www.asianprivatebanker.com
Issue 127
ASI A’S D PM TR A I N R O L LS O N P18 INSIDE Regulations Norman Chan: FIs should avoid “over-interpreting” regs
Investments UBS’s Asia clients play major role in KKR impact fundraise
Technology 4 in 5 WMs have made “poor to no progress” in onboarding
People PB team moves relatively safe but caution is vital
P10
P13
P25
P28
ISSUE 127
CONTENTS 5
Letter from the Editor
7
Echo Chamber Investments Purple AM launches third-party CIO office for Singapore IAMs, WMs
CEO Andrew Shale Editor Sebastian Enberg Editorial Benjamin Yang Charlene Cong Alice So Rebecca Isjwara Managing Director Paris Shepherd Research Lisa Cheng Shunta Kamba Shivani Hemnani Business Development Sonia Lam Sam Chan Yana Zhang Charis Tse Ina Lee
Digital Alice Wong Sanya Amin Design Jacqueline Kwok Jordan Yim Marketing Patricia Jover Events Alice Chan Finance & Operations Karman Wu Martina Ngai Yuki Chan Xenia So Taurus Mok Director Europe Madhuri Chatterjee (Actaea Consultants) Production DG3
Published by Key Positioning Limited 13/F Greatmany Centre 111 Queen’s Road East Wanchai, Hong Kong Tel: Fax: Email:
+852 2529 1777 +852 3013 9984 info@asianprivatebanker.com
ISSN NO. 2076-5320
8
Industry MFOs Carret Private, Lumen Capital Investors to merge
9
Raffles Family Office opens its doors in Taiwan
10
Regulations FIs should avoid “over-interpreting” regulations: HKMA’s Norman Chan
11
SFC licensing reform encourages bad apples to stay put
13
Investments UBS’s Asia clients play their part in KKR impact fundraise as bank edges closer to 5-year SDG objective
14
PBs, AMs shrug off near-term impact of QFII and RQFII quota removal
16
Unconstrained bond funds return to favour as high yield demand subsides
17
UBS AM offers China equity fund to affluent retail clients in Hong Kong
18
Asia’s DPM train rolls on
20
Investments DPM asset growth maintains steam following 50% rise in 2018: DBS PB’s Marciano
22
Events 8th Funds Selection Nexus 2019
24
Investments PBs expect risk appetite to return over next 12 months
25
Technology 4 in 5 WMs have made “poor to no progress” in onboarding: Fenergo
26
Advertorial Go beyond borders, biases and benchmarks in fixed income
28
People PB team moves relatively safe in eyes of the law but caution is vital: Dentons
29
People Moves Movers & Shakers
ADS
Since 2011, the Awards for Distinction have set the benchmark for excellence in private wealth management in the Asia Pacific region. Now in its 9th year, these Awards are now recognised for the independence and rigour of the adjudication process, the calibre of the applicants, and the global acclaim that winning brings. For a list of categories and the submission guidelines, please visit: apb.news/afd2019
Submissions open 23 September 2019
Submissions close 22 November 2019
Winner announcements 6-10 January 2020
Awards ceremony 13 February 2020
Contact: awards@asianprivatebanker.com
INDEPENDENT. AUTHORITATIVE. INDISPENSABLE. #APBAFD2019 4
LETTER FROM THE EDITOR
T
he PWMA & KPMG this month released its annual industry survey that made for sobering reading. I can’t say I am surprised that Hong Kong’s private wealth managers revised down their annual growth forecast — from 10-20% to 5-10% — and, truth be told, I always felt their earlier projection was overly optimistic if weighed against realised growth, not to mention the fact that the proposed Greater Bay Area single wealth zone has yet to come to fruition. But I was pleased to see shared confidence in the prospects for discretionary portfolio management in the city. Specifically, the majority of those PWMs surveyed for the report said they expect discretionary assets to account for 10-20% of their total AUM in five years’ time. It just so happens that we released our annual DPM benchmarks this month. You’ll find specific figures (page 18). However, I will say now that, for the sixth consecutive year, private banking DPM asset penetration in Asia increased in 2018 — albeit by one-tenth of a percentage point — and, on a year-todate basis, has likely pushed beyond the 10% mark due to strong positive net inflows across the board. Yes, dispersion among banks (and bank-types) remains high. But I would struggle to single out any private bank that is blasé about the importance of DPM and, moreover, managed solutions, for the business going forward. And indeed, investor behaviour this year makes a strong case for driving up delegation levels. Despite CIOs’ broad positivity on equities for a good chunk of the year, transactional accounts have generally suffered from a lack of exposure with many clients missing that Q1 rally and struggling to find a good entry point thereafter. As one DPM head said to me very recently, one must tread carefully when pointing out to clients that they are ‘wrong’. That’s why banks are going to greater lengths to improve the quality and consistency of their education and training of RMs and clients. I’m pleased to say I’ve seen a real improvement in pre-sales collateral and processes and, of course after-sales, which is critical when it comes to encouraging clients to stay the course (widespread profit taking this year suggests more needs to be done on this front). Enjoy, thanks for your support, and as always feel free to reach out to me at editor@asianprivatebanker.com with feedback and ideas.
Sebastian Enberg Editor Asian Private Banker
5
ADS
We look forward to hosting you at one of our functions this year • only private banking and wealth management • only senior industry speakers • only for qualified participants
24 Oct Shanghai
2nd CHINA GLOBAL WEALTH LEADERS SUMMIT New era in sustainable & responsible wealth creation & management.
12 Nov Singapore
3rd HIGH CONVICTION: 2020 INVESTMENT IDEAS AND THEMES The most senior gathering of Asia-based gatekeepers from global and regional private banks in Asia, alongside established IAMs and family offices, examining 2020 investment ideas and product strategies.
