How Bank of Singapore selects products

Hou Wey Fook, head of managed investment solutions at the private bank, outlines how his team incorporates active and passive funds in client portfolios, and its use of consultants.
How Bank of Singapore selects products

Bank of Singapore was formed after Singaore's OCBC acquired ING Asia Private Bank in January 2010, merged it with its own private banking operations and renamed the combined entity.

OCBC outbid rivals to acquire the Asia wealth management business of Barclays for $320 million in April. The addition of $18.3 billion in assets will increase Bank of Singapore's assets under management from $55 billion to $73.3 billion. This folllowed OCBC's acquisition of Hong Kong's Wing Hang Bank in 2014.

Hou Wey Fook is responsible for managed investment solutions, which include discretionary portfolio management, mutual funds and alternative investments such as hedge funds and private equity.

There are seven portfolio managers in the discretionary management team. They are supported by a team of around 15 research analysts covering equity and fixed income. There is also a team of eight fund advisers, whose roles include selecting funds and providing advice to clients.   

Q How do you select funds?

A With our open-architecture platform, our first port of call would be to look at the best-of-breed funds rated by our external consultant. The funds team then selects the fund they would like to onboard.

Currently, we have over 100 funds on the master list – a selection of the best-of-breed funds that we recommend to our clients. Depending on the investment house view for the quarter, the team selects the funds that would fit into the house view.

Q When do you replace funds and managers?

A We consider performance and its consistency over the past three to five years. We are also watchful of changes in the portfolio management team and in the investment strategy. A fund must have a minimum of $100 million in AUM.

We do have fund onboarding calls with various teams through conference calls or visit with the fund managers. On a semi-annual basis, we look at those criteria to make changes to the fund platforms.

Q Which external consultants do you use?

A We use Mercer for long-only active funds and Albourne for hedge funds. The consultants provide us a short-list of funds and we select from that list. Exchange-traded funds are not covered.

Q How much do you use exchange-traded funds?

A Exchange-traded funds, commonly known as passive funds, have been gaining in popularity versus actively mutual funds. There is a wide spectrum of ETFs today encompassing not just the plain-vanilla country or sector index funds but also thematic and ‘smart-beta’ funds.  

We use ETFs as a complement to actively managed funds in the construction of our discretionary fund portfolios. As ETFs are highly liquid and generally cost-effective for trading, we use them to express tactical or short-term strategies in our portfolios. We normally hold up to a third in ETFs while the remaining is in active mutual funds, which we tend to hold for a longer period in our portfolio.

Q How many alternative funds and managers do you have on the platform?

A We have started offering hedge funds in the last two years. It is quite a challenging process to build the alternative funds platform, especially hedge funds because the headline news has not been very constructive. [See a previous story for more detail on Bank of Singapore's approach to hedge funds.]

Q  What do you provide in the private equity space?

A In 2015, we partnered Blackstone, the renowned global private alternatives manager, availing alternative investment opportunities across Blackstone’s private equity, real estate, credit and opportunistic platforms to its clients.  More than $170 million was raised.

Earlier this year, we partnered a top-tier global private equity manager, to offer growth investment opportunities in the innovative technology space.

Q Have clients been asking for co-investment type of alternative investment?

A Not in a broad-based manner. There is interest, but the majority prefers to invest in the form of mutual funds. 

Q When do you decide to invest directly in securities or use third-party funds?

A For discretionary portfolios above a certain minimum size, we construct portfolios by holding individual bonds and stocks as underlying securities. For mandates below a certain minimum asset size, we manage discretionary portfolios that are invested in mutual funds as well as exchange-traded funds as underlying securities.

Q What is your view on retrocession fees?

A There is a call on a global basis for more fee transparency and we have put in place that practice in Bank of Singapore. For example, within our discretionary business we hold institutional asset classes of funds that do not have embedded retrocession fees.

Q From your perspective, how is the integration with Barclay’s Asia wealth management unit coming along?

A We welcome the merger. In terms of products, there may be funds outside of our master list that we can add to our platform.

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