Following the global financial crisis private banks have cut down the number of fund providers they work with, leading to less competition for the most established brands in Asia, say asset managers.
But this is making it increasingly difficult for less-established brands to get onto their shelves, even those that are performing well.
Even long-standing names such as Manulife are finding it difficult to get funds onto bank platforms, as noted in a story on AsianInvestor.net this week.
“The trend globally has been to move from open to guided architecture, and post-rationalisation there is a happy few [fund managers],” says a Singapore-based head of fund sales to private banks. “If you are lucky enough to be among them, you have much less competition now.”
Market participants agree that private banks are favouring fund houses that are easy to onboard, with one Singapore-based funds executive pointing to names such as Aberdeen, BlackRock, Franklin Templeton, JP Morgan, Pimco and Schroders.
Private banks tend to focus above all on those names they already have a relationship with, even though that’s a “lazy” approach, argues a senior private banker in Hong Kong.
“It’s easier to have a brand name even when selling to private bank clients,” he says. “But there is some value in finding smaller hidden gems that offer value that’s not available at the retail level.
“I don’t look for names but for firms that are performing or doing something different,” adds the private banker. “For me, a client should be getting something a bit different from, say, Fidelity or Templeton [products].
“But they’re an easy sell, so wealth managers put them on their platforms. The marketing of these big-name firms is very good, their servicing is very good and their performance is often not bad either.”
Most private banks will have at least two or three flagship funds from each of the handful of big names on their shelves, he notes. “As a result, it’s not really your fault if the product doesn’t perform, because everyone else is buying it.”
“If you’re doing due diligence on funds, it’s easier to add another product from a company you already know and have done due diligence on,” says the banker. “It’s far easier to get another fund approved from one of those names than try to onboard a new asset manager’s product. So the bank asks ‘is it worth it?’
“As a result, bigger private banks are often a bit lazy when it comes to getting something new on their shelves unless they see a real need,” he adds. “But that’s what we should be doing.”
He concedes, however, that banks have less time and resources to select or service new funds or asset managers these days, given cost and regulatory pressures.
Meanwhile, fund managers and private banks say fund penetration into private banks in Asia is far lower than many market participants suggest. The Singapore-based head of private bank fund sales says it is typically only 6-7% of a private client’s portfolio.
The Hong Kong-based private banker echoes this view. “I was shocked at how low it is,” he says, adding that the figure probably ranges from 5–15% depending on the distributor. “When I ran a portfolio, I had 20% or a bit more in funds.”