Asset managers can be pig-headed and need to be more creative in product development when dealing with private banks to drive fund penetration higher in Asia, say senior industry experts.

An editorially selected panel is due to be joining AsianInvestor in a roundtable discussion next week on ways that private banks and asset managers can work together more efficiently in Asia.

Pre-event discussions indicate that product design and payout features lie at the heart of talks between the parties. Further, how private banks manage the process of reallocating clients out of fixed income and high yield – the major investment trends over the past 18 months – will be key.

“Some fund management houses in Asia have been more innovative on the product development side, and we’ve seen that asset flows into innovative structures can be very strong even if the underlying asset class may not be interesting at that time to clients,” says a fund selection head.

“Where a structure is interesting and where it has been packaged in a way deemed to be more relevant to wealthy individuals and family offices, we have seen that massive amounts of assets can flow into those areas.”

He notes that big allocators to hedge funds and distributors of hedge funds are increasingly reluctant to sponsor new products with no track record. “It is unusual that we will be prepared to take a leap of faith on fund managers on day one,” he reflects.

He argues that fund houses need to ensure they have the right interfaces with their distribution partners in place, and have stable teams focusing their efforts on a smaller range of products.

“What we need to be doing is focusing on the top two-to-three capabilities of each house and putting our effort into developing those relationships,” he adds.

“Big fund managers still have this arrogance that their platform contains the best fund management capabilities in multiple areas and in multiple parts of the world in multiple asset classes. In most cases that is not right, it is a bit pig-headed and it drives us nuts.”

A peer at a private bank points out that multi-asset income is the next product trend in the pipeline, with a number of houses trying to manufacture such a strategy. He says how firms differentiate themselves will be important in introducing these investment options to clients.

He states that distributors need to be sure of their overarching principle. “Is it optimisation on how much sales you can get, or is it your value proposition to the client?” he wonders, adding that ideally performance should drive selection in a best-of-breed approach.

On the issue of innovation, he says the big question is how banks and managers work together to introduce products with no track record to clients. “I would hope [asset managers] can bring a bit more creativity to the forefront of the process to come up with an end-product or at least a clear concept, rather than just brainstorming,” he says.

Noting a few product features can make all the difference, he points to confidence in the quality of portfolio construction and the investment team at the asset management firm as fundamental in determining which products it goes with.

“Yes, putting strong products on your shelf performance-wise adds to costs, but it is the benefits to the client that ultimately will give you more volume over time,” he adds.

On the topic of investment trends, he says that most high-net-worth clients are heavily invested in fixed income and high yield at present, leaving it open to debate whether they are underinvested in equities right now.

The understanding is there is already a measure of selective profit-taking in fixed income investments taking place, with clients retrenching from lower-quality to higher-quality debt.

There is some suggestion, too, that wealthy Asians are looking at global brand-name firms based in parts of the world that are out of favour whose valuations have been impacted, such as Europe.

And he agrees that Asian high-net-worth individuals are heavily underinvested in mutual funds, which he paints as an efficient tool for all parties.

“I think [fund penetration] should be much higher in this region and I believe it will gain if we as an industry can establish trust in managed solutions again,” he states. “Maybe that will be by building a stronger bridge to the asset management industry to make [funds] more attractive than single stock-picking.”

He points to hedge funds as the one area that is really struggling with sales momentum.