14 Nov Hong Kong
13 Nov Singapore
6th CHIEF OPERATING OFFICERS LEADERS CONVERSATION Peer networking and experience sharing between COOs, CTOs and CDOs around their respective private banks’ technology and innovation agendas.
17 Mar Hong Kong 2020
2nd CHINA INTERNATIONAL PRIVATE BANKING & WEALTH MANAGEMENT LEADERS PRIVATE DIALOGUE The C-suite leadership of China-linked wealth managers and private banks convene to examine and debate the future of offshore wealth management for Chinese clients.
14 Apr Singapore 2020
6th DISCRETIONARY PORTFOLIO MANAGEMENT LEADERS CONVERSATION
16 Apr Hong Kong 2020
Key DPM leaders from private banks and IAM’s to discuss and debate new products for their DPM mandates, and examine other key issues affecting DPM penetration in Asia.
6
RSVP to Alice Chan alice.c@asianprivatebanker.com +852 2529 1737
For more information, please visit www.asianprivatebanker.com/events
INVESTMENTS
e ch o cham be r “The industry should stand ready to challenge the regulators if the severity of the risk is overstated or there are better alternatives than what has been put on the table. On the other hand, the industry must avoid over-interpreting or gold plating the regulators’ requirements in such a way that is safe from the compliance point of view but would create bad customer experience without enhancing the underlying risk management outcomes.” Norman Chan, former chief executive, HKMA “Portfolios continue to run because everyone knows what’s inside, and that’s important. I know of setups — not particularly in Singapore — where it’s a ‘key man’ sort of thing, just a one-man or one-woman show. I don’t want that, and I don’t think clients need that. Clients want something that is sustainable and can go a long way.” Christophe Marciano, head of DPM, DBS Private Bank “Many firms have rolled out masses of online compliance training in an effort to appease regulators, rather than driving real cultural change. If you ask people in the bank, ‘Do you care? Do you skip all the trainings? Would you ask someone else to do it if you can?’ The answer would be: ‘Yes, yes, yes’.” Benjamin Quinlan, CEO, Quinlan & Associates “In the last five years, banks haven’t really made many inroads in the STP journey. 80% of clients we speak to admit that they still have a problem with STP or made no progress in achieving that. Five years on, the sector has failed to transform sufficiently and it’s now impacting wealth managers and clients alike, except this time around, clients are taking their money elsewhere.” Steve D’Souza, head of private banking and wealth management, Fenergo
Purple AM launches third-party CIO office for Singapore IAMs, WMs
P
urple Asset Management has launched Global CIO Office in Singapore for the region’s family offices and wealth managers in a bid to narrow the investment capabilities gap in the industry, the independent asset manager (IAM) told Asian Private Banker. According to Gary Dugan, Founder of Global CIO Office and CEO of Purple Asset Management, upand-coming IAMs typically specialise Gary Dugan in an asset class, Purple AM so dealing with a wide range of products and services can prove challenging. “We believe for many years to come, they need to have a much broader ability with sensible advice in almost all asset classes,” Dugan said. “Yet, it’s very expensive to bring in another specialist for something else.” Johan Jooste, managing director at Purple Asset Management, added that from a flexibility standpoint, a third-party CIO office model could also benefit wealth managers. “One term that we can learn from tech is called a ‘plug and play’,” he explained.
“For IAMs that have to be a one-stop shop, when they don’t have certain expertise, they can collaborate with an external specialist and they plug Johan Jooste it in, and when Purple AM they don’t need it, they plug it out again. So they don’t basically encumber themselves with all of those overheads. That could make a huge difference.” According to the firm, the recently launched offering provides a suite of customisable investment advisory services across strategic and tactical asset allocation, multi- and single asset class portfolios, fund selection, ESG investing, and alternative investments. Dugan added that significant fixed costs have driven many leading wealth managers towards a brokerage-type model, looking to trade in high volumes in order to achieve revenue targets. As such, he believes that there has been a lack of focus across the industry on traditional client servicing — offering clients independent advice on investments and wealth structure. The CIO office has 12 dedicated specialists based in Singapore and London.
7
INDUSTRY
MFOs Carret Private, Lumen Capital Investors to merge
A
merger is in the works between two of Asia’s most prominent multi-family offices, Hong Kong-based Carret Private and Singapore-based Lumen Capital Investors, in a deal that will bring together over US$2 billion in AUM. According to both firms, details of the deal have been finalised, with Carret and Lumen agreeing to cooperate on portfolio management, research, business development, and operations. The merger also reunites Carret Private’s managing director and co-founder, Kenny Ho, and Lumen Capital Investors’ chairman and founding partners, Wilfried Kofmehl, who worked together at Julius Baer where they helped set up the Swiss bank’s franchise in Asia over a decade ago. Ho was at one time Julius Baer’s head of investment solutions group APAC, deputy global head of investment solutions group, and a member of the Swiss bank’s Asia executive board, while Kofmehl oversaw the establishment of Julius Baer in Singapore as its CEO and head of Southeast Asia. The move comes as industry practitioners predict an uptick in M&A activity in Asia’s fragmented but growing IAM and MFO space amid
8
increasing cost pressures and rising ambitions to tap new markets. According to research conducted by Asian Private Banker in 2018, some 7% of firms said they were involved in M&A between 2016 and 2018, while one in five said they expected to be involved in such activity at some point before 4Q19. Carret Private and Lumen Capital Investors said they expect the merger to give rise to new business and investment opportunities, with Ho pointing to increasing demand from North Asian clients for investment and custodial solutions in Southeast Asia. “We are seeing a lot of demand for the Singapore platform and investing in Southeast Asia in general, and Lumen affords us both the platform and investment intelligence for this part of the region,” Ho told Asian Private Banker. Both will continue to operate under their respective brands in the interim, although investment portfolio and products will be cobranded from next month, Ho added. Carret Private, an affiliate of New York-based Carret Asset Management, currently has around 25 staff while Lumen Capital Investors employs 16.
