BlackRock's retail chief sees fund selection progress

Damien Mooney says most major banks have invested in due diligence over the past year, driven by regulation. But he believes fee-based distribution would challenge fund houses.
BlackRock's retail chief sees fund selection progress

Distribution has become more institutionalised in Asia, with banks having improved their fund selection process in the past year, observed Damien Mooney, head of Asia-Pacific retail business at BlackRock.

He pointed out that due diligence was now much more robust than in the past, saying distributors were more consistent in how they applied their investment views to client portfolios.

Mooney suggested the impetus for change had partly come from regulators, which have placed greater emphasis on product suitability in light of mis-selling scandals.

When asked where BlackRock stood on commission-based distribution in the region, Mooney suggested that greater transparency was a good thing for investors. But he noted, too, that this posed challenges for asset managers.

In Asia, product advice is paid for through retrocessions, drawing criticism from the likes of Vanguard, which advocates fee-based distribution.

Mooney observed that while private banks in Asia were moving away from commission-based distribution, wealthy clients were more likely to be willing to pay for advice than retail clients.

“It works for people who have a lot of wealth already in their portfolio. But if you are looking to accumulate wealth, paying for advice separately can be a daunting prospect,” Mooney said, questioning how investors would get the advice they need if a low-cost model were introduced.

In the UK, distributors have been required to charge for advice since January last year following the introduction of the retail distribution review (RDR). But investors have responded by pulling back from seeking advice.

Mooney noted that just as private banks had been retreating from commission-based distribution, they have been seeking to add discretionary business at the same time. “They want to build business that is going to provide recurrent revenue and are increasingly moving to discretionary portfolio solutions,” he said.

In September, private bankers told AsianInvestor that not only was discretionary portfolio management growing fast among Asian clients, but also that funds were an increasingly important part of that.

Looking to the year ahead, Mooney sees liquid alternatives becoming more widely accepted. These are typically hedge fund, private equity, real estate and infrastructure investments offered in structures that comply with the US’s 40 Act or Europe’s Ucits requirements.

Numerous firms have been promoting such strategies in Asia, including Swiss alternatives manager Gottex, France’s Natixis Global Asset Management, US fund-of-hedge-funds firm Arden Asset Management and K2 Advisors, a fund-of-funds business owned by Franklin Templeton Investments.

In Asia, uptake of liquid alts has predominantly been confined to private banks, he noted. He also sees this year’s investor appetite for multi-asset products continuing through 2015.

A raft of managers, including EFG Asset Management, First State Investments, Gottex Fund Management and Nikko Asset Management, either built out their multi-asset capabilities this year or announced their intention to introduce multi-asset product.

While many investors were heavily exposed to equities at the peak of the last cycle and moved into fixed income subsequently, there hasn’t been a return to growth products, noted Mooney. "Multi-asset product is a bridge to more risky assets, but with an income outcome,” he said, adding it was seen by investors as a way to diversify from high-yield bonds.

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