Net sales of investment products by Citi to individual retail and high-net-worth clients around the region are up 80% year-on-year through July, with over $3 billion of net inflows, the firm says.
Paul Hodes, Singapore-based managing director and head of wealth management for Asia-Pacific, notes its Asia business now has over $200 billion of assets under management.
This covers the four main segments of wealth management: mass retail; Citi Gold (up to $1 million of banked assets); Citi Private Client (up to $10 million); and its private bank for the ultra rich.
Unlike most bank distributors in the region, Citi has not cut back on its list of manufacturers, which in Asia and Japan number about 100 (not counting ETF providers). What has changed is the focus, with the bank’s Asia businesses reorienting asset allocation away from a US-centric approach.
Until 2011, the typical allocation model for an Asian client followed market-cap benchmarks, leading to overweight exposures to the US and Western Europe. Now the bank pursues benchmarks that are built around GDP or GDP growth rates, with the aim of providing a much bigger regional or emerging-market exposure for Asian clients, or to less-correlated asset classes such as commodities.
The firm has also reconfigured its approach to fund managers, says Hodes, with the aim of building a high-conviction (Hodes calls it a "premier") list of firms among its 100-odd manufacturers. These include managers that not only demonstrate steady outperformance on a three-year basis, but also that avoid style drift and continue to manage to their benchmark.
This has led to a shortlist of fund managers with relatively lower volatility (at least in benchmark terms), one reason why Hodes believes the bank has done well in raising client assets.
Another source of growth has been emphasising I-share classes of mutual funds, those funds or share classes aimed at sophisticated investors, including institutions and wealthy individuals.
Typically such share classes require institutionally sized tickets, sometimes $1 million and often more. Hodes and his team have worked with preferred managers to reduce their I-share class minimum investment to $100,000, making it more widely available throughout Citi’s network.
Hodes says this has worked, resulting in more flows as well as the chance to add institutional-only managers to Citi’s line-up. This structure launched in Singapore in 2011, is being introduced to Hong Kong this year and will move to other jurisdictions, including the US.
One reason Hodes is proud of this innovation is that it originated in Asia and is being adopted in the West. “It used to be that everything was invented in the US and later adopted in Asia, but that’s no longer true,” he says.
Another stereotype that is no longer valid is ETFs, which banks typically do not sell because the commission fees are too low. Hodes says Citi has increased the number of ETF managers and now sells these throughout all four segments of its wealth management network. “The old belief that ETFs were limited to online brokers selling to mass retail is out of date,” he says.
For the time being, the bank prefers to work with vanilla, liquid, physical-backed ETFs. The bank avoids inverse or leveraged ETFs and does not emphasise synthetic. But this may change as the bank becomes more comfortable with ETFs, and decides if its wealthier clientele may want to invest in more trading-oriented or swaps-based products. “We’re at Step One,” he says.
In absolute terms, local, onshore managers make up the majority of Citi’s manufacturers in Asia (the most assets still go to global names). Hodes says doing the due diligence on fund houses in India, China, Indonesia, Korea or Japan is different than evaluating US or European shops.
An onshore business may be very successful in its home market but not used to the detailed questions regarding business and compliance operations that Citi requires. Hodes says the bank is flexible to the extent that it conducts due diligence in the local language, in partnership with the bank’s onshore staff who can put a manufacturer’s operations into a local context.