INDUSTRY
Raffles Family Office opens its doors in Taiwan
R
affles Family Office has officially opened its doors in Taipei in order to provide legacy planning and independent asset management services to local HNWIs, as well as capitalise on the “old money” opportunity, the family office’s managing director and COO told Asian Private Banker. Raffles Family Office has been getting a lay of the Taiwanese land since June 2017, with Taipei-based director Martin Chen leading regional services alongside co-founder and managing partner Ray Tam. Now, in keeping with its stated intentions — voiced by CEO and co-founder Chi Man Kwan last October — the firm has officially set up shop in Taiwan.
Jaydee Lin Raffles Family Office
“After reviewing the needs of the Taiwan market, we realised Taiwan has gained a lot of traction in 2018 so we decided to set up a presence in Taipei,” Jaydee Lin, COO and managing partner at Raffles Family Office, told Asian Private Banker. “There is a lot of old money in Taiwan and the concept of ‘family office’ is starting to gain traction, so we feel it is the right move to expand to Taiwan.”
The new Taipei setup will act as a representative office, bolstered by the firm’s investment committee based out of Hong Kong and Singapore. So far, Raffles Family Office has appointed three Taiwanese RMs over the last four months and is looking to add more “to bring RFO to new heights”. “We don’t have a fixed number of RMs we are planning to hire, but we have shortlisted some potentials,” Lin said, adding that other developments include moving the Singapore office to a new location in the fourth quarter of 2019. “We are committed to our goal to become the biggest IAM and MFO in Asia, so we definitely have something planned out in the pipeline.” The family office has made strides so far in 2019. In January this year, Indosuez Wealth Management’s former Asia head of FX advisory, Benn Ng, joined Raffles Family Office’s management lineup as the firm sets its sights on US$10 billion in AUM by 2021. In March, Raffles secured a Capital Markets Services (CMS) licence from the Monetary Authority of Singapore (MAS), allowing it to sign independent asset manager (IAM) agreements with private banks in the City-state.
9
I NEVGEUSLTAMT EI O R NN TS
FIs should avoid “over-interpreting” regulations: HKMA’s Norman Chan
N
orman Chan, the former chief executive of the Hong Kong Monetary Authority (HKMA), has suggested that financial institutions avoid “over-interpreting” regulations and collaborate with regulators to develop a risk management framework tailored to the Hong Kong market. During his keynote speech at the Treasury Markets Summit in September, Chan said Hong Kong has “successfully developed itself into a risk management hub” over the past decade and emphasised that banks must demonstrate they have the necessary capabilities and processes to prudently manage the risks that accompany asset gathering, both at origination and on an ongoing basis. “There is still the basic question: how do we attract financial flows to Hong Kong instead of to other financial centres? There is a bit of a chicken-and-egg problem here. Unless restrained by capital controls, money is highly agile and risk-sensitive and will migrate to centres that offer the greatest efficiency and safety. In other words, money tends to move through centres that provide a high standard of risk management,” said Chan. “By handling more financial flows, a centre will be able to further improve and innovate on its risk management capability. The process is interactive and there would be a clustering effect once a centre has established the leading position in risk management and client servicing.” In order to strengthen competitiveness and maintain Hong Kong’s position as the leading risk management hub in Asia, Chan said it is important regulators collaborate with the industry to develop a risk management framework and practices that are suited to Hong Kong’s markets. During his speech, Chan also highlighted that regulators should “stay true to the risk-based approach”, maintain a sense of proportionality,
10
and strive to “get things done in a way that would cause less disruption or inconvenience”. “The industry should stand ready to challenge the regulators if the severity of the risk is overstated or there are better alternatives than what has been put on the table,” said Chan. “On the other hand, the industry must avoid over-interpreting or gold plating the regulators’ requirements in such a way that is safe from the compliance point of view but would create bad customer experience without enhancing the underlying risk management outcomes.” Chan also suggested that financial institutions “avoid getting carried away in boom times” and put clients’ interests first, as the professionalism and integrity of financial institutions and practitioners are crucial to earning clients’ trust — the bedrock of Hong Kong’s reputation as an international financial centre. “The regulators must not fall into the trap of complacency, and should constantly stay alert and maintain a sense of unease even in good or peaceful times,” he said, adding that the industry can “build sufficient buffers” to reduce risks and lower or contain potential damages from banking and financial crises which can “never be avoided altogether”. In August, the Securities and Futures Commission (SFC) reminded licensed corporations to keep abreast of increasing market volatility and enhance fund liquidity risk management by conducting stress tests more frequently. Chan retired at the end of September and was replaced by Eddie Yue, formerly the HKMA's deputy chief executive.
INVESTMENTS
SFC licensing reform encourages bad apples to stay put
T
he Securities and Futures Commission’s (SFC) licensing reform — implemented in February 2019 to prevent employees accused of misconduct from resigning and ‘rolling’ on — could encourage staff under investigation to stay put in order to wipe their slates clean, according to a partner at Simmons & Simmons.
“When this new requirement was announced by the SFC in February 2019, we had a lot of discussion with clients around: what is an ‘investigation’? There was a discussion across the industry as to whether it would be possible to use different terminology or categorise things differently in order to fall out of scope,” she said.
“If the individual is subject to an investigation within the last six months before employment ends, the employer is required to inform the SFC and provide some details,” Sarah Berkeley, partner at Simmons & Simmons, told Asian Private Banker.
