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Fund flows at Asia’s private banks slip 6% in 2016

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Although the fund industry in 2016 was hampered by product non-performance and depressed investor appetite, private banks in Asia still managed to deliver relatively flat growth for the year, dipping by an average of 6.1%, according to a recent Asian Private Banker poll.

How did Asia’s high net worth fund landscape play out in 2016, and who have the region’s gatekeepers selected as their providers of choice?

2016 kicks off ominously
No more than a few days into 2016, and doom and gloom had already pervaded global markets. Fund gatekeepers in the region were becoming increasingly concerned that they would be unable to deliver across multiple fronts.

First, diminished risk appetite did not bode well for new inflows. Investor confidence had been shaken by the Shanghai Composite index plunge, and both the S&P 500 and Dow Jones Industrial Average got of to their all-time worst starts.

Second, non-performance was already stimulating outflows. A series of absolute return products, designed to withstand any ripples from a riskier and more uncertain world which gatekeepers had advised clients to invest in, failed to deliver, denting the appetite of prospective investors and triggering some outflows.

Hedge funds kicked off the year by delivering a disappointing -0.6% in 1Q16, according to HFRI’s fund-weighted composite index, and subsequently saw US$109 billion pulled out by investors that year, dissatisfied with the low returns and high fees. UCITS III funds or liquid alternatives registered similar non-performance, with USD strategies delivering annual average returns of just 0.75% over the past five years, according to Morningstar.

“Many liquid alternatives in 2016 were caught off-guard by a series of geopolitical events and the magnitude of the rebounds that followed,” says Wing Chan, Asia director of manager research at Morningstar, highlighting intensified uncertainty that has haunted global markets.

“After that first quarter, we thought the year would be done for,” says one Asia head of fund selection and distribution at a major private bank, commending those gatekeepers who managed to deliver even flat year-on-year net inflows.

“Market uncertainty was very high, risk appetite was very low and clients desperately demanded investments with predictability.”

Asia’s fixed maturity party
And predictability is exactly what the industry delivered to Asia’s yield-hungry HNWIs, in the form of fixed maturity bond funds.

Credit Suisse opened the floodgates by raising more than US$2 billion from its Asian HNW clients in Credit Suisse Asset Management’s (CSAM) fixed maturity bond fund in May last year. CSAM’s fixed maturity bond fund raised a total of US$3.3 billion.

Observing Credit Suisse’s success, the rest of the industry followed suit, including Julius Baer, which reportedly raised US$600 million for an AllianceBernstein fund, and Bank of Singapore, which recently raised of more than US$1 billion for an Invesco fixed maturity bond fund focused on senior loans.

“A lot of investors in the region like single bonds for coupon and visibility,” Alex Bouchardy, head of Asia fixed income at CSAM, told Asian Private Banker not long after the successful fund launch early last year. “[They] view single bonds as low risk assets and tend to buy ones with the highest coupon which is related to higher risk [and] diversification is usually insufficient.”

Though partially attributable to a slowdown in AUM growth due to onshore drivers such as China’s curbing of capital outflows or Indonesia’s tax amnesty, large scale conversions of Asian HNWIs’ single bond holdings played no small part in boosting fund penetration rates at private banks, having now reached around 11% on average.

2017 Asset Management Awards for Excellence
In such turbulent times, wealth managers need all the help they can get from leaders in the asset management industry, to provide not only innovative and tested best-in-class solutions but also, where necessary, intensive hand-holding to reassure nervous investors.

“With the short investment horizons of Asian HNWIs, after sales can make or break client portfolio performance,” says one fund advisory head from a Swiss private bank, who stresses the disconnect between often impatient regional investors and the value of staying invested over the long-term. “Following a temporary drawdown, lacking after sales efforts can often cause mis-timed selling of funds. Without sufficient hand-holding In Asia, clients may not be able to realise the full benefits of long-term performance.”

Of course, investment performance alone is not sufficient to be selected as best-in-class by gatekeepers in Asian Private Banker’s Asset Management Awards for Excellence. In addition, product providers need to demonstrate that they can help private banks raise and retain assets over market cycles (business performance); provide value added services including, but not limited to, content, training, and access to fund managers (service competency); and have brand visibility and reach to relevant market segments.

This week, starting today and ending on 2 March (Thursday), Asian Private Banker will reveal the industry’s choices for best providers across various categories, encompassing products and services. The winners of the 2017 Asset Management Awards for Excellence are determined by an anonymous poll that includes responses from 32 key decision makers in fund selection and distribution in Asia across 25 private banks.

The winners of Asian Private Banker’s 2017 Asset Management Awards for Excellence are as follows:

– Best Fund Provider – US Equity: Legg Mason
– Best Fund Provider – Global Emerging Market Equity: J.P. Morgan Asset Management
– Best Fund Provider – Europe Equity: BlackRock
– Best Fund Provider – US Bond: PIMCO
– Best Fund Provider – Global Emerging Market Bond: Ashmore Investment Management
– Best Fund Provider – Europe Bond: UBS Asset Management
– Best Fund Provider – Multi-asset Solution: J.P. Morgan Asset Management
– Best Service Provider – Fund Research: Morningstar

– Best Fund Provider – Asia ex-Japan: BlackRock
– Best Fund Provider – Greater China Equity: Value Partners
– Best Fund Provider – A-Share: Schroders
– Best Fund Provider – Japan Equity: Eastspring Investments
– Best Fund Provider – ASEAN Equity: J.P. Morgan Asset Management
– Best Fund Provider – India Equity: Goldman Sachs Asset Management
– Best Fund Provider – Asia Bond: BlackRock
– Best Fund Provider – RMB Bond: AllianceBernstein
– Best Fund Provider – Real Estate Asset: AXA Investment Managers

– Best Fund Provider – Global Bond: PIMCO
– Best Fund Provider – Global High Yield Bond: AllianceBernstein
– Best Fund Provider – Global Equity: Fidelity International
– Best Fund Provider – Thematic Equity: Pictet Asset Management
– Best Fund Provider – Liquid Alternative: Nordea
– Best Service Provider – Hedge Fund Platform: Deutsche Asset Management
– Best Fund Provider – Private Equity: Blackstone
– Best Fund Provider – ETF: iShares
– House of the Year – BlackRock

For more information about the 2017 Asset Management Awards for Excellence, please click here.

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