Julius Baer wants to quadruple its discretionary assets in the next five years, and if the Asia CIO had it his way, he would like to see the numbers go even higher.
Speaking to Citywire Asia, Bhaskar Laxminarayan said: ‘Today, we have a growing number of clients who are above the $10 million mark. The automatic hat that money wears when it grows is conservation.
‘That’s why I’m completely convinced that over the next 10-15 years, a strategic asset allocation approach to investing and more discretionary solutions will become integral to anybody with a large pool of wealth.’
While the relationship manager hiring spree of Julius Baer has been grabbing headlines for the past 12 months, the Swiss private bank has been slowly building its investment management team -- which has doubled in the past three years -- in its discretionary push.
Another reason why Laxminarayan believes there will be a move to discretionary mandates is because of the regulatory environment.
Client suitability and cross border regulations will be key areas to look at.
‘So there is a momentum building for discretionary solutions,’ the head of the investment management division said.
While the discretionary mandate model in Asia is gaining momentum, there’s still a lot of room for growth as it lags global figures.
‘China is going to lead this simply because the wealth creation there is vast and rapid. But you will see it in all other Asian countries as well – Korea, Taiwan, Philippines, Thailand.
‘When India opens up, it will offer the same experience. We are already experiencing this in the offshore business (NRIs).’
As much as Laxminarayan loves China for its wealth creation, he also feels that Chinese equities' days in the sun could be numbered.
‘It’s a relative call. If I put A-shares and H-shares next to US and Japanese equities, chances are they won’t respond as well to shocks out of Europe, which for us is a key risk this year. However the valuations in Chinese equities are compelling.'
Meanwhile, his most preferred equity market for 2017 is the US.
‘The US is such a diversified equity market. It’s a representation of global equity markets. You also have some of the major global firms listed in the US.
‘We have a clear preference for the rates-sensitive. We like financials.
'The S&P500 is still a good bet from a medium term perspective. We also think there is an opportunity in the healthcare space.'
His current recommended asset allocation for client portfolios is 50% in equities; 38% in bonds; 7% in cash and 5% in alternatives.
Within bonds, Laxminarayan prefers credit over duration risk.
‘On the fixed income side, we reduced our exposure to safe havens like Treasuries and other high grade long dated bonds. We narrowed the duration down to less than four years.
‘We’ve added senior bank loans and high yields. We also like emerging market hard currency debt.’
Looking ahead, Laxminarayan is bracing for turbulence from European politics. He’s ready to buy protection, change the portfolio mix and go back to safe havens if things go wrong.