Investors scramble to hedge against inflation

Tan Sing-Hwee, regional CIO at SG Private Banking, talks about the importance of investment themes in building the portfolios of the super rich.
Tan Sing-Hwee joined SG Private Banking in 2007 as its regional CIO. Based in Singapore, she manages the investment division which comprises of research, funds and alternatives, investment counselling, products and services, treasury, and discretionary portfolio management. Tan spoke to AsianInvestor about how investment themes now play a larger part of portfolio allocation.

What are the asset classes, portfolios, and products that you are offering your clients?

Tan: I donÆt like to think of asset classes. That implies a very rigid allocation to stocks, bonds or cash. I feel, in todayÆs economic climate, we are really at the inflection point of another stage of the economy. We call it the end of the great moderation. To me, now, the sensible way to play the investment world is to look at the thematic stories and then from that flow, it into your asset classes, as opposed to the flipside.

What are the themes that you are focusing on now?

First is inflation. Everybody is really looking at inflation. Is it going to last in the same magnitude? WeÆve seen a big flip up in oil prices, in commodities. Can oil keep going up the way it does? How does one just invest in an inflation theme or just hedge against an inflation? There has been a scramble to look for products.

Some of the products are pretty interesting. A lot of the time people will simply choose to invest in inflation-linked bonds. There are more inflation-linked bonds in the US and Europe and only some in the emerging markets.

Second is US CPI indices. You can structure something around a CPI index in the US or in Europe. If your bet or structure is right, you donÆt just hedge, you make money out of it

How do you conduct your product selection?

ItÆs an interactive process. It has to be interactive because if you think about it, you have to know what a client needs and what a client is interested in and then be able to feedback that requirement to our centres of expertise so that they can look into these areas.

On the other hand, the centres of expertise also give recommendations. We take a look at those products, look at them and marry them with the commercial side. Can we sell enough volume on that product? The other side of the equation is education. Is that product correct? Is that how we should counsel our clients?

Are these centres based in your headquarters?

The centre of expertise for hedge funds is based in Luxembourg and Paris. For (traditional) funds, it is based in Guernsey. The centres do the due diligence for the products, the managers, everything else.

How much of what you manufacture is external and how much of what you offer is external?

We generally take the end products out-house, but the management of ideas come from us.

Who does the actual product selection?

Our research people are our specialists and they make the official call on equities, for example. ItÆs a global process. When it comes to the products, we go to the centres of expertise, which work closely with us here in Asia.

What are the challenges you are facing in finding the right products from this region?

It depends on the phase of the market. Distressed securities in Asia are hard to find now.

In which markets do you find distressed assets?

Asia has been writing off such a small portion of assets relative to Europe and the US, so there are really more opportunities in Europe and the US. Distressed fund managers are specialists. You cannot just do it yourself because you have to buy the assets in blocks, in the millions of dollars. You need people ho are connected and will be able to get the best deals. The fund that we actually like is the GEMS Recovery fund.

What else are you looking for, aside from distressed assets?

This year, we are going bigger into hedge funds, which is our preferred asset class. We have a hedge fund theme because itÆs an issue of performance. It is important to have the expertise in the product. The current economic scenario warrants a more specific stock selection.

The September edition of AsianInvestor magazine contains a feature on private banking trends in Asia.
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