor-mance, the kind of interactions you have with RMs or gatekeepers is also crucial,” says Wong. “They need to see you as really providing value-add.”

Finally, the after-sales service is critical. “If you can provide the right type of services, be forthright about explaining under-performance and honest enough to tell them when they should or should not enter a fund or market, your cred-ibility improves as an asset manager.”

ASIA CALLINGDespite these challenges, Asia remains a key growth region for OMGI.

From having no distribution agreements with any global financial institutions in the region at the end of 2013, the asset manager now has more than 10 GFIs on the list, including firms like Citi Private Bank, UBS Wealth Management and Deutsche Bank.

Contributing to that success has been one of its flagship funds, a liquid alter-natives strategy.

“It’s a market neutral fund and helped us open a lot of doors with GFIs,” ex-plains Wong. “Given market uncertain-ties, distributors appreciate a fund that is not correlated with traditional asset classes such as bonds and equities, but


THOUGHT-LEADERSHIP

A roadmap for distribution success in the Middle EastAligning the interests of clients and advisers, not driving business via commissions and investing in the business, is one of the things that senior individuals from the asset management industry in the Middle East wish distributors can do to create a more sustainable business.

At a thought-leadership discussion hosted by Hubbis in Dubai, many of the top minds from international and re-gional fund houses came together to discuss and debate the biggest chal-lenges and opportunities of operating in the region.

And key for dealing with the sweeping regulatory changes in key markets in the Middle East like the UAE, asset managers have clear and strong views about what they think bank distributors should be doing to create a more fruit-ful business.

1. THINK LONG TERM

Most participants agreed that distribu-tors need to think about creating long-term business models instead of focus-ing on short-term gains.

They added that they cannot ignore the need to generate sustainable revenue streams.

In addition, while regulations are also bringing about changes in business models, international banks should be

“Distributors need to think about creating long-term business models instead of focusing on short-term gains,

as they cannot ignore the need to generate sustainable revenue streams.”

make short-term commission earn more than those who have a proper book of business with longer term AUM.

clear about what they want to gain from having a presence in the Middle East.

2. ALIGN THE INTERESTS OF CLIENTS AND ADVISERS

Currently, the commission model holds sway in the local market. But, according to roundtable participants, there is no reason to believe that advisers who

This requires the client relationship to be nurtured in such a way that the client – and the adviser – can benefit even 10 years later. But this is only possible if the short-term approach is overhauled.

3. PROVIDE SUSTAINABLE ADVICE

The advice given to clients needs to be more sustainable, said participants from


fund houses. “If you do your job well, the money will eventually come,” was a common point of view.

What this entails, essentially, is dis-tributors giving holistic advice to clients and not being solely revenue-driven.

Currently this is not the case, although the issue is not just limited to the Middle East. Right now, for most advisers across Asia also, they are most focused on hitting revenue targets.

4. STREAMLINE THE FRONT-LINE

Some of the participants also said they believe that the distribution channels consist of too many relationship manag-ers (RMs) selling products. Instead, they should be streamlined – both in terms of the interests of clients as well as from an economics point of view.

At the current stage of evolution, the Middle East wealth management market remains relatively small, and there are only a finite number of clients in the region.

5. BANKERS SHOULD CHOOSE A FIRM AND STICK TO IT

A challenge for the banking industry, said participants, is that it is a merry-go-around in terms of jobs.

If a banker decided to move to a new firm every six months in Dubai, given the plethora of banks in that market, he or she could go on to have a 20-year career.

Yet this is the pattern for many bankers in the region, participants said. The mind-set is more akin to ‘where is the next big opportunity for me?’ instead of ‘what can I do to be more successful

in my current role and take my career to the next level with this bank.’

For more sustainable business models to be a reality, therefore, this mind-set needs to change.

6. CREATE CONCRETE BUSINESS PLANS

Rather than distributors continuing to say that clients are the heart of every-thing they do, expert from fund houses said they want to see distributors con-verting this rhetoric into a solid business plan, to demonstrate that the client really does come first.

This will, in turn, force distributors to adopt more sustainable practices, and remove the temptation or revenue pressures on RMs to hit monthly or quarterly targets at the expense of client interest. 7. UNDERSTAND THE CLIENT

Participants said that distributors need to make more effort and take more time to understand their clients. Investing for the long term is an ideal goal, but the fact is, most clients are short term in their investment views.

That means distributors need to under-stand how to engage clients to help them achieve both sets of goals.

The positive thing, said experts from fund houses, is that more and more distributors are starting to understand the importance of annuity income. In line with this, they are tweaking their business models to incorporate this type of business.

But they also need to spend more time educating their clients about what is in

their best interests, not just following their instructions.

Participants felt that distributors, and especially some of the bigger banks, need to better manage the return ex-pectations of clients. For instance, they need to ensure that clients no longer expect returns of 25% to 30% on an annualised basis – which are clearly unrealistic in today’s market.

8. TREAT EMPLOYEES MORE FAIRLY

Participants also called for distribu-tors to move away from treating RMs as purely revenue generators, adding that this not conducing to cultivating loyal staff who can learn to be good at their jobs.

While there needs to be a balance between achieving targets and treating staff fairly, in the Middle East context, sometimes a balance is lacking.

If an RM doesn’t achieve a target, for example, it’s all-too-easy for a bank to fire them.

9. INVEST MORE IN RESOURCES, ESPECIALLY EDUCATION

While many institutions want to get into the business of wealth manage-ment, only a handful invest in the re-sources required to build a long-lasting business, said participants.

Rather than investing adequately in intel-lectual capital too many firms focus on signing up for a mutual funds platform.