“It is clear from the FAQs that it is very broad in scope — it captures any allegation of a suspected breach of regulation or law or policy or anything that might go to whether somebody is fit and proper.”
Accordingly, Berkeley added, employees are motivated to stay at their current firm for six months following the conclusion of the investigation in order to avoid having a record with the SFC.
“If the SFC is aware of an investigation in another way, perhaps as part of their supervisory dialogue with the licensed corporation, then it seems likely the SFC will also expect to see it mentioned on the form that the firm has to fill in when a licensed individual leaves,” she said.
“One of the interesting things to come out of this new requirement is that if an individual is subject to an investigation and they don’t end up getting dismissed — let’s say that they’re guilty of some kind of misconduct but they get a sanction that’s less than a dismissal, such as an oral, written, or final written warning — it’s actually now in their interests to stay put for six months and not move firms, so the misconduct record will not be disclosed to the SFC,” she explained.
Since the implementation of the reform in February, industry players have raised concerns and queries over the scope of investigations, particularly in terms of the former employer’s obligations.
Sarah Berkeley Simmons & Simmons
The effects of the reform are in line with the regulator’s intention to ensure licensed employees face the consequences of their misconduct internally rather than avoiding repercussions by resigning. Further, according to the watchdog’s May 2019 FAQ, what constitutes as an ‘investigation’ is relatively broad, thus affecting a wider range of ‘bad apples’.
Although the reform excludes additional checks on full disclosure from the firm’s perspective, Berkeley added that the SFC expects consistency between licensing forms and other ongoing developments.
“If an allegation is made which involves an employee who left some time ago, even years ago, if the firm decides to investigate, this reporting obligation will be triggered and the investigation must be notified to the SFC,” Berkeley explained, adding that this obligation could increase the burden on financial institutions. In April, Adam Singer, chief administrative officer and head of core compliance, Asia Pacific at J.P. Morgan, said the regulator should leverage the network effect by providing more information on regulatory standards in order to eliminate ‘rolling bad apples’.
11
ADS
2nd CHINA GLOBAL WEALTH LEADERS SUMMIT 2019 中国全球财富领袖论坛 Join the key leaders driving the new era of China’s wealth industry at the most important private banking, wealth management and family office event in the People’s Republic of China. 诚邀您与多位的业界领导一同参与于中国举办 的私人银行 财富管理及家族办公室中最具 代表性的峰会 共同探讨中国财富新时代
24 October | Shanghai 10月24日 | 上海 To register, visit
www.apb.events/registercgs RSVP to Alice Chan alice.c@asianprivatebanker.com +852 2529 1737
Lead 12 Partner
Conversation Partner
Charter Partner
INVESTMENTS
UBS’s Asia clients play their part in KKR impact fundraise as bank edges closer to 5-year SDG objective
U
BS Global Wealth Management’s Asia clients have again played a major part in the bank’s global raising activities in the impact investment space — this time for a strategy managed by private equity major KKR. Around 25% of US$225 million in commitments came from the private bank’s APAC clients, according to Mario Knoepfel, UBS GWM’s head of sustainable & impact investing advisory, investment platforms and solutions, Asia Pacific, who told Asian Private Banker that demand for KKR’s Global Impact Fund was in line with a broader interest in private market investments amid a turbulent year for assets. “The bulk of the raise was at the beginning of this year after the big correction in 4Q18, and it is fair to say that since clients have gone risk-off, the appeal of private market solutions that are less exposed to volatility and bring a liquidity premium has increased,” Knoepfel said. He added that sales were spread evenly across client tiers, with a “large number of tickets in the US$250,000-500,000 range and some sizeable single-digit million-dollar tickets from ultra clients”. Combined, UBS’s Europe and Asia clients accounted for around 50% of the raise, with the balance coming from the US, where the bank uses a different model. “Clearly, this is an attractive proposition amid a transforming economy that opens up a lot of opportunities for such types of investments,” continued Knoepfel. Launched in 2018, KKR’s Global Impact Fund — the firm’s first impact offering — invests in businesses providing commercial solutions that contribute measurable progress towards one or more of the UN’s 17 Sustainable Development Goals (SDGs). To date, the fund has invested in a Singapore-headquartered energysavings solutions provider to industrial and commercial buildings and an Indian environment management services firm. Media reports last month said that total commitments for the fund had surpassed US$1 billion, making it one of the largest impact investment strategies to date.
Mario Knoepfel UBS GWM
UBS’s global contribution of US$225 million also brings the bank closer to meeting its five-year goal of raising US$5 billion for SDG-related impact investments. Two years in, Knoepfel said the bank was “more than halfway there” in terms of delivering on this commitment, which was announced during the 2017 World Economic Forum in a bid to address funding gaps associated with the goals. UBS announced in May that it had raised close to US$100 million for a sustainable solutions fund from the Al Gore-co-founded Generation Investment Management. It has also seen success with its 100% sustainable cross-asset portfolio which launched in Asia early last year. And the bank’s flagship UBS Oncology Fund, which garnered a significant contribution from Asia clients in 2016, made its first financial contributions ahead of schedule at the beginning of 2018.
