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DPM Corner – How Julius Baer uses scientific approach to generate value

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While market sentiment may be dented, Julius Baer believes its scientific approach to discretionary portfolio management (DPM) will lead to consistent investment performance across market cycles.

When Ancus Mak arrived at Julius Baer in 2017 to build up the DPM presence in North Asia, he only had a small team. Now his team has grown in size with strong DPM traction among North Asia clients over the last few years.

“To Julius Baer, we take a scientific approach towards investment. We believe that having the right people and the right process will lead to consistent investment performance across different market cycles,” Mak, Julius Baer, head mandate advisory Greater China, shared with Asian Private Banker.

The ‘scientific approach’ Mak refers to is played out in Julius Baer’s layered investment process, which is underpinned by key investment principles: define a long-term investment strategy; diversification is key; risk management is crucial; and find the best investment blend.

“We have compared internally many of our clients’ self-directed portfolios versus DPM, and [the] majority of them actually underperformed DPM on the same risk profile,” he highlighted, adding that many clients came to the bank late last year or earlier this year, because they saw DPM outperforming and they wanted to allocate to DPM.

Multiple long-term themes in one mandate

Mak explained that the investment management team provides long-term themes every year. The bank then puts the different themes into one mandate so that clients can invest in Julius Baer’s long-term secular outlook.

“Our long-term secular themes can be implemented via our DPM on behalf of the client. We do see a lot of single-theme investments or portfolios available in the market, but single-theme can only play out if the theme is right, as the volatility can be quite high if there’re headwinds in certain sectors,” he explained.

The five long-term secular themes the bank identifies are: digital disruption, ageing population, new energy, rising Asia and feeding the world.

Mak said for clients who want to have a ‘sleep-well portfolio’, the bank can use multiple themes, with all five themes in one mandate. For instance, the bank has incorporated these secular themes into its next-generation portfolio, so that clients can invest in all the long-term trends picked by Julius Baer.

“We can [also] move from one theme to another, to help the clients to achieve the annualised return over the five to 10 years, with lower annualised volatility,” he said.

Julius Baer also sees another clear DPM opportunity on the fixed income side and has seen most inflows coming from fixed income mandates.

The core and satellite approach

Mak believes one of the best ways to build an optimised portfolio is to go with the ‘core and satellite’ setup, with diversification across markets and sectors. Mak explained what this approach means when it comes to portfolio construction:

“Our expertise is to help our clients to get optimised risk-adjusted returns through DPM or advisory accounts,” he noted. “We always put a big chunk of assets into a core portfolio which should be multi-asset, that is flexible and unconstrained, so that we can manoeuvre across asset classes including cash, but we also do the satellite investments based on what we see in the market cycles.”

For instance, the bank last year launched a hedge fund mandate, which received good traction from clients as traditional assets slid last year. “Our solution is basically helping our clients to pick the best fund managers. We are not a hedge fund manager ourselves, but we help our clients to pick the best fund managers to diversify across different hedge fund strategies in a DPM solution.”

Julius Baer recently rolled out a multi-asset income-driven portfolio via a fund format but under the bank’s own investment management setup. The income-driven portfolio comprises bonds and equities.

Targeting next gen

Julius Baer is well known for managing family wealth across generations in Europe. However, when it comes to Asia, the challenge is that some clients are at their first or second generation of wealth, and are in the midst of a massive wealth transfer. Mak believes this is where DPM can fit in.

“The next generation may not be interested in handling their family’s investment directly, and they see a need for a sustainable and professional investment setup for their families, and DPM comes into the picture very nicely.”

In Greater China in particular, Mak said the bank has seen many Greater China clients becoming believers in DPM since he joined the bank. “As China reopened, we saw greater interest and DPM take-up from Chinese clients […] Our Greater Chinese clients look to us as experts in helping them to diversify their portfolios with offshore investments as they have strong interest in global equities and global bonds.”

By 2025, Julius Baer has a target of reaching 25% of global penetration in DPM. In fact, the bank has been hiring more portfolio managers and is expanding its bonds, equities and multi-asset team in Asia  in anticipation of managing a larger pool of assets.

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