Despite the strong rally in global markets this year, Asian HNWIs were generally late to enter at attractive levels, leaving private banks with little option but to seek alternative ways to diversify portfolios that have high fixed income concentration risk. Traditional investment banking products effectively express a fixed tactical trade, but current markets have the potential to deliver the unforeseen.
Asset managers have been a major beneficiary of these conditions by showcasing their capabilities in active management. But the spirit of investment banking ingenuity did not escape the industry in Asia, as it capitalised on its versatile capabilities to deliver dynamic derivative exposure.
J.P. Morgan was the near-unanimous choice on account of its Nexus platform, which offers a best-in-breed suite of indices and leading innovations in actively managed certificates (AMC). Combined, the bank’s formidable offering and structuring capabilities have led to a greater penetration of structured products into a key point of focus for Asia’s wealth managers: discretionary mandates.
“We have been working with discretionary portfolio managers in Asia to construct diversified and robust indices notes to be utilised within their mandate,” says Vincent Ip, J.P. Morgan, highlighting regional interest in its risk premia, covered call, Enhanced US Equity, European Recovery and technology indices. “Given that structured products have traditionally been focused on the advisory business, this was an exciting development, especially when considering the growing focus on DPM in Asia.”
The American investment bank has a platform of over 700 active indices globally, tracking a myriad of reference assets and methodologies to suit the needs of investors across the entire spectrum.
“We have the capability to collaborate with third party providers rather than simply focusing on our own suite and in eliminating concerns about ‘black boxes’ by offering transparency including fees and the individual constituents – in fact, clients can actually replicate our indices with individual holdings if they please,” Ip explains.
Time will tell if investment banks can materially eat into asset managers’ lunches, or if discretionary portfolio management (DPM) penetration will reach a meaningful rate. But in 2017, the industry took note of the role that investment banks can play in active management with one player standing out from the rest. J.P. Morgan is this year’s Most Innovative Provider of Index-linked Structured Products.