But, the fact is, to generate revenues, there must be a commitment to invest time and resources in the region, par-ticipants said.

EXPERT INSIGHTS


Regulation, education key for UAE wealth growthThere is a growing need for more of an advisory approach when building HNW portfolios in the Middle East, says Peter Duke of Fidelity International. Consistency in standards and client education are critical components to drive this.

The biggest challenge for banks servic-ing Middle Eastern clients is educating investors to diversify their portfolios.

To date, many institutions targeting wealthy individuals across the region

have looked for quick ways to gener-ate revenue – which has led to them selling individual bonds or other niche investments.

But to create more recurring fee income, these organisations need to take much more of a long-term view.

“For a lot of the banks, [the Middle East] still seems like a start-up busi-ness for them, but that is not sustain-able in the longer term,” says Peter Duke, head of Middle East distribution for Fidelity International.

Instead, the right type of revenue requires the banks to put structures in place that allow them to develop recurring flows of business. According to Duke, this translates to better product options and improved educa-tion of clients.

This is the right thing to do for clients, which means it becomes good business

PETER DUKEFidelity International

for the bank in the long-term. “When there is volatility, that’s when clients will actually desert you, so this is one way of trying to protect them.”

Recurring fee income should be a priority for banks providing wealth management services in the Middle East – requiring them to focus on longer term and more sustainable sources of revenue

Educating clients is a key part of building the right type of business in wealth management

A standardised approach is required for regulation

for those firms giving advice


SOLUTIONS For Fidelity International, its perspec-tive as an asset management firm servicing banking partners in the Middle East is anything but that of a start-up.

It established an office in the UAE in 2000 to sell its offshore mutual funds via a network of wholesale distribu-tors which include retail banks, private banks, insurance companies and family offices.

“Often this income has come from individual bonds, which have been leveraged,” says Duke.

“By adding a multi asset income fund, for example, it’s been possible to di-versify a client’s income stream, which has helped to provide a cushion against market volatility.”

REGULATIONRegulatory change is another develop-ment which Duke believes would help

“Effective regulation is a good starting point for improving standards, and from the regular engagement we have with our clients on the ground we know that regulatory reform is an increasing prior-ity,” says Duke, who has been based in the UAE for roughly one-third of his 24-year career.

More specifically, he is referring to the need for a common language and more consistent objectives for those practi-tioners giving advice to clients. “This means regulation which monitors and controls advice,” he explains.

“At the moment, I don’t think we’re close to that for retail distribution,” he adds.

“However, if we have regulation around the advice process, it’s a good starting point and then greater aware-ness from clients will also drive im-proving practices.”

Greater transparency is essential, adds Duke. In due course, he believes that this will be the only market where that isn’t the standard operat-ing model.

“The right type of revenue requires the banks to put structures in place that allow them to develop

recurring flows of business.”

“I hope in due course we have more effective regulation because I think this is the starting point

for improving standards. This means regulation which monitors and controls advice.”

The firm has found that covering mul-tiple distribution channels is effective in this market.

“This enables you to find pockets of opportunity when they present them-selves,” says Duke.

From this vantage point, the challenge it sees all advisers having, comes back to educating their clients.

The goal, explains Duke, should be to encourage these individuals to broaden their portfolios in order to include more asset classes and to be more multi-layered in nature.

“What has worked for a lot of banks is focusing on a theme such as income,” he adds.

banks to evolve their wealth manage-ment offerings in the Middle East time zone generally. Although Dubai has managed to attract some of the biggest names in finance by modelling its regu-

latory framework along the lines of best practice globally, other places in the region are playing catch-up.

“Global regulation will catch up with us here, which will be a good thing,” he explains.


DIRECTORY

People and firms who supported this publicationWe very much appreciate the participation and contribution of key individuals and organisations in the asset and wealth management communities.

Abel Lim, UOB Bank

Adam Cowperthwaite, Citi Private Bank

Ajai Kaul, AllianceBernstein

Akshay Prasad, Deutsche Bank Wealth Management

Albert Yuen, BOC International

Alison Brown, HSBC Global Asset Management

Andreas Vogelsanger, AFC Vietnam Fund

Andrew Hendry, Westoun Advisors

Andrew Scott, Societe Generale

Angel Wu, ABN AMRO Private Banking

Anthony J. Harper, Managed Accounts Partners

Anthony Siau, Kairos Capital Partners

Arnaud Tellier, BNP Paribas Wealth Management

Arthur Wu, Morningstar

Ashley Dale, Harvest Global Investments

Belle Liang, Hang Seng Bank

Boon Peng Ooi, Eastspring Investments

Carol Wong, Old Mutual Global Investors

Chetan Pandya, Intellect Design Arena

Chinmay Patil, Leonteq Securities

PEOPLEChristian Abuide, Standard Chartered Bank

Christian Obrist, BlackRock

Christophe Aba, JPMorgan Private Bank

Conrad Huber, Credit Suisse

Damien Mooney, BlackRock

Dany Dupasquier, Standard Chartered Bank

David Peng, Standard Life Investments

David Perez de Albeniz, Allfunds Bank

Dr Ekkehard J. Wiek, Straits Invest

Edouard Hoepffner, UBP

Eleanor Wan, BEA Union Investment

Emmanuel Guillaume, Union Bancaire Privee

Ernest Chan, Morgan Stanley

Franck Fayard, Commerzbank

Frank Troise, Leonteq Securities

Gebhard Giselbrecht, Credit Suisse

Grant Leon, Capital Group

Harold Y. Kim, Neo Risk Investment Advisors

Hrishikesh Unni, Taurus Family Office

Ian MacDonald, EY


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