13
ITNEVCEHSNTOMLEONGTYS
PBs, AMs shrug off near-term impact of QFII and RQFII quota removal
C
hina’s currency regulator, the State Administration of Foreign Exchange (SAFE), announced in early September that it will remove investment quotas for both the QFII and RQFII programmes. Although most financial institutions consider the further opening of China’s domestic market to be a positive move, they believe the near-term implications are limited. Introduced in 2002, the Qualified Foreign Institutional Investor (QFII) scheme offers investors the opportunity to purchase yuan-denominated A-shares, while the Renminbi Qualified Foreign Institutional Investor (RQFII) programme — introduced in 2011 — permits the use of RMB funds to invest in China’s domestic securities market. “With QFII and RQFII investment well below the current quota limit and with Northbound Stock Connect becoming a major channel for foreign investors to enter China, we do not expect any immediate effects from the quota removal,” Louisa Fok, China equity strategist at Bank of Singapore, told Asian Private Banker.
industry analysts believe the lifting of QFII and RQFII quotas is a good sign of the Chinese government’s long-term commitment to opening up its markets. “This policy announcement from SAFE is consistent with China’s commitment to market liberalisation — the measure reduces restrictions and offers more flexibility to foreign investors,” said David Chao, global market strategist, APAC ex-Japan at Invesco. “It is a step in the right direction and a positive development for foreign institutional investors.” Sharing his sentiments, Desiree Wang, China country head at J.P. Morgan Asset Management, told Asian Private Banker that the announcement sends a “strong signal” from China that they are looking to attract more inbound investments into the domestic capital market, which the asset manager views as a “very positive” move.
More easing on the horizon
Agreeing, Jing Ning, portfolio manager at Fidelity International, said the policy alone will not create significant liquidity in China’s domestic capital market as the current QFII utilisation rate is low and other channels, such as stock connect, offer similar market access.
Looking forward, analysts anticipate China will implement more easing policy measures to soften the economic landing. Specifically, China is expected to roll out more foreign investor-friendly policies to further improve access to its onshore market.
Indeed, as of 30 August 2019, foreign investors had only made use of US$111 billion of the US$300 billion quota.
“[This] important milestone suggests further deregulation ahead,” UBS’s Cao said. “Further market liberalisation measures could include deregulation of derivatives — for example, index futures, structured products — a registration-based IPO system for the main board, singlestock short-selling, and financial leverage for brokers. Foreign investors own only 4% of tradable market cap of A-shares and 3% of the onshore bond market.”
“We believe the QFII quota has not been a major hurdle for foreign investors to access China’s A-share market: Northbound Connect through HKEX already accounts for 60% of foreign holding of A-shares, with the aggregate quota removed in 2016,” highlighted Craig Cao, nonbank financial analyst at UBS Securities. Asset manager Barings’s head of Greater China investments, Khiem Do, added that despite the positive news, the fundamentals of the underlying economy — such as corporate earnings, yield spreads, and currency movements — remain key decision factors for the firm.
Long-term commitment Despite the limited short-term benefits for China’s financial market,
14
China has been proactively opening up its domestic market to foreign investors over the past year. In July, the People’s Bank of China announced 11 new measures with an accompanying timeline to promote and facilitate foreign access to China’s finance industry, and later that month it said it would move up the lifting of foreign ownership caps in securities and futures and life insurance from 2021 to 2020 — one year ahead of schedule.
3rd HIGH CONVICTION: 2020 INVESTMENT IDEAS & THEMES
Discuss 2020’s investment ideas and themes with Asia’s top fund selectors and CIOs from private banks, IAMs and family offices.
12 November Singapore
14 November Hong Kong
For more information, please visit
www.apb.events/registerhico
RSVP to Alice Chan alice.c@asianprivatebanker.com +852 2529 1737 This event qualifies for CPT/CPD accreditation.
Partners
15
IANDVSE S T M E N T S
Unconstrained bond funds return to favour as high yield demand subsides
U
nconstrained bond funds are back in favour amongst private banking clients as demand for high yield exposure wanes, according to J.P. Morgan Asset Management.
Brian Tan, the asset manager’s head of Singapore funds & global strategic relationships, APAC, told Asian Private Banker that the firm’s unconstrained bond strategy has witnessed a surge in demand as clients search for flexibility amid rising volatility. “Definitely, we saw an increase in demand for high yield strategies at the beginning of this year, and that has played out really well for clients through the first half of the year,” Tan said.
Brian Tan J.P. Morgan AM
“But I wouldn’t say that the high yield money has been extremely sticky, as allocations actively change based on these private banks’ house views.”
Indeed, following the sharp rally in high yield, a number of banks downgraded the asset class. UBS Global Wealth Management, for example, has been taking profit in Asia high yield since April owing to an upward trend in valuations that has seen the asset class return to its five-year average. Similarly, in June, wealth manager CreditEase cautioned investors against adding more risk exposure to the asset class and suggested looking to government bonds.
Turn towards unconstrained bond strategies “This year, we have had quite a few successful launches with some of our private bank clients within the unconstrained bond space,” Chia Chia Chng, Singapore head of private bank distribution at J.P. Morgan Asset Management, told Asian Private Banker, adding that within the firm’s unconstrained product range, the Global Bond Opportunities Fund has gained particular traction amongst clients. According to the firm, the fixed income fund stands at US$5.26 billion, up from US$98.97 million five years ago.
16
“As there is a shift towards higher volatility within the market, clients are quite happy to find a manager that can allocate actively within different asset classes of fixed income into where they think will perform well,” she added. In addition to political developments, the late-cycle environment has made investors more cautious, as evidenced by the rise in fixed maturity products (FMPs) as a defensive play. However, the asset manager believes FMPs carry concentration risks. Chia Chia Chng J.P. Morgan AM
“Compared to buy-and-hold, FMPs tend to be quite concentrated, while an unconstrained fixed income fund gives you a lot more flexibility, as the managers can be really dynamic in terms of sector, rating, and duration allocations and rebalancing,” Tan explained.
