Within Asia, private banks are focusing more on multi-asset allocation for clients, not just for diversification purposes, but also to build portfolios that can be tested over the longer term. Private banks and family offices are also leveraging more external resources, according to US$11.5 trillion in AUM firm BlackRock.

“In some markets such as Australia, we’ve seen a continuous decline in the traditional mutual fund business, and we’re seeing model portfolios are starting to accelerate,” Nikhil Mehra, head of APAC multi-asset strategies & solutions at BlackRock, told Asian Private Banker. 

Based in Singapore, Mehra leads BlackRock’s multi-asset strategies & solutions team (MASS) in APAC. The MASS team draws on the full toolkit of BlackRock’s index, factor, and alpha-seeking investment capabilities to construct active asset allocation strategies and whole portfolio solutions for its clients, which includes outsourcing solutions in the wealth and institutional channels.

Increase in outsourcing investments

Mehra noted that with a preference for income strategies and growing inflows from tactical asset allocations by family offices and private banks, the firm’s multi-asset business has seen a steady increase in recent years.

Nikhil Mehra, BlackRock

“Income strategies have always been a feature in Asia, and clients continue to have a demand for income. Within Hong Kong, Singapore, Taiwan, income is a very dominant theme within portfolios. We’ve also found that tactical asset allocation is coming a lot more into focus which we have been doing for about almost two decades, and delivering strong alpha to our clients,” he said.

Globally, BlackRock has over 550 people working within multi-asset strategies and solutions. The firm has over 75 people in Asia Pacific, managing money for wealth and institutional clients all the way from Thailand to Melbourne to New Zealand to Tokyo to Korea, etc.

“We’re definitely seeing more of our wealth partners in this region want to engage in a customised product way. All the reasons above have been contributing to the growth of our multi-asset business,” he continued, adding that the firm is definitely seeing a growing trend to outsourcing investment within family offices and some foundations and endowments. “Many of those clients are looking to partner with us much more holistically than they have before.”

Broader geopolitical forces may also be partly behind this trend and could stretch into the near future. Donald Trump’s recent US presidential election win could point to more policy uncertainties, which would broadly bring negative news for emerging markets, especially those with global exposure, driving a need for greater customisation and flexibility in investment management.

“Nowadays, you need to look across the whole opportunity set, including private markets. The resourcing for many of the foundations, endowments, family offices, are probably not as large, and the cost of building out those resources are quite high,” he highlighted.

You design, we perform

When it comes to the process of building multi-asset solutions for clients, BlackRock’s position is: “You design, we perform.”

“The client brings in the objectives, the constraints and we bring in the investment platform, and then we have a series of workshops around how to put these two things together,” Mehra noted.

During the process, BlackRock’s current model portfolio plays a big part. “Actually, quite often, many of those investment offices have and continue to engage with us to leverage our capabilities in that space. And a good example of that is model portfolios. We actually work across this region with many asset managers, including their digital offerings, where we provide model portfolios,” he said.

The firm is looking at higher penetration for such services. “Within the traditional categories of multi-asset within this region, we have a high degree of penetration, whether that’s in Hong Kong, Singapore, Thailand, Philippines, etc., and we’ll continue to focus on that. We have strong capabilities. We’ve delivered strong performance, and we’ll continue to manage those strategies [and] hopefully grow those strategies, but also bring new strategies to the region,” he said.

DPM becoming a competitive space

Discretionary portfolio management (DPM) penetration remains lower in Asia than in Europe and the US. However, with next-generation clients becoming more tech-savvy and time-conscious, the evolution of DPM is becoming increasingly important in Asia, Indosuez Wealth Management’s Omar Shokur and Delphine Di Pizio-Tiger told Asian Private Banker in a recent interview.

Private banks are keen to increase their DPM penetration in Asia and are developing an asset allocation model to raise the bar. With a great generational wealth transfer progressively unfolding in Asia, the key question for private banks is how to differentiate themselves in this area through their selection expertise, making customer experience crucial, according to Shokur and Di Pizio-Tiger in the interview.

“Playing with Legos”: Indosuez WM on innovative DPM for the next-gen

Another competitor in building customised portfolios comes from the crowded wealth tech space. Digital wealth platforms are expanding services in Hong Kong in an effort to grab an even greater share of the mass affluent and high net worth (HNW) market, believing private banks are failing to serve these segments effectively.

Several digital wealth tech firms speaking to Asia Private Banker believed frequent changes in relationship managers, poor digital experiences, and unsuitable products with high fees have driven affluent and HNW clients into their arms, providing a fertile ground to increase client onboarding and AUM.