Citywire Asia spoke to Dany Dupasquier, head of managed investments, wealth management, Asia at Standard Chartered Private Bank on what's hot and what's not in the world of fund selection.
Q. Tell us more about your role.
A. I am head of the managed investments team based in Singapore. This includes mutual funds across retail and private banking as well as hedge funds and private equity. We are responsible for due diligence on mutual funds, hedge funds and private equity. All products distributed globally are reviewed by the team. There is a clear focus on risk as we conduct an in-depth analysis of fund managers’ structures and the processes they use to run portfolios.
We also actively recommend products to our clients through our Fund Select proposition. In that case our goal is to identify fund managers we think have the ability to consistently outperform both their benchmark and peers. We offer solutions across all the main asset classes, including equities, fixed income, multi-assets and alternatives. We have two different categories in the conviction list.
One is ‘Core’, covering all the main asset classes that should be part of a client’s diversified portfolio. The second is ‘Focus’. Focus funds are products we recommend to our clients so that they can get exposure to our house view.
Q. Under what circumstances do you remove funds from the focus or core list?
A. For the Focus list, this depends primarily on the house view. It is more tactical in nature. For the Core list, this clearly depends on a lower level of conviction in the ability of manager to outperform going forward. As part of our analysis, we seek to identify the different market environments where managers are likely to thrive or struggle based on their investment approach.
This helps us not to make rushed decisions when managers are going through a rough patch, as they inevitably do at some point in time. Classic elements like style drift and significant turnover would raise a red flag. Regarding turnover, it is very important to develop a clear understanding of the investment team’s structure and identify the key decision maker(s), so we can act swiftly when there are some changes. We try not to jump the gun during periods of underperformance, but if a manager is consistently in the bottom two quartiles of his peer group for two consecutive quarters, a formal review will take place.
Q. How many new asset management firms did you sign contracts with this year?
A. None, because we don’t have any glaring gaps on our platform. Then there is the question of high barriers to entry as well. We will not onboard a new provider for just one fund because we need to reach a certain critical mass in terms of AUM. We need to see the potential to grow the relationship into something that will be meaningful for us and for the fund house as well.
We are working on one now, and we will hopefully be able to onboard the manager this year. I could see us entering a few new relationships next year, but again the barrier to entry is high.
Q. Have you onboarded any new strategies this year?
A. We onboarded one on the preferred/contingent convertible bond side.
Q. Are you looking at smart beta?
A. We haven’t onboarded any of these products yet, but this is something we might want to consider for very large, liquid and efficient markets such as US large caps, for example. In Asia, some institutional investors have invested in the space, but it seems that at this stage the concept somewhat struggles to gain traction with private banks.
Smart beta funds are relatively new so there are some questions linked to their track record and the size of the strategy.
Q. What about ESG investing?
A. We have recently onboarded three ESG-related funds – from BNP Paribas, Allianz and BlackRock – for the private bank. We have also done an introducer agreement with private equity firm Bamboo Capital Partners for our ultra-high net worth clients.
We are currently focused on increasing education and awareness among both our relationship managers and clients.
Q. What’s your view on liquid alts, and how have flows been this year?
A. We haven’t seen much flows into liquid alts this year. Equity markets being red-hot hasn’t helped. I’m a big supporter of liquid alts; it makes a lot of sense to have it as part of a diversified portfolio. The strategies we see traction in are equity long/short and macro – discretionary and systematic.
One of the main rationales for considering liquid alternative strategies is the diversification they bring to a portfolio exposed mostly to traditional asset classes. It becomes somewhat more challenging to position such strategies when clients assess their investments on a standalone basis.
Indeed, it is very likely that during specific periods, equities or bonds will outperform liquid alternatives: during a bull market, liquid alternatives are likely to trail equities and conversely in challenging market conditions, bonds are often able to outperform alternative managers.
It is fair to mention as well that performance in some cases has been somewhat disappointing.
Q. To what extent will robo-advisors help the distribution of ETFs and mutual funds?
A. We have launched Personalised Investment Ideas, a digital tool for our relationship managers. The tool helps them generate tailored investment ideas (on mutual funds and bonds) for Priority Banking clients. It should have a positive impact. It might take time for clients to be fully comfortable with the concept, but we are excited and believe it should result in more relevant conversations with our clients.
It was fully rolled out in all the branches in Singapore in October and will be expanded to other markets next year. We believe robo-advice is a case of ‘and’ and not of ‘or’. A combination of human advisor and robo tool can be powerful.
This article was first published in the 2017 Asia Selector supplement to the Citywire Private Wealth magazine.