Private banks and fund houses need to work together to counter a cyclicality that has crept into mutual fund investing, panelists agreed at an AsianInvestor debate.
Marc Lansonneur, regional head of investment and market solutions for Societe Generale, noted that tactical Asian clients had started to look more at fund investing this year amid a lack of volatility in foreign exchange markets and some asset classes.
“Fixed income, equity and multi-asset funds have all been doing well in sales volume [among private bank clients in Asia],” Lansonneur observed during a roundtable on fund selection hosted by AsianInvestor in Singapore*.
Dany Dupasquier, head of group funds at Standard Chartered, similarly pointed to positive sales in multi-asset and fixed income funds this year, but balanced that by saying this did not necessarily include clients who were not already users of funds.
Adrian Schatzmann, recently promoted to global head of investment fund sales and distribution at UBS Wealth Management, argued that inherently there would be cyclicality in the industry as long as it was underpinned by lending activity.
“I was not here [in Asia] in 2008, but there was a lot of redemption out of funds because of margin calls,” he said. “Also, clients still have those instincts to liquidate part of their portfolio and flee to cash because they are in risk-off mode. In the interests of clients and their performance we have to counter this [cyclicality].”
Marc Van de Walle, global head of products at Bank of Singapore, agreed with the point about lending, noting that long-only mutual funds are liquid instruments and that those who held these investments tended to liquidate them first during the crisis.
Asked whether he saw high-net-worth clients choosing to exit funds automatically once they had achieved a certain return, he suggested they should be looking at capital market products rather than funds for such a tactical approach.
“Memories of the 2008 crisis are still lingering, but it is linked to lending,” he explained. “People like liquidity because they are leveraged. Leverage is used much more in this part of the world [Asia] than in Europe. If you leverage against something illiquid and a crisis happens, the result is terrible.”
At the same time Van de Walle suggested it was difficult to observe cyclicality in fund investing because fund penetration during the crisis was so low. “We have had a bull market since [the crisis]. We will have to wait for the next downturn to see if clients start liquidating funds.”
But Dupasquier expressed frustration that even now, six years after the crisis, some clients were still not willing to allocate to less liquid products, and as a result were missing out on some “very attractive solutions”.
While he said this was changing, it was doing so only gradually. “In the hedge fund arena it has helped that Newcits products [hedge fund-lite strategies wrapped in a Ucits structure] have started to take off because this allows us to talk about alternative strategies through more liquid products.”
AsianInvestor is due to host its first ever Fund Selection Forum Asia at the JW Marriott Hotel in Hong Kong on November 12. You can find out more details by clicking on this link.
* To read a full transcript of the private banking roundtable discussion sponsored by Aberdeen Asset Management, see the September 2014 edition of AsianInvestor magazine.