Citi Private Bank is struggling to find suitable talent to build discretionary portfolio management (DPM) capabilities, according to one of its senior executives. This has been an issue for the firm for five years now, and it is not the only wealth manager facing this challenge.
At big fund houses, portfolio managers are supported by marketing and sales professionals, said Roger Bacon, Asia-Pacific ex-Japan head of managed investments and advisory. But when PMs move to private banking, they find the sales force will only endorse them if they’ve built their franchise and proved decent performance, and that could take years, he noted.
Ultimately, it is difficult to find discretionary portfolio managers willing to put in the effort required to build their franchise and asset base in private banking, said Bacon.
“What you are looking for is cultural alignment,” he noted. “Private banking is different from the institutional investment environment. In private banking, you have to do all the marketing to all relationship managers and client advisers within the bank to persuade you are a safe pair of hands.
“We’ve been struggling with this in the last five years, with great portfolio managers who do not want their hands dirty with small, individual clients on a day-to-day basis,” said Bacon.
Bacon identified the search for talent as a major issue when asked about the challenges in DPM in the next few years during the AsianInvestor Fund Selector Forum last month.
The discretionary business is one of the fastest growing areas for Citi Private Bank, for which it involves employing individual portfolio managers, to buy stocks, bonds, mutual funds and hedge funds within a multi-manager offering.
Other private banks also say DPM is one of the fastest growing areas of their business, and they too face talent acquisition and retention issues.
Carolyn Leng, head of private banking at CIMB in Kuala Lumpur, said during a roundtable discussion in mid-2014: “It’s very costly to try to build an asset management and investment team, because it’s challenging to retain this talent.
“Another challenge when you hire someone from an asset management background is that he/she may get frustrated as they do not have direct funds to manage,” she added. “Instead, they are more dependent on the RMs. Third-party management is cheaper in a way and more quickly scalable.”
Meanwhile, Patrick Grossholz, Asia-Pacific head of investment management at UBS Wealth Management, said at AsianInvestor’s Fund Selector Forum last month that another key challenge for DPM was performance expectation.
“The expectation in absolute performance on what we as portfolio managers can provide versus what clients expect are often different, especially on a risk-adjusted basis," he noted. "Many clients want higher returns but are not always aware of the risk it brings. We have to make sure clients are profiled properly and understand the merits of return versus risk."
At the roundtable last year, a similar point was made about unrealistic expectations. Alvin Lee, Singapore-based managing director of wealth management at Malaysia’s Maybank, said: “It’s common to hear clients say that if they invest their money in their business, they can get 30% return. Consequently, if banks are offering returns of 5%, it will be a hard sell.”