Demand rises for multi-income strategies J.P. Morgan AM has also seen increased demand for multi-income strategies, with a number of private banks using a multi-asset approach to gain equity risk exposure. “Instead of going straight into pure equity exposure, [private banks] have adopted more flexible strategies to get equity risk exposure, particularly through those multi-asset funds that offer a consistent income stream,” Tan said. He added that among the asset manager’s full suite of multi-asset income strategies — Global Multi-asset Income, Emerging Market Income, APAC Income, and China Income — EM Income has received notable interest from private banks owing to it being a good avenue through which to access both EM debt and equities. “Although we’re in the late cycle, global growth is still positive,” Chng said. “At this juncture, we don’t think now is a good time to take profits from equities. We believe a multi-asset approach can be a good strategy in getting clients to stay invested in equity markets and in the meantime riding out some of the volatility.”
INVESTMENTS
UBS AM offers China equity fund to affluent retail clients in Hong Kong
I
n a bid to expand its client base, UBS Asset Management is making its China equity strategy available to Hong Kong retail clients, targeting those with investable assets of US$1 million-5 million, the asset manager told Asian Private Banker.
Markus Egloff UBS AM
According to Markus Egloff, head of wholesale client coverage APAC at UBS AM, the Swiss player has tended to focus on institutional and in-house private banking clients as UBS AM’s products have gravitated towards the sophisticated end of the spectrum. However, seeking to broaden its client base, the asset manager is moving “selectively” into the retail space.
“Affluent investors, especially for the segment of US$1 million to US$5 million, are usually served out of the retail department within those big banks, although they’re professional investors from a regulator’s point of view,” he said. “There is room for retail banks to increase their value-added services in terms of differentiation of products. That’s where I now see many retail banks stepping up to increase those types of services.” The newly launched All China Equity Fund, managed by Bin Shi, head of China equities at UBS AM, covers China’s offshore and onshore markets via the Hong Kong Stock Exchange and Stock Connect, respectively. The fund comprises of China A-, B- and H-shares, red chips, P-chips, and ADRs. Although it’s the firm’s smallest China equity strategy, Egloff believes it will be the future of China equity strategies given how the A- and H-share markets are transforming and converging given stock connect schemes and the lifting of the QFII and RQFII quotas. “We launched All China Equity Fund last May relatively quietly because we obviously already had two successful funds — A-share and H-share. But with the markets converting between onshore and offshore, we believe this strategy — which is fully flexible and can go anywhere to pick up Chinese company stocks — is going to be the future of China equity funds,” he added.
According to a press release, Bin Shi said that clients globally are underinvested in China equities, but added that this is about to change. “The situation is being redressed and the inclusion of A-shares in global indexes is a growing long-term trend,” he said. “In addition, China equities have undergone huge structural change over the last three years. Increasingly, stock performance is driven by fundamentals, which are a good basis for long-term investment.” He added that both the onshore and offshore markets offer investors different exposure to investment themes in the country. “Onshore markets offer investors exposure to sectors like traditional Chinese medicine, home appliances and liquor while offshore markets offer exposure to sectors like gaming and media, education services and e-commerce,” he explained. “At the same time, structural changes to the economy in China including the urbanisation, an ageing population, innovation, and increasing consumer demand, remain intact and continue to drive the sectors we favour.” UBS AM’s China equities team now manages the world’s largest China equity fund and aggregated AUM in the asset manager’s China equity strategies stands in excess of US$14 billion.
17
INVESTMENTS
Asia’s DPM train rolls on
A
sia’s private banking industry continues to make headway on its goal to significantly raise DPM asset penetration levels. In 2018 — a year when the Top 20 banks experienced a 3.6% contraction in total AUM — the average asset-weighted penetration of private banking discretionary assets in the region edged up 0.1 percentage point to 9.7%, according to Asian Private Banker’s data. Meanwhile, healthy net inflows into discretionary mandates year-todate suggest that the industry average has now breached the 10% mark.
The Asia grouping itself is subject to considerable divergence. Bank of Singapore continues to spearhead the way with a rate that exceeds the overall industry average. In July, the private bank said its DPM assets had hit US$7.7 billion — a total 1.5 times greater than that in 2016. Net inflows have since pushed the total beyond the US$8 billion mark and close to double the segment’s average.
PAGE 18-19
PAGE 18-19
2018 DPM
Meanwhile, rival DBS — among the largest private banks in the region by AUM — grew its DPM assets by some 50% last year, albeit from 2018 DPM asset-weighted penetration in Asia a smaller base. And the growth should continue as DBS pushes ahead with digital innovations in asset-weighted penetration in Asia the discretionary space aimed in part at driving up client adoption. And separately, it launched digital solution, digiPortfolio, which caters to Universal PBs: a8.4% retail and wealth clients by tapping the private PBs: 3.7% Universal PBs: 8.4% ...of which Retail-linked bank's discretionary managed funds portfolio team ...of which Retail-linked PBs: 3.7% on offering them a comparatively low minimum investment amount and low management fees.
Overall
Overall
9.7%
9.7%
Pure play PBs: 20.0%
As one would expect, dispersion remains pronounced across segments. Pure plays once again lead the pack with an average penetration of 20%. Lombard Odier remains the pacesetter with a rate that is more than double the segment average, while universal banks (e.g. those with investment and/or retail banking arms) come in at 8.4% and Asianheadquartered banks — a subset of universals — at 4.1%.
