Wealth and asset managers in Asia ex-Japan face the challenging task of managing the expectations of retail investors who are prone to poor investment habits, yet look for high returns on their investment portfolios. These findings and more are from a new report by global research and consulting firm Cerulli Associates, Asian Wealth Management 2016: Tailor-Made for the Wealthy.
According to the report, common investment habits among investors in the region include timing the markets or focusing on the short term, having a late start to investing, and lacking in portfolio diversification.
In Cerulli’s proprietary survey of a total of 1,800 investors in six countries in Asia ex-Japan–China, India, South Korea, Taiwan, Hong Kong and Singapore–more than 50% of respondents cited timing markets as their most common practice. While this practice is observed across the region, it is especially evident among Chinese and Indian investors. In terms of wealth tiers, this is more prevalent among high-net-worth investors.
One positive takeaway from Cerulli’s survey is that retail investors in the region intend to diversify their portfolios in coming months. However, the real dilemma for wealth managers is that they aspire for high returns with low-risk products amid volatile global markets.
A majority of respondents in Cerulli’s survey (barring those in Korea and Singapore) said they are looking for returns that are 5% higher than their respective country’s one-year deposit rates. In Singapore and Korea, a majority of investors’ desired returns are 3% higher than the one-year savings deposit rate in their country.
Yet, these investors have turned conservative and have significant allocation to cash and deposits in their investment portfolios. As such, wealth managers will need to convince these investors to look at other investment products to enhance portfolio returns over the longer term, given the low-yield environment.
As for wealth managers, they are striving to increase the risk profiles of investors by advising them to invest in liquid alternatives. However, Cerulli’s survey shows the percentage of retail investors who are willing to invest in alternatives, including the liquid versions, is low even in markets such as Singapore, Hong Kong, and Taiwan.
Further, new product launches have been mostly plain-vanilla funds across the region, while new product ideas have been limited except in Korea, which has seen the launch of robotics, water and clean-energy thematic funds, as well as a mutual fund sub-advised by a robo-advisor.
Meanwhile, product differentiation is one of the strategies private banks in Asia are adopting to stand out among the competition.
“Compared to improving on client service through the training of relationship managers or digitalization, which is often difficult to implement and measure, providing exclusive access to investment solutions is a more direct way of capturing and retaining investor loyalty,” said Shu Mei Chua, an associate director at Cerulli, who led the report.
Another finding from the report is that affluent Asians are gradually warming up to discretionary portfolio management (DPM) services, and this potentially offers opportunities for asset managers as well as wealth managers. “DPM is gaining traction as it has become increasingly difficult for clients to make their own decisions amid the volatile market conditions, leading them to seek professional services,” said Leena Dagade, senior analyst at Cerulli.
Foto: media.digest
. Más de la mitad de los activos de los grandes patrimonios se gestiona de forma discrecional
When approaching wealth managers for investment management, high net worth (HNW) individuals are more likely to opt for discretionary mandates over other services, according Verdict Financial’s 2016 Global Wealth Managers Survey, the company’s latestreport that analyzes the demand for discretionary asset management of HNW investors in 17 countries.
Although 52% of millionaires’ investable assets are managed on a discretionary basis globally, the level of interest in such services varies significantly between markets.
Bartosz Golba, Acting Head of Wealth Management at Verdict Financial, states: “HNW individuals in Singapore, the UK, and the US have an average of more than 70% of their portfolios placed in discretionary mandates – the highest share across the globe. These are all developed markets, where the uptake of discretionary asset management is generally higher than in emerging economies.
“Such services are a perfect match for clients lacking the time and expertise to manage their investments, both major factors driving demand for discretionary mandates. However, trust plays an important role as well. Investors will be skeptical about giving up control over the investment decisions to advisors they do not know well and do not have a relationship with.”
According to Golba, established wealth managers will try to leverage their relationships with existing clients to increase mandates penetration: “Discretionary services offer higher profit margins than advisory propositions. In this way, growing mandates penetration is at the center of many providers’ strategies, one example being Citi Private Bank, particularly in the Asia-Pacific region. For players with large client books, moving assets to mandated services might prove an easier way to grow revenue than competing for new clients.”
