Bucking a trend for private banks to reduce the number of fund management firms they use, AA Advisors and UBS Wealth Management are adding to their platforms.
UBS WM is making additions in alternatives, while AA Advisors, a subsidiary of Dutch bank ABN Amro, is picking managers for specific mandates in long-only strategies, they revealed during AsianInvestor’s Fund Selectors Forum last week.
The Swiss firm is focusing on its hedge fund business and working with newer, smaller and lesser-known managers, said James Fava, head of product development and management for Asia-Pacific funds at UBS WM.
But that doesn’t exclude larger firms that fit into the firm’s business approach, he added. “Ultimately we are not reducing [the number of relationships] and closing the doors on managers."
AA Advisors, which provides investment and advisory services to institutional and private clients, is taking a somewhat different approach.
The firm is in the process of selecting managers for emerging markets and Japanese equities for European investors, and is considering offering these to clients in Asia as well, said Clement Joly, head of Asia and Asian equity manager research.
Focusing on specific strategies rather a fund manager’s full offering is preferable, because managers can’t be strong performers across the board, he added.
He is wary of start-ups. “We don’t do partnerships with newbie companies. I don’t think that will happen. We go with specific managers with a strong capability in a specific asset class."
AA Advisors started offering single-manager funds in 2013 and it has been working with more specialist companies, such as New York-based Fred Alger Management (growth strategies), which runs about $22 billion; New York-based Pzena Investment Management (value strategies), with $27 billion in AUM; and Hong Kong-based Matthews Asia (Asia strategies), with some $28 billion.
But though AA Advisors is open to new providers, client appetite is a key selection criterion. “Why bother having a strong conviction on a fund if nobody will use it?” Joly said.
Meanwhile, Hong Kong-based investment advisory firm The Henley Group is not looking to expand its stable of managers over the next 12 months because it is running at optimal capacity in terms of communicating with existing managers, said Simon Liu, head of investment research.
When it comes to booting funds and managers off platforms, performance is the top reason for all three companies.
However, Fava urged caution and pragmatism when looking at performance. "Variables change; markets change. You have to understand the reasons why you chose the funds three or four years ago,” he said. "It comes back to due-diligence process and ongoing monitoring, which is going to be qualitative and in-depth."
He said the size of the fund under consideration and the types of investors were important variables. It would be painful to dump a product with sizeable flow, he said, adding that alternatives should be offered to clients if a fund is dropped.
Joly noted that changes in a fund manager's investment process rarely happened, but personnel changes did, which can have a profound effect on performance.
The departure of a single manager could have a huge impact on the overall culture of a firm, he added, and other staff members could be expected to follow. A clear recent example of this – not cited by Joly – is that of Bill Gross's September departure from Pimco.
Additionally, the likelihood of a merger or acquisition should also be a consideration, as either could have a big impact on asset managers, added Joly.