Arnaud Tellier is head of investment services, a role that encompasses product distribution, fund advisory, discretionary portfolio management, fund distribution, wealth planning and philanthropy.
Based in Singapore, he oversees a team of 160 employees across Singapore, Hong Kong, Taiwan, India and China – the latter three have only onshore businesses.
In the second part of an interview he conducted with AsianInvestor, Tellier discusses how the bank has shifted its preferred fund list over the course of 2016 and into this year, and why he believes the unloved hedge fund asset class still offers some appeal.
For the first part of the interview, please click here.
Q What has changed in your recommended fund list?
There were obvious clear trends last year. In the first quarter, we experienced significant flows from equities into bonds and multi-asset funds. A major play we recommended was low-volatility and low-risk funds, and multi-asset funds. The trend into multi-asset income funds continues today as clients seek regular income from the fixed income portion and yet remain invested in equity markets.
The need for protection from rising interest rates has also been a significant new trend. In response, we have offered solutions that mitigate that risk, e.g. floating rate loan funds. We also launched structured products from the first quarter of 2016 linked to funds – generally a basket of funds composed of bond funds or liquid alternative bond funds. This was well received until the US election [on November 8], after which we saw a major shift to equity.
In terms of regional equity exposure, most clients were invested in developed markets. They did not have as much exposure in emerging markets, hence didn’t suffer much from the downturn following the election. Today we see this trend beginning to change as clients stagger slowly into [emerging market] equities, especially Asian equities which have performed very well to date.
Q What’s your view on emerging markets now?
We are neutral on emerging market equities overall. Within emerging markets, we are overweight Asia ex-Japan equities and in particular China and India. We consider India as a growth market on the back of the country’s structural reform process, superior growth potential and lower sensitivity to global trade. China is a value play for us due to improving valuations and growth stabilisation. This is reflected by the funds in our recommended list.
Q What about their appetite for alternative funds, and specifically hedge funds?
We saw a small net inflow for alternative funds and significant inflow for long-only funds last year. We recommend clients hold around 5%-10% in hedge funds, depending on their investment profile, as a way to diversify – but Asian clients are way below that.
The underperformance of hedge funds last year was not reflected in our fund selection, because our [hedge fund] list is made up mostly of liquid alternative funds, which suffered a lot less than single-strategy hedge funds. In fact, only three out of 14 non-equity-long-short liquid alternative funds from our selection suffered a loss in 2016. We have 80 hedge funds in our universe.
Q What hedge fund strategies do you favour now?
We favour macro long/short and event-driven and are cautious on relative strategy. We believe divergence in central bank policies should create opportunities for nimble macro traders. The return of fundamentals in the equity market should favour stock pickers from both long and short angles. Active M&A deal flows should continue to benefit event-driven strategy. On the other hand, volatility in the bond market should pick up as the Fed is asserting its tightening stance, which may trigger investors to move out of relative value space.
Q What investment/sector themes do you favour?
[Socially responsible investing] is one of the themes in which we strongly believe. We are starting to flag stocks on our recommended equity fund list according to our SRI criteria in Asia because there is interest from clients, although BNP Paribas has been doing this for some years.
Q What is your view on fee-based services in private banking?
We are in favour of more transparency, which I think is good for clients. We started applying transparency in fees a long time ago through disclosure of such information to clients. The Securities and Futures Commission has proposed improved standards around advice and fees which goes into the direction of fee-based advisory, i.e. paying for advice rather than per transaction.
In fact, we are now launching a fee-based advisory service in Asia and the response so far has been very encouraging. For an advisory mandate, we charge the client a competitive flat fee per year but no longer charge them fees for transactions. The fixed fee will be based on the size of clients' advisory mandates or AUM with us. This is totally new for us in Asia, and we are launching this service in response to client demand.
The service will be offered in Hong Kong and Singapore, and potentially in Taiwan. Fee-based advisory will not be offered in China and India onshore markets.
Q Can you provide more details of how this service will work?
[We] will charge fees based on the percentage of AUM on an annual basis, which will vary with the amount of client AUM.