Verdict Financial’s research shows that discretionary portfolio managers will also experience competition from digital providers, which have traditionally been conceived as appealing mostly to self-directed investors.
Golba continues: “Wealth managers in developed markets have started to lean towards the view that digital players no longer compete only for execution-only business. Indeed, in Europe many providers dubbed ‘robo-advisors’ offer a discretionary investment management service. They have clear fee structures which appeal to price-sensitive clients, though the lack of a recognized brand remains their primary handicap.”
Lombard Odier Investment Managers has appointed Jerry Devlin as head of UK Third-Party Distribution.
Devlin was previously head of UK Distribution at Amundi for three and a half years. At Amundi, Jerry was responsible for implementing a distribution strategy in the UK with an emphasis on global distribution accounts.
Prior to this, he was head of UK Wholesale at Macquarie Group, and has also held head of Sales roles at Castlestone Management and Barings.
Following the departure of Dominick Peasley, head of UK Third-Party Distribution, to pursue other opportunities within financial services, Devlin will join Lombard Odier on 3 January 2017.
“Unprecedented negative rates and direct intervention of key central banks has created a number of unintended consequences for investors to contend with. At Lombard Odier we seek to re-evaluate and rethink the world around us, to build an innovative and specialist investment offering that helps investors face these challenges. We are pleased to welcome Jerry, who brings a wealth of experience and insight that will be valuable as we grow our distribution business in the UK,” said Carolina Minio-Paluello, global head of Sales and Solutions at Lombard Odier.
“We would also like to take this opportunity to wish Dominick well in his future endeavours and thank him for the work he has done during his time with Lombard Odier,” she added.
CC-BY-SA-2.0, FlickrPhoto: Nikolaj Potanin. US Reflation and Chinese Capital Flight Heighten Emerging Markets Outflows
According to Willem Verhagen, Senior Economist at NN Investment Partners, the most important development in EM recently has been the sharp deterioration in capital flows. After flows had improved in the period February‐June, mainly driven by the more urgent search for yield globally, they started to weaken again in the summer. The specialist notices that from the moment that US yields started to rise, EM outflows have increased. In October, when the pace of the US yield increase accelerated, also EM outflows accelerated. And when the Trump election caused a break‐out in US yields, EM flows reacted immediately: November became one of the worst outflow months on record, with an estimated outflow of USD 124 billion. This compares with USD 122 billion last January, USD 62 billion in June 2013 (Fed tapering fear) and USD 218 billion in October 2008. Large capital outflows lead to a tightening of financial conditions and a slowdown in economic growth.
In his opinion, one can distinguish two main factors that explain the increasing capital outflows. Firstly, the serious headwinds to the global search for yield due to the market excitement about US reflation. Given the huge inflows into EM debt markets in the past years (despite deteriorating EM fundamentals!), we should be worried that outflows can continue for a while and can get nastier.
And secondly, Chinese outflows have been accelerating in the past months, not so much because global money is leaving China. But it is Chinese households and corporates that are taking more capital offshore, despite tightened regulation by the authorities in Beijing. An important role plays the continuous depreciation of the renminbi versus the US dollar, that is making Chinese people with money more nervous. “The depreciation of the renminbi is likely to continue, due to the US reflation expectations and due to the dramatic rise in leverage and the sharp money supply growth with only a limited impact on Chinese growth. In the background remains the threat of US protectionism, that potentially can push the Chinese currency much weaker.” Verhagen concludes.
Wikimedia CommonsFoto: Hollingsworth John and Karen, U.S. Fish and Wildlife Service. Los inversores globales siguen reduciendo sus exposiciones a efectivo
The BofA Merrill Lynch December Fund Manager Survey shows Wall Street is bullish as cash levels continue to drop.
“Fund managers have pushed pause on a risk rally, with cash balances falling sharply over the past two months,” said Michael Hartnett, chief investment strategist. “With expectations of growth, inflation and corporate profits at multi-year highs, Wall Street is sending a strong signal that it is bullish.”