Pure play PBs: 20.0%
Quietly, other private banks say they are also considering lowering minimum ticket sizes for discretionary mandates and exploring new, scalable offerings that would promote broader adoption at a lower cost to clients. So too are they investigating ways to deliver greater customisation, whether by introducing options for tweaking or by ramping up capabilities to enable genuine, bottom-up bespoke mandate construction for upper-tier clients. Setting aside regulatory drivers, the impetus for this industry-wide push to increase DPM penetration rates is largely financial. Traditionally in Asia, revenues generated by clients’ transactional activities have
2012-18 DPM penetration in Asia
2012-18 DPM penetration in Asia
20%
20%
Pure Play: 20%
Pure Play: 20%
15%
15%
9.6%
10%
4.9%
5.5%
10% 7.0%
7.5%
8.0%
9.6% 7.0%
5%
Overall: 9.7%
Universal (incl. retail-linked): 8.0%
7.5% 8.4%
Universal (incl. retail-linked):
5.5%
4.9%
8.4%
Retail-linked: 3.7%
5% 0% 2012
2013
2014
2015
2016
Overall: 9.7%
2017
Retail-linked: 3.7%
2018
0% 2012
2013
2014
18
Breakdown by bank type
2015
2016
2017
2018
2012
2013
2014
2015
2016
2017
2018
INVESTMENTS
Breakdown by bank type 65% 60% Penetration rate by assets
55% 50% 45% 40% 35% 30% 25% 20% 15% 10%
Avg penetration
5% 0%
Universal (incl. Retail-linked)
Retail-linked
far outstripped those brought in by fee-based business, including discretionary portfolio management. But this imbalance renders banks vulnerable to downturns in client trading and margin compression. By comparison, products and services that generate recurring revenues not only bring some stability to the P&L, but, in the case of mandates, can also increase the stickiness of assets. Thus, that DPM assets have grown at a rate that far exceeds total AUM growth in the region over the past six years is a clear sign that banks’ top-down efforts are bearing fruit. And a large part of this momentum can be credited to their clear and consistent messaging to clients and RMs on the virtues of delegation to avoid behavioural biases that encourage ill-discipline and destroy performance — particularly over the long-term. Notably, the risks of self-directed investing were laid bare earlier this year when investors, stung by a dire fourth quarter in 2018, retreated to cash and were left flat-footed when markets rebounded in 1Q19. Notwithstanding the fact that global equities are currently under pressure, private banking clients’ under-exposure to the asset class for the better part of 2019 and contrary to most house views has underscored the importance of delegating management responsibilities or, at the very minimum, engaging an advisory service For instance, UBS Global Wealth Management along with a number of other players showcase to clients the past performance of CIO houseview-led mandates to demonstrate their value vis-a-vis transactional accounts. According to the bank 85% of discretionary mandates have outperformed transaction-oriented accounts on a risk-adjusted basis over the past few years, while APAC assets in discretionary and advisory assets have grown 20% per annum over the same period. In this environment, the salience of banks’ messaging and their ability to respond effectively to client needs is paramount. According to Jacky Tang, head of portfolio management group and portfolio advisory
Pure play
Overall
group in Asia at Goldman Sachs Private Wealth Management, said the private bank has been hand-holding clients during this period — with good success. “We’ve spent more time this year talking to clients about investor psychology and the importance of staying invested despite market uncertainty. Our DPM assets have increased this year as we continue to make progress in helping clients ride through market cycles and taking a long-term view,” Tang said. For its part, Goldman Sachs PWM recently launched two new discretionary offerings: ‘CIO Approach Portfolios’ and ‘Defined Objective Portfolios’. In the case of the former, Tang explained that many UHNWIs not only want an external manager to manage their core portfolios, but also opt to delegate their satellite trading-oriented portfolios to a professional investor — thereby prompting the firm to launch the CIO-type solution that allows for a holistic view of a client’s asset allocation. Similarly, Indosuez Wealth Management, in noting Asian clients’ reticence to enter markets — and specifically the Hong Kong market — said there are “numerous pockets of opportunities” if banks “look at [the situation] correctly and play it into our favour”. “What we have been trying to do is to offer something that clicks with clients in all conditions instead of … avoiding the equity market only because of market fears over a potential recession,” said Grizelda Lee, head of discretionary portfolio management at Indosuez Wealth Management. Accordingly, the private bank recently launched a Hong KongChina equity portfolio on its discretionary platform on the grounds that investors, who are generally concentrated in single sectors or geographical markets when it comes to investing in the Greater China equity market, would benefit from the offshore-onshore diversification the solution provides.
19
INVESTMENTS
DPM asset growth maintains steam following 50% rise in 2018: DBS PB’s Marciano
D
PM asset growth at DBS Private Bank has maintained momentum across various metrics year-to-date following a stellar 2018 in which the lender saw DPM assets grow 50%, albeit from a “nascent” base, the private bank’s DPM head told Asian Private Banker.
Christophe Marciano DBS PB
“The majority of our asset growth in 2018 came from new AUM as more accounts were being opened every month, and we’re also seeing more top-ups, especially among bigger clients,” said Christophe Marciano, adding that growth over the last few years has been spread across the bank’s mandates.
“It won’t suffice to grow quickly in one bucket — it’s important to spread out and grow on all fronts.” Currently, the bank has two single line-based strategies — global and Asia focus — and two ETF-based and mutual funds-based mandates. Marciano believes the region holds untapped potential for DPM but that speedy growth is less important than sustainability and strengthening the investment and decision-making processes. “The process refers to linking what we — the DPM team — do to what the CIO office does. This is important because we need to speak with one voice. Plus, there’s a wealth of good resources there for us to leverage,” he said. “Be it in banks or any other organisation, people can sometimes
20
become siloed if you neglect communication — for instance, some focusing on research here, whilst others cover the macroeconomy. If you don’t get them to speak to one another, that’s an issue.” Marciano also believes that the robustness of the process is maintained by adopting a ‘team’ rather than a ‘key man’ approach. “Portfolios continue to run because everyone knows what’s inside, and that’s important. I know of setups — not particularly in Singapore — where it’s a ‘key man’ sort of thing, just a one-man or one-woman show. I don’t want that, and I don’t think clients need that. Clients want something that is sustainable and can go a long way,” he said.
