Citywire Asia spoke to Agnes Sng, regional head for investment funds advisory at BNP Paribas Wealth Management about trends in the fund selection industry.
Q. Tell us about your role.
A. I lead the Investment Funds Advisory team in Asia for BNP Paribas’s Wealth Management business. I am responsible for the selection and marketing of long-only funds across various asset classes.
Q. How often are funds reviewed at your organisation?
A. We have a robust process to monitor and review funds on our recommended list. Our team reviews funds on a monthly basis and conducts a more extensive monitoring process every six months. We also tap into FundQuest Advisor, the global fund selection specialist of BNP Paribas Asset Management. It has dedicated analysts covering different asset classes, sectors and geographical regions.
Once a fund is selected through a rigorous process, regular contact with portfolio managers, continued monitoring and on-site visits ensure that the funds on their list continue to meet their standards. FundQuest Advisor shares its reviews, research and assessments with us at least every quarter. We also ensure that all funds that are recommended are in line with our house view.
Q. At what point would you remove a fund from the approved funds list?
A. If a recommended fund underperforms its benchmark and peers for three consecutive quarters as shown by our key indicators, it is placed ‘Under Review’ for three months. We reassess the fund before making the call to remove it from the list. Additionally, specific events such as changes in management teams, soft closing of funds, mergers and acquisitions, changes in management style, and more can give rise to reviews.
Q. Tell us about some newly onboarded strategies.
A. Some of our new collaborations with asset managers include hedge funds. We have also onboarded new ESG-related funds as we continue to build up our SRI offerings. We have added a global sustainable fund as well as an emerging market ESG fund.
We are also considering a green bond fund. We are working with asset management companies to engage them to put in place a robust ESG process for their existing funds.
Q. Have you onboarded any smart beta funds this year?
A. I think ‘smart beta’ investing is only relevant as a diversification when we enter into a world of lower returns, especially when eking out that extra alpha becomes more challenging in efficient markets.
Smart beta funds are a good complement to traditional actively managed strategies. We do carry some smart beta funds, for example, a single factor-based strategy that takes advantage of low volatility anomalies. We also carry funds that invest in multi-risk, factor-based strategies based on well-researched factors such as value, quality and momentum.
Q. How have smart beta strategies fared?
A. Generally, low volatility strategies give a better Sharpe ratio and better downside protection. However, volatility-based strategies can lead to a particular sector bias, for example, towards utilities, and this can lead to different types of risks and over-concentration. The performance of these factor-investing funds is generally satisfactory. However, gaining a sound understanding of the methodology remains a challenge.
Q. Are clients in Asia showing a greater interest in ESG investing?
A. There is growing interest in ESG investing among HNWI clients, especially among the younger generation. Surveys have shown that over 60% of millennials expect their wealth management firms to screen investments based on ESG factors.
They recognise that ESG investing improves returns because it enables them to avoid investing in companies that could present operational and reputational risks. BNP Paribas was an early adopter of the ESG-led investment approach across its funds.
As a distributor, we provide access to environment-related funds focused on water, clean energy or climate change which have seen good inflows. In 2017, these funds have achieved double-digit returns. We see some demand for green bonds too, and the issuance market in Asia is growing fast.
Q. What impact would mandatory disclosure of retrocession fees have on the private banking industry?
A. This is a step in the right direction for the wealth management industry, and mandatory disclosure will safeguard the integrity and reputation of the financial industry in Hong Kong and Singapore with an ever-higher level of transparency. This is already our practice.
Q. What is your view on consolidation within the asset management industry?
A. Margins are coming under pressure and new monies are flowing into passive investing. Fees and AUMs are falling, so consolidation is expected to be an important theme. It would be a boon for the funds industry if asset managers can offer better service and improve their efficiency to remain profitable.
Consolidation is also expected to result in the weeding out of underperforming funds, and in the strengthening of the product range of the merged asset manager.
Q. Are you likely to remain invested in a fund that is owned by a fund group undergoing consolidation?
A. We review the situation on a case-by-case basis. Consolidation could lead to the strengthening of teams and better product innovation. We would have to ascertain the changes in the portfolio management team – whether there is continuity and if there is a strengthening of the investment process.
This article appeared in Citywire Private Wealth magazine's 2017 Asia Selector supplement.