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DPM Corner – How to deepen penetration in Asia-Pacific amid market volatility

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Deepening penetration, personalisation and asset allocation amid market volatility were among the topics that went under the microscope at Asian Private Banker’s recent DPM H1 Focus event, which brought together the leading voices of discretionary portfolio management (DPM) in Asia-Pacific.

In a keynote interview, Garth Bregman, head of investment services, Asia-Pacific, at BNP Paribas Wealth Management (BNP Paribas WM), pointed out that while rates of DPM penetration in the region had approximately doubled from 5% to 10% in recent years, there was a still a long way to go to catch up with North America and Europe in this regard.

Garth Bregman, BNP Paribas WM

In the session, entitled What is driving the continued rise of DPM penetration in Asia-Pacific and where to find the edge in attracting and retaining DPM clients?, Bregman noted that clients in Asia-Pacific still preferred trading-based strategies rather than handing over control to a portfolio manager.

He noted that Asia-based clients, many of whom have a bias towards regional markets, had historically not been rewarded by the sort of buy-and-hold strategies that have succeeded in developed markets. “Moving from a short-term, trading culture to a long-term investment culture with a global outlook rather than a local one is a slow, multi-year process,” Bregman asserted.

However, Bregman pointed to BNP Paribas WM data stating that DPM portfolios outperform self-directed ones more than 85% of the time over a five-year period. Volatility across regional markets including China in 2021 had also convinced more private clients to invest into the French bank’s mandates, many of which have a global focus and help to diversify a portfolio.

“If you have concentrated, self-directed positions there’s been a lot of suffering among clients in the region,” he continued. “When you see these sell-offs happen, clients are generally quite open to shifting a part of their assets into more diversified DPM portfolios. Clients who phase into DPM markets in a year like this tend to be very happy in two or three years.”

Headwinds for Asia fixed income
The day’s second session, which was entitled Asset Class Deep-Dived: Fixed Income Mandates, gave the audience a glimpse under the hood of the credit portion of DPM.

Lina Lim, regional head of discretionary and funds, Asia-Pacific, HSBC Wealth and Personal Banking (HSBC WPB), shone a light on how Asia fixed-income fits into the bank’s core DPM strategic asset allocation. She noted that the current allocation is “not significant”, due to prominent issues seen in the regional high-yield market last year, as well as rising geopolitical and inflation risks. “We have seen a lot of headwinds in Asia fixed income, particularly the negative headlines in China,” she explained.

Lina Lim, HSBC WPB

However, HSBC WPB is re-assessing that view. “We are seeing some early signs of a recovery. In mid-March we saw a rebound in the high-yield bond market and, in my opinion, that was quite encouraging,” she said. We are “hoping to see more concrete and detailed measures not only from the Chinese government, but from other Asian governments, that would hopefully stabilise the fixed income market”.

Darren Wills, managing director, APAC head of fixed income at iShares by BlackRock, was more sanguine on Chinese credit. “We’ve held a view for a while now that having an allocation to Chinese government bonds versus other developed market bonds makes sense from a portfolio construction perspective due to the relatively attractive real yield alongside the diversification benefits,” he explained, pointing out that the country is in an easing cycle and has a low correlation to other markets.

The iShares executive highlighted how fixed income ETFs were becoming an increasingly important part of regional DPM managers’ arsenal. “Bond ETFs can serve as portfolio anchors for core strategic allocations at low cost,” he said. “They can serve as tactical trading tools to take advantage of market dislocations, and as liquidity sleeves to be able to move risk around.”

Nathan Lim, co-head investment manager services, Morgan Stanley Private Wealth Management Asia, agreed that both ETFs and single securities can play specific roles in a mandate. “We are agnostic between active and passive — there is definitely a time and place for both,” he said. “The trick is trying to find the right balance.”

Getting clients from A to B
In the final session of the day, three heavyweight panellists from the region’s leading private banks discussed the topic of Identifying the key building blocks for a sustainable, long-term, profitable DPM offering in Asia-Pacific.

Evelyn Yeo, Pictet WM

For Evelyn Yeo, head of Asia investments at Pictet Wealth Management Asia, the three main ingredients are investment leadership, risk management, and an efficient product shelf.

“To be profitable in the longer term, it’s important to build and maintain an efficient product shelf that can meet most of the clients’ current or foreseeable demands,” she explained. “It also needs to be one where the risk can be systematically assessed and monitored to prevent any blow-ups.”

UBS Global Wealth Management (UBS GWM) has placed a strong focus on its CIO-led value chain, in which the bank’s house view plays an overarching role in determining mandates’ strategic asset allocation. However, Adrian Zuercher, head global asset allocation and co-head global investment management APAC, noted that hyperpersonalisation was important for Asian clients, who are “more digitally-savvy than clients in Europe and the US”, trade frequently and own more single securities.

Adrian Zuercher, UBS GWM

The Swiss bank in 2020 launched its digital My Way DPM platform, which allows clients and their advisors to build portfolios using ‘building blocks’ of various asset classes. Of the clients in Asia that use My Way, Zuercher said, more than 70% have selected at least one sustainable investing building block for their portfolio.

“All these trends help us to better understand the client but equally where we can build more offerings,” he explained. Later this year, UBS will launch a new version of My Way that allows clients to modify their portfolios directly without going through their advisor.

While personalisation of a DPM offering is important, Stefan Lecher, regional head of investments and wealth solutions, Asia-Pacific, HSBC WPB, countered that it was also vital that private clients were given a certain degree of handholding in DPM.

“Personalisation is a good thing but you should never forget where it is you that want to go,” he explained. “As a private bank, our duty is to put the guardrails in place to make sure our clients get from A to B, safely. And DPM is the tool that can help our clients there.”