How BNY Mellon Wealth Management picks funds

Jasmine Yu, director of manager research and monitoring at the US firm, explains in detail the various considerations that go behind onboarding a fund on its wealth platform.
How BNY Mellon Wealth Management picks funds

Jasmine Yu is the director of manager research and monitoring for BNY Mellon Wealth Management. Based in New York, Yu is responsible for directing manager research, the selection process and monitoring activities for BNY Wealth Management’s investments group. She sits on the Hong Kong investment committee and is responsible for fund selection for Asian wealth clients.

Jasmine Yu

Yu joined BNY Mellon in 2016 from Bank of America Merrill Lynch and has also worked for the Abu Dhabi Investment Council, a sovereign wealth fund in the Middle East.

She explained to AsianInvestor the reasoning behind selecting and adding a fund to the US group's wealth management platform.

Q. What is the thought process behind onboarding a fund?

The first step is establishing the search criteria. We are extremely thoughtful at this stage because the strength of the outcome depends largely on how we set our initial criteria [for fund selection]. They are both quantitative and qualitative.

To start with, we set out a three-page criteria definition document. It lays down all the criteria we seek, from the risk-reward requirements to what we want to see on investments to liquidity, operational risk management and the investment vehicles required. We spend a lot of time considering each of these elements.

We also have to think of the appropriate benchmark for evaluating a manager. And we look at specific features and characteristics of the underlying market [for which we are assessing managers], their biases and outlook. For instance, when we search for an Asia-Pacific ex-Japan manager the first step will be to understand the most used benchmarks, like the MSCI Asia ex-Japan. This will show that China accounts for 40%, and technology and banks account for more than 50% of the benchmark. 

This information informs us about the kind of manager we need. In this case, it suggests we need a manager that has really strong expertise on China [to beat the benchmark]. Then we have to consider getting a manager who is based in Asia, as opposed to one sitting in the US and looking at China from a US lens.

The outlook for the markets is also important. How is China expected to perform? What about other Asian markets? 

We also analyse how the entire universe of available managers has behaved historically. We recently compared [Asia-Pacific ex-Japan] managers to US large-cap managers benchmarked against the S&P500 and found that there was more success [in the alpha generation] among [the former] compared to US large-cap managers.

Once we know how the average manager looks in a particular space, it’s easier to figure out what makes a manager unique and differentiated. In the case of Asia ex-Japan, if the index is technology and bank heavy, maybe a good manager gets his edge from betting on biotech or consumer goods.

Q. How do you narrow down manager names?

We cast our net very wide in the initial stage, and it generally throws up six to 10 manager names. We send out due diligence questionnaires to these managers and once we receive their responses we narrow the list to four or five, and then hold phone conversations with all of them. 

The final candidate will be decided after an on-site visit, where our team will meet the manager, tour the trading floor and speak to the chief compliance and chief operating officers. Depending on the complexity of the offering, for instance, a hedge fund or private equity fund, we might also look at operational due diligence and have a legal review of the offering documents.

After all this is done, we will compile a research report internally, based on our manager evaluation framework. Our team will debate the pros and cons and only after we have a strong conviction in our choice do we make a selection. The entire process can take anywhere between two to five months. 

This article was adapted from a feature that originally appeared in AsianInvestor December 2018/January 2019 magazine. 

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