BMO Private Bank, the international wealth arm of Canada's Bank of Montreal, is expanding the asset manager roster for its discretionary business, starting with a partner for Asia ex-Japan and one for European equity.
Robert Cormie, BMO's Asia head of private banking, said: “We will continue to add managers as we see niches. We will expand number of sub-asset classes ... but we don’t want to have two to three managers playing in the same space, to keep the process simple for clients.”
This is an interesting opportunity for fund managers at a time when the well-established private banks in the region have been reducing the number of products on their shelves rather than adding them*.
BMO PB is expanding the manager list to offer more flexibility in asset allocation, noted Edmund Yun, executive director for investment. Moving to a custom fund list for the international business is also a natural progression from when it started the discretionary programme last year, which was set up from the North America perspective in terms of strategies, he added.
BMO Harris Investment Management, the investment arm of BMO Harris Private Bank, will select and monitor the fund houses. BMO PB declined to say which firms were being considered.
The firm has a small pool of managers providing sub-advisory services to discretionary accounts. They are Lazard Asset Management for international equity (ex-US) and global equity, Invesco for Greater China equity and units of BMO Asset Management for US equity value and equity growth, Canadian fixed income and soon US bonds.
Discretionary business is now the main focus for BMO PB, said Cormie. This division's assets have grown 200% in terms of assets since the January 2013 acquisition, and its contribution to the overall business is within the industry average rate of 10%, he added, declining to provide the AUM.
It is much harder for a firm to distinguish itself through its advisory service than through a discretionary offering, noted Cormie. But clients continue to favour the advisory approach in Asia, he said. "We use that platform to convince our clients to convert to discretionary.”
In terms of BMO PB's client base, Hong Kong represents the biggest portion, followed by Southeast Asia. China is in the top five.
The firm has had the most success with its discretionary business in emerging markets. For instance, 70% of its clients in the Philippines are using the fee-based discretionary model, 20% in Indonesia and 15% in China. Factors such as lack of market information and accessibility are key drivers of discretionary take-up, said Cormie.
“I hear a lot in the market that mainland Chinese are not interested in discretionary portfolio [management], but I find it to be the exact opposite,” he added. "Once they understood the value, they really like it."
BMO PB has had the least success with its discretionary business in Hong Kong. “Private banking in Hong Kong has always been transactional, but I see this changing,” said Cormie. "The clients are more open to listen but they are hard to convince."
The discretionary business is advised by external managers, and the advisory segment is served by about 25 fund houses. Alternative investments do not figure significantly in the roster – there is only one firm, Permal, a fund-of-hedge-funds manager.
This is down to transparency and liquidity issues around alternative funds, as well as low appetite for alternatives from clients, said Yun, who runs fund selection for the advisory business in Asia. “It’s difficult to find very liquid alternatives, ones that allow investors to liquidate within a week and consistently deliver good performance."
BMO PB started operations in the region following the acquisition of the Asian wealth management business of Canadian Imperial Bank of Commerce (CIBC) in January last year. That included taking on the entire CIBC team, including Cormie and Yun.
BMO's private banking businesses operate in Canada, Hong Kong, Singapore and the US. It has a presence in China through BMO China Co, a 28% equity stake in Fullgoal Fund Management in Shanghai and a 19.99% stake in Cofco Trust Co in Beijing.
* For features and information on trends in fund selection, readers can refer to AsianInvestor's inaugural Fund Selectors Report, which was sent to a selected list of recipients earlier this month. Please contact Rebekka Kristin at [email protected] for more details. Meanwhile, AsianInvestor will be hosting its first Fund Selectors Forum on November 12 in Hong Kong – click here for more details.