The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
Union Bancaire Privee has opened an office in Hong Kong that is targeting the region's institutions - state and corporate pension funds, central banks, insurance companies and corporations - for its specialisation in hedge-fund investments, says Alexander Balfour, managing director of the Asian institutional business.
He and fellow MD Yusuf Haque have opened the office this year and are in the process of recruiting for the institutional team, which he envisages including up to 10 bankers by year end. Balfour, whose background is in running Japanese equity long/short portfolios, only joined the organisation from London late last year, while Haque, a private equity investor by background, has transferred to Hong Kong from UBP's Dubai office. The firm has recently received its investment license from Hong Kong's Securities and Futures Commission.
"Our business plan is simple," Balfour says. "We are not like a bulge bracket firm with a huge salesforce. We will target the 120 largest institutional clients in the region." The team's geography covers Asia ex-Japan and ex-India, and includes Australia and New Zealand. UBP has a separate business unit for Japan. Australia, Greater China, Korea and Singapore are the most important markets.
UBP's origin is that of a Swiss private bank, but one that realised in the 1970s that secrecy and service were not enough: investment performance also counted. It was a pioneer in the move to outsource management to third party specialists, in particular hedge funds. (It was an early investor in the then-unknown George Soros and his Quantum Fund.)
"Back then the idea of protecting one's downside was novel," Balfour explains. "But for the long-term investor, protecting capital and compounding year after year leads to returns that outperform benchmarks."
The firm manages just shy of $100 billion in institutional mandates worldwide, but more interestingly is the world's second-largest investor in hedge funds, after UBS, with over $40 billion dedicated to these managers.
"We're elitist," Balfour says, adding UBP usually prefers to invest in the largest hedge funds. UBP scrutinises managers based on their investment process and how they act under pressure: whether they are capable of cool appraisal in times of crisis, or if they panic or are forced to switch gears. Big hedge funds have enough capital to be able to afford time to take stock of a situation. "About half of the assets we invest in hedge funds go to only 50 managers," he says.
Because of that bias toward size, today UBP has no Asia-based or Asia-dedicated hedge funds on its roster. For now, the Hong Kong office will focus on business development, but the bank may put down an investment capability here, adding to teams in Geneva, London and New York.
Further down the road, UBP may also establish an actual high-net-worth private banking business in Asia. But that requires a costly servicing capability, and it would prefer to first get the institutional asset management operation on track. Nonetheless a large part of its marketing work in the region will target that gray area where tycoon wealth mingles with corporate war chests.
The firm differentiates itself in its hedge-fund expertise, Balfour says. For example it will introduce very small groups of clients to the top fliers in the hedge fund world, and advise clients on what is in their best interests (which starts with: "Indexing is the worst way to get exposure to hedge funds"). Balfour says the firm is happy to limit itself to advice, rather than sell products, if it means the clients' assets will grow.
"The institutional asset management industry is perceived as commoditised," Balfour observes, "but that is because we live in good times. There have not been any big disasters. We have been investing in hedge funds for 30 years and we know what makes a manager consistently able to compound returns. Hedge funds have come under criticism lately but when the markets turn, their ability to protect capital will become obvious. There are many institutions in markets such as Taiwan and Korea that find absolute return strategies appealing."
Mega players Nippon Life and Dai-ichi Life are looking for opportunities in higher-yield single-A US corporate bonds, which offer more appealing yields than stagnant domestic offerings.
The “lower for longer” monetary policy and stimulus packages, coupled with the rolling out of vaccine programmes favorably support real estate investing in the region, with offices and data centres presenting forward-looking opportunities.
As US fixed income default rates rose and yields fell during the pandemic, are Asian bonds, which have had more stable yields through 2020, looking more attractive?
Insto roundup: Norway's Oil Fund praises China governance efforts; NPS commits $100m to taxi-hailing app
Norway's Oil Fund welcome Chinese proposals improving transparency and shareholder protection; HK's MPF assets surge 35% year on year; Korea's NPS commits $100m to TPG consortium to invest in taxi-hailing app; Poba commits W270bn to European property; Malaysia's EPF sees investment income rise 59% year-on-year in first quarter, and more.