Swiss private bank Bordier & Cie is a relative newcomer in Asia, having set up in Singapore about five years ago. The firm has discretionary, advisory and transactional businesses, which each make up a third of overall assets under management, and does not take commissions from fund managers and product providers.
Bryan Goh joined the office last year as chief investment officer, before which he was head of alternative investments at DBS Bank. This is part of a longer interview with him that appeared in the May issue of AsianInvestor magazine. We have already published an extract containing Goh’s thoughts on flaws in private banking business models in Asia.
What do you provide on your product shelf?
Our business model means we don’t offer a product suite. What we do is define a portfolio strategy and deploy it in the most efficient way. We might use alpha products such as hedge funds or derivatives to achieve an exposure we want.
Using funds might meet the liquidity and exposure criteria we are looking for, and it may also be the cheapest way to gain an exposure, such as through an exchange-traded fund. In cases where ETF liquidity is not sufficient, we look for NAV [net asset value] products such as mutual funds [which can be redeemed at their NAV] that give you both the desired exposure and daily or weekly liquidity.
You could say our product suite is unbounded, since we use whatever is most efficient and is available. And when we do this for our discretionary accounts, we also make them available to our advisory and execution-only accounts.
So how much do you typically use mutual funds in a portfolio?
It depends. We will use funds if we cannot operationally manage a product, such as senior loans. The trading and settlement of loans is complex, and few – if any – private banks are operationally set up to handle them. We will use funds if we have a macro view that needs an expression and we want instant diversification of the idiosyncratic risk inherent in buying direct securities.
Some asset classes are difficult to access whether directly or through ETFs or derivatives. In this case, we would seek to invest via a fund. Examples are structured credit and securitisations; essentially institutional investments. Funds provide us access to more uncommon assets and markets less crowded with retail money.
Where does your due diligence team sit?
For mutual funds and products regulated onshore, we do that locally in each of our offices. So Singapore will have its own due diligence capability. We have a centralised due diligence team for alternative funds located in New York, called Greenlake, which is a fully resourced and stand-alone fund-of-hedge-funds manager in its own right.
What is your thinking about the value of hedge funds?
Hedge funds remain quite profitable, provided you pick the right ones. There has been a trend towards liquid hedge funds, but these have struggled to perform. The hedge funds that have been successful have tended to have quarterly redemptions and a hard lock-up for the first year.
There is a pretty high liquidity premium in the market today, and because of regulations such as Basel III, the degree of proprietary desk participation has fallen.
This is interesting. Mutual fund managers are unlikely to do cross-asset investing. If you have a balanced fund, for example, asset allocation is made at high level and each type of asset is managed in isolation. The only people policing the relative asset prices are those on the proprietary desk, because they see everything in one book.
If the amount of capital in the prop desk is reduced, there is less pressure to bring asset prices into alignment. So if you have the ability and faculties to invest across a company’s capital structure, the opportunities are pretty good. If you are doing cross-capital structure, you have the freedom to use arbitrage and not be so directional. But these types of trades take time to converge, so you need a lock-up period. Hence you will notice that there aren’t many who use arbitrage.
Do you see growing investor interest in hedge funds in Asia?
I don’t know if there’s more interest, but there are certainly more opportunities as the market becomes more liquid and mature for hedge funds to operate in. But there are constraints and limitations on shorting stocks in Asia, not so much from regulation but from the liquidity and ownership composition of the market. Shorting can be costly and the risk of stock recalls is high. Many Asian companies are family owned or tightly held and the risk of short squeezes is high.
Asian companies’ capital structures comprise of equity and bank loans, usually held by a syndicate and only trade on appointment. And that’s the problem. You cannot arbitrage between different claims if there’s only one security that is trading, usually the equity and sometimes the bond.