New income mandate launched On the product innovation front, the bank launched a new mandate in the second quarter of this year. The new offering is built on DBS’s existing income mandates but has an allowance for high yield. He explained that investors have tended to be “extremely conservative” with fixed income, opting to rather hold a significant amount of cash throughout the bull market. “They want to be invested but are concerned about another crisis coming up — this has been the case for over the past five years,” he explained. “Under the new mandate, we still have the investment grade bonds part but also a new piece that we call ‘income plus’. We allocate a fraction — stands at 20% today, but you can have more — to high yield.” The mandate comprises of around 50 bonds with a current duration of around three-and-a-half to four years.
rd
3 DISCRETIONARY DIALOGUE 2019 A closed-door morning for those who sit at the apex of discretionary mandates and strategies at Asia’s private banks.
15 October Singapore
17 October Hong Kong
For more information, please visit
www.apb.events/registerdd
RSVP to Alice Chan alice.c@asianprivatebanker.com +852 2529 1737 This event qualifies for CPT/CPD accreditation.
Conversation Partners
Networking Partner
21
8th FUNDS SELECTION NEXUS 2019 Asian Private Banker held its 8th annual Fund Selection Nexus in September and hosted around a hundered fund specialists across Hong Kong and Singapore for in-depth conversations around year-end priorities and opportunities, and the frenzy surrounding fixed maturity plans. Special thanks to all our attendees, panellists, and partners for your continued support! For full details of the event, please visit: apb.events/fsn2019.
22
AWARDS
23
IANDVSE S T M E N T S
PBs expect risk appetite to return over next 12 months
L
ast year’s fourth quarter downturn and a flurry of geopolitical events have no doubt dented risk appetite among Asia’s clients in 2019, but this risk-off sentiment is likely to turn over the next 12 months, according to delegates at Asian Private Banker’s 8th Funds Selection Nexus 2019.
“Thematic funds are not only a sales story,” another delegate said. “Those structural changes can be secular and long-lasting and clients need to tune out short-term noise in the market and hold a long-term view.” Which equity strategy is expected to see the most inflows over the next 12 months? 40%
Specifically, 81% of survey respondents believe fund flows will increase over the next year, with 31% of attendees expecting flows to surge by 20% or more year-on-year.
50%
50%
45%
30% % respondents
What is the expected YoY change in fund flows for the next 12 months?
% respondents
25% 20%
15%
15%
35%
5%
30%
0%
27%
25% 20% 15%
4% >40% increase
4% 20-40% increase
<20% increase
No change
4% Global
US
China
4% AxJ
Japan
EM
Thematics
FMPs approach saturation point
12%
10%
0%
22% 19%
10%
40%
5%
37%
35%
4%
<20% 20-40% >40% decrease decrease decrease
In addition to cash and cash equivalents, investors have looked to fixed income-type products to ease their market anxieties, with fixed maturity products (FMPs) gathering the most assets amongst bond funds from the region’s wealthy year-to-date, followed by investment grade bond funds on the safer end of the risk spectrum.
“Cash levels among clients are now increasing, naturally because clients are concerned in this investment environment,” one delegate said, adding that the sell-off across risk assets in 2018 still weighs on investors’ minds.
“But at this juncture, we see FMPs are reaching a saturation point,” a delegate pointed out. “Compared to last year when the Fed was increasing interest rates, the U-turn of the monetary policy in the US makes it harder and harder for managers to lock in a higher yield.”
“As Asian investors are usually six-to-12 months behind the curve, increased demand for equities may be seen next year.”
Which type of fixed income fund has experienced the most inflows YTD?
Within equities, thematic strategies are expected to be a ‘sweet spot’ for private banking clients, with 37% of respondents believing thematics will attract the most inflows, followed by US equities and global stocks.
35% % respondents
Indeed, despite equity market outperformance — the MSCI World Index has trended up by over 15% year-to-date — most private banks have recorded flat or even negative net inflows into equities so far in 2019.
45%
42%
40%
35%
30% 25% 20% 15%
12%
12%
10% 5%
Note: Figures for graphs may not add to 100% due to rounding.
24
0%
IG
HY
EM LC
EM HC
Asia
FMP
TECHNOLOGY
4 in 5 WMs have made “poor to no progress” in onboarding: Fenergo
E
ighty per cent of wealth managers have made little progress in improving onboarding-related straight-through processes (STP) and integration over the last five years, increasing concerns around dropouts, particularly given the growing number of younger investors, according to CLM provider Fenergo. “In the last five years, banks haven’t really made many inroads in the STP journey,” Steve D’Souza, Fenergo’s head of private banking and wealth management, told Asian Private Banker. “Eighty per cent of clients we speak to admit that they still have a problem with STP or made no progress in achieving that.” According to Fenergo’s latest research, 60% of client onboarding takes, on average, longer than a month, compared to 2014’s 28%. Longer onboarding times have more than half (52%) of wealth managers worrying over client dropouts. “Five years on, the sector has failed to transform sufficiently and it’s now impacting wealth managers and clients alike, except this time around, clients are taking their money elsewhere,” said D’Souza, adding that there are three main reasons for a lack of progress in onboarding. “The number of regulations has gone up, which means that banks have to do more to comply with compliance demands. The amount of supervision has also gone up as the HKMA, SFC, and MAS have spent more time supervising those regulations. Lastly, the number of required data points has also gone up, eating up a lot of time onboarding new clients.” Indeed, more than half (55%) of Fenergo’s respondents said crossborder compliance is painful. One-third have not yet integrated global AML/KYC rules and almost 25% have not integrated international tax compliance regulations despite growing stringency around ultimate beneficial ownership, last year’s CRS information exchange, and new suitability requirements