AsianInvestor spoke to Chris Blum, head of investment for Asia at JP Morgan Private Bank, about the firm’s approach to fund selection and what investment themes it likes for 2016.
He leads a team delivering portfolio management and advisory services across equities, fixed income and alternatives. Previously global head of equities based in New York, Blum relocated to Hong Kong in April last year.
AsianInvestor: What do you have on your fund platform?
Chris Blum: Relative to other private banks we have a concise list of funds. We have 250, which we filtered from a list of thousands. We shortlist about five or six managers, we then do intense due diligence and end up choosing just one.
Not all our managers are big brands. We employ the same selection process whether they are regional or global firms. About half of the 250 funds are managed by JP Morgan Asset Management.
How often do you review managers?
Bi-weekly and quarterly, and our solutions team, led by Lina Lim, speaks to fund houses daily. Although the team in Asia does not select funds, they are an extension of our due diligence team based in London.
Is it disadvantageous not having a due diligence team in Asia?
The due diligence unit is a global team of 50 people based in London. Due diligence is less region-specific. If we like a China equity fund, that fund theoretically should be good for investors anywhere. So due diligence becomes a centralised function.
As a fund manager, my proximity to the company’s time zone matters because a fund manager buys and sells the portfolio throughout the year. But it’s not the same for the due diligence team. I don’t see being on the ground as a big advantage. Sitting in London and having that connectivity globally matters more.
How do you select funds/managers?
It is based on what the need is going to be. These could be core strategies which are evergreen or thematic in nature.
If there’s a theme we like, we do not need to use a standardised product. We can go and launch a strategy with a manager if there’s none available. It’s a great way to invest capital. The core client should have a diversified multi-asset portfolio.
But there’s a lot of divergence going on. To be able to capture one of these themes is a very significant value.
We look at philosophy, people, performance and process in selecting managers.
Which is a bigger business for you: discretionary or advisory?
Because of our long history in asset management, our discretionary portfolio management business is bigger than our advisory business. In terms of growth rate, the advisory business has been growing faster in the past five years, but the base started smaller. Most clients have both discretionary and advisory portfolios.
What is the due diligence approach to alternative vehicles?
Since dispersion between managers is especially wide when it comes to alternative investments, we are focused on due diligence. We have over 100 people dedicated to alternative investments (separate from the 50 focused on traditional asset classes), who singularly focus on areas such as investment due diligence, operational due diligence, risk management, compliance, accounting and audit.
Which investment themes do you favour in 2016?
We are positive on developed markets, specifically Japan and European equities. In 2016 we want to be more selective in sectors.
For example, we like the consumer sector because of the positive underlying economic trend; the tech sector because of increasing innovation over the years; healthcare because of demographics; and the financial sector.
In Asian markets there are pockets we invest in such as China and Japan.
What is your highest conviction in Asia?
Japan because of several catalysts: its continued quantitative easing, strong earnings growth, structural reforms and a focus on shareholder return/corporate governance, buying support from domestic pension plans, and reasonable valuations.
Some examples of corporate reform, in our view, include a continued emphasis on dividend and share buy-backs; and progress in the unwinding of cross-shareholdings within the three mega banks.
We believe Japan’s domestic sectors will outperform externally facing sectors, with a recovering domestic consumer, given rising wages and a tight labour market.
Another catalyst will be continued inbound tourism, with the Japanese government raising its 2020 tourist target from 20 million to 30 million and rolling out new initiatives to support the local tourism industry.
*The full Q&A appears in the February issue of AsianInvestor magazine. For more insights on fund selection in 2016, attend AsianInvestor's 2nd Fund Selectors Forum in Singapore on April 21.