Some of the more well-established asset managers in Asia have seen a startling jump in fund sales via private banks in Singapore, if Franklin Templeton’s experience is anything to go by.
One driver of this is a move towards simple products, while another is a trend towards more fund selection being conducted locally in the region.
Five years ago, 10% of the US asset manager’s mutual fund sales in Singapore was accounted for by private banks – that figure is now 60%-plus, says Stephen Grundlingh, regional head of Southeast Asia. Franklin Templeton’s AUM sourced from Singapore investors is now around $6 billion, up from less than $1.5 billion five years ago.
Those flows are largely coming from the biggest private banks, notes Grundlingh. Of the firm's private bank book of business in Singapore, 80% is accounted for by the five biggest firms. “There’s a fairly negligible amount attributable to new, smaller players.”
He declined to name the larger five private banks in question, but sources suggest they are Bank of America Merrill Lynch, Citi, Credit Suisse, Julius Baer and UBS.
Asset managers will view the increased volume of mutual funds in Asian private-client portfolios as not before time, given that these products have tended to form a relatively small part of an investor's allocation, as some have noted.
Franklin Templeton’s strength in fixed income will no doubt have helped boost its sales through private banks, given the record flows into debt and credit in the past couple of years.
But Grundlingh also points to the transparency and liquidity of mutual funds as factors that will have driven this growth. Moreover, allocations to hedge funds and structured products have fallen since 2008, he notes, seemingly partly in favour of mutual funds and to a lesser extent private equity.
Another positive development for asset managers is the move towards more localised fund selection in Asia among international private banks, he says. More firms now have fund research and discretionary portfolio management teams in the region, notes Grundlingh, meaning fund companies’ sales executives are closer to the decision-makers, which enables them to position their products more effectively.
“A few years back, discretionary portfolios reflected a more ‘one size fits all’ model and were equally applicable for European and Asian clients,” he says. “But as Asia’s market share has grown, we’ve seen portfolio construction become more bespoke for Asian clients.” As a result, private client portfolios in the region are more likely to be overweight Asian assets.
Grundlingh also notes a growing number of private banks buying institutional share classes of funds, which means lower fees for their clients – typically 30% lower than retail products. Access to institutional share classes typically requires a minimum investment of $5 million per fund.
As for interest in asset classes, clients are more receptive now to talking about equity investments compared to a few months back, he says. The main equity focus is still Asian ex-Japan equities – with Asean attracting more attention in Singapore. However, there is an increasing interest in looking at the US and to a lesser extent Europe.
There’s also more interest in frontier markets, albeit in relatively small allocations, he adds, with a few private banks having recently added Templeton’s Frontier Markets fund to their focus lists.
Asked whether an Asean funds passport would help further boost mutual fund flows in Southeast Asia, Grundlingh says: “The notion of portability and mutual recognition is attractive on the face of it – but in reality it will facilitate a one-way flow of funds into the smaller markets from large fund centres such as Singapore.”
“There’s a concern by regulators in many of these individual countries for the need to protect their local industry and not facilitate a situation where the domestic markets are flooded by funds from offshore. How do you continue to grow your own industry in an environment like that? That’s a challenge various regulators are trying to work through right now.”
A feature on Singapore's private banking industry will appear in the April issue of AsianInvestor magazine.