Manish Kabra, European equity quantitative strategist, added that, “Despite the improved outlook on European economic growth and inflation, global investors continue to shun European stocks amid concerns of further EU disintegration or bank defaults.”
Other highlights include:
Investor expectations of global growth jump to 19-month highs (net 57% from net 35% in November), while expectations of global inflation are at the second highest percentage level in over 12 years (net 84% from net 85% last month).
With a net 56% of investors thinking global profits will improve in the next 12 months, fund managers are the most optimistic about corporate profit expectations in 6.5 years.
Cash levels continue to fall to 4.8% in December from 5.0% in November and 5.8% in October.
Allocation to banks jumps to record highs (net 31% overweight from net 25% last month); the current reading is far above its long-term average.
Over one-third of investors surveyed name Long USD as the most crowded trade.
Investors identify EU disintegration and a bond crash as the two most commonly cited tail risks, corroborated by light EU and bond positioning.
On corporate investment, a record number of investors (net 74%) think companies are currently under-investing.
54% of investors, up from 44% last month, think the rotation to cyclical styles and inflationary sectors will continue well into 2017, supported by a strong USD and higher rates.
Allocation to US equities improves to 2-year highs of net 15% overweight from net 4% overweight in November.
Allocation to Japanese equities jumps to 10-month highs, from net 5% underweight in November to net 21% overweight in December; this is the biggest month-over-month jump in FMS history.
Investors are underweight Eurozone equities for the first time in 5 months, at net 1% underweight in December from net 4% overweight last month.
Pixabay CC0 Public DomainPhoto: Milivanilly. AXA IM Launches Fixed Term High Yield Bond Portfolio: AXA IM Maturity 2022
AXA Investment Managers(AXA IM) announces the launch of AXA IM Maturity 2022, a fixed term bond portfolio primarily invested in US high yield bonds, managed by Pepper Whitbeck, Head of US Fixed Income and Head of US High Yield at AXA IM.
“In this slow growth, low interest rate environment, we believe that active portfolio managers in the US high yield asset class may deliver mid-to-high single digit annualized returns by collecting coupons and avoiding defaults. US high yield offers a diverse, dynamic and liquid investment market. At almost two trillion dollars in size, the US high yield market is significantly larger than the European high yield market, with over 1,000 high yield companies across a wide variety of industries”, said Pepper Whitbeck.
“It is almost impossible to time the market, so this portfolio, which has a predetermined investment period, may help to alleviate investor concerns by mitigating market and interest rate risks. For example, by staying invested for the full five-year investment period, investors can pay less attention to the interim price movements. The portfolio is designed to be held through the predetermined investment period,” he added.
“For investors looking for yield, this has been a challenging environment, however the US high yield market has been delivering so far. We seek to combine finding yield with a prudent approach towards credit selection. We aim to avoid speculative bonds in the portfolio in an attempt to take risks that we can analyze and manage. Our focus is firmly on avoiding defaults.”
The portfolio manager takes a “buy and monitor” approach, intending to hold the securities for five years, the predetermined investment period. The team will build a diversified portfolio of US high yield bonds at the beginning of the term, investing in names that in their view have solid business fundamentals. A strict sell discipline is applied to any position if an issuer’s credit fundamentals deteriorate.
This “buy and monitor” approach aims to maximize yield in a cost-effective manner by minimizing turnover and therefore transaction costs. At the end of the predetermined investment period, the portfolio will self-liquidate — all bonds will either be repaid or sold.
AXA IM is one of the largest managers of US high yield bond portfolios. The team, consisting of 13 US high yield specialists based in Greenwich, CT, currently manages over US$ 27 billion.
Eurozone inflation in November was confirmed at 0.6% y-o-y in the final reading, one notch higher than in October (0.5%). Energy deflation intensified slightly (from -0.9% to -1.1%) as pump prices declined over the month. According to Fabio Balboni, European Economist at HSBC, this was offset by slightly higher food prices, particularly unprocessed food (from 0.2% to 0.7%), albeit still at very low levels. Core (0.8%) and services (1.1%) inflation remained flat for the fourth consecutive month. And core industrial goods inflation was also stable at 0.3% for the fourth consecutive month, down from a local peak of 0.7% in January 2015, suggesting that the impact of previous EUR depreciations might already be waning.
Across countries, the harmonised inflation rate remained stable in Germany (0.7%) and Spain (0.5%), but it increased in France (from 0.5% to 0.7%). HICP finally moved into positive territory in Italy, from -0.1% in October, to 0.1%, although it is still lagging behind the other Big 4 members. In November, there were only four countries still in deflation in the eurozone: Slovakia, Greece and Ireland (-0.2%) and Cyprus (-0.8%).
“In the coming months, with the base effects from energy fading, the oil price up 15% the past month, and the EUR having fallen below 1.05 against the USD, we expect inflation to rise fast. Pump prices were already 2% higher in the first half of December and are likely to rise further in the second half, benefiting from the festive season. We could also see a reversal of the recent slowdown in core industrial goods prices, with the latest PMIs pointing to output prices finally starting to rise. These elements could push eurozone inflation to 1% y-o-y in December. We then expect it to continue to rise, peaking at 1.8% in February, and possibly above 2% in Spain also thanks to some tax increases on alcohol and tobacco agreed by the government.” He says.
All of this, Balboni believes, could cause a bit of a headache for ECB Governing Council in the coming months, with inflation peaking in some countries at close to (or even above) 2%. However, the need to continue to provide fiscal support in countries where the output gap is still wide, and where wage growth is still slowing (the latest print was 1.2% in Q3 for the eurozone) are likely to keep underlying inflationary pressures muted. “We won’t have to worry about a possible early tapering of QE already next year. In December, ECB’s head Mario Draghi was quick to accept the offer on the table of a nine-month extension – albeit at a slower pace – still slowing until the end of 2017. This should allow the ECB to look through the inflation peak in the first half of next year before having to make a decision on a possible further extension of QE.” He concludes.
Although the investment-linked product (ILP) business is stagnating in Singapore and Hong Kong, other Asian markets such as Indonesia, China, Taiwan, and Thailand are offering better prospects, says Cerulli Associates.
Indonesia has the highest growth potential among the four countries stated. According to fund managers Cerulli spoke to, the growth momentum remains strong even though the first ILPs were launched more than a decade ago.
Banks and insurance agents are pushing ILPs more, as compared to mutual funds, because of higher fee incentives. Banks typically have exclusive arrangements with insurance firms to sell their products, but there are no such partnerships with asset managers to distribute mutual funds.
However, if the country’s regulator, Financial Services Authority (OJK) decides to scrap upfront fees and exclusivity in bancassurance partnerships, growth prospects might be limited.
At the same time, OJK has raised the cap on overseas Shariah investments from 15% to at least 51% since November 2015. Cerulli notes that this may present an opportunity for fund managers to offer foreign-invested Shariah-compliant funds on ILP platforms, if regulators allow it.
Managers Cerulli surveyed for the Asset Management in Southeast Asia 2016 report ranked insurers as the channel they would increase their use of the most in the coming three years. Various reforms introduced in the past few years are likely to help boost fund distribution through this channel. Banks will also continue to push bancassurance sales, which significantly involve unit-linked products.
Wikimedia Commons. APFI and DoorFunds Launch a Digital Platform to Streamline and Standardize Fund Due Diligence Processes
The processes used by fund investors to gather information from asset managers has always been a time consuming exercise. But their need for transparency, speed of analysis and the ability to compare across qualitative information sets has never been greater!
The industry is coming together to co-create a new solution. Supported by the Association of Professional Fund Investors to represent industry best practice, key Fund Investors from 10 leading Distributors, such as Mediolanum, Santander, EFG and Pictet Bank are collaborating with 12 major asset managers, such as Aberdeen, Columbia Threadneedle, Franklin Templeton, M&G, Nordea Asset Management, Pictet Asset Management and Schroders. They aim to solve a common problem.
The problem
Within Fund Investor teams, much time is being spent collecting and organising fund information. Asset managers have to resource large teams to be able to respond to information requests in a multitude of formats. APFI reviewed dozens of its member Fund Investor firms’ due diligence questionnaires and discovered around 90% of questions are common. Furthermore APFI found that:
Historic practice and increased regulation is creating additional effort for fund investors and asset managers in fund due diligence
Fund investors are pursuing ways to reduce the time it takes to collect and organise information
The speed at which changes to fund information is communicated to fund investors could be significantly improved
Lack of standardisation and best practice in due diligence questionnaires creates additional effort for asset managers – DDQ work volumes have doubled in 12 months for some asset managers
Both asset managers and fund investors recognise there should be a better way to collect and organize fund information and, by doing so, to enhance customer outcomes.
The solution
This collaboration aims to bring fund due diligence into the modern age. A new digital platform called DOOR will maintain up to date responses to The Standard Questionnaire, allowing fund investors to access a robust set of common information at any time and separately ask additional questions specific to their needs – thereby removing the need for each fund investor to send common data requests. DOOR will be free of charge for fund investors to use.
Other benefits include:
Maintaining and advancing industry best practice standards, overseen by APFI
Quick and automated uploads of fund information by asset managers, meaning
resources can be redeployed
Provide fund investors with information on all available fund ranges
Improve fund investors’ user experience in selecting or monitoring fund holdings
Speeding up and democratising communication of changes to fund information between asset managers and fund investors
“In today’s world of information overload, this unique initiative can add significant value to the manager selection process. DOOR’s platform and technology can make a big difference by freeing up time for data analysis and critical thinking, and less time on data collection. More productive collaboration between fund investors and asset managers is always to be welcomed in our view.” Brian O’ Rourke, Head of Multi-Manager, Mediolanum.
“The industry needs to collaborate more to drive faster and more efficient communication of information. At APFI, we want to maintain and advance industry best practice and ensure greater transparency and ease of fund selection for our members.” Jauri Hakka, APFI Director.
“Standardisation in due diligence information means I can access the majority of the information I need without waiting weeks for a response. It will save me time and allow me to focus on that information that it most important to me. ” José María Martínez-Sanjuán, Santander.
“Asset managers and fund investors have common issues with fund due diligence. So, collaborating with them to solve these issues is an innovative approach. Adopting industry best practice and standardising the process will allow us to refocus resource on delivering a wider range of fund information to our clients. By employing a digital solution, we can ensure information is secure, up-to-date and relevant.” James Cardew, Global Head of Marketing, Schroders.
. PIMCO Hires Jeffrey Thompson as Executive Vice President and Portfolio Manager
PIMCO has appointed Jeffrey Thompson, as Executive Vice President and Portfolio Manager, to join its commercial real estate team as the firm continues its expansion of its global alternatives investment platform.
In this new role, Thompson will be joining an established commercial real estate platform where he will focus on CRE lending opportunities which is an important area of growth. He will be based in the firm’s New York office and will report to PIMCO’s Co-heads of U.S Commercial Real Estate, John Murray, Managing Director and Portfolio Manager and Devin Chen, Executive Vice President and Portfolio Manager.
”Jeffrey brings more than 20 years of experience as an investment professional to our accomplished commercial real estate team, which continues to find significant investment opportunities in this space globally, ” said Murray.
“We are excited to welcome Jeffrey to the team. As a tested portfolio manager in commercial real estate and private credit, Jeffrey’s hire further demonstrates the strength of talent and expertise we have at PIMCO,” said Chen.
Globally, PIMCO’s alternatives offerings span a range of strategies with more than 100 investment professionals overseeing hedge fund and opportunistic/distressed strategies, including global macro, credit relative value, multi-asset volatility, and distressed mortgage, real estate and corporate credit opportunities.
“PIMCO continues to look to attract the best investment talent globally and has hired more than 210 new employees this year including more than 40 investment professionals across alternatives, client analytics, emerging markets, mortgages, real estate and macroeconomics,” says Dan Ivascyn, Managing Director and PIMCO’s Group Chief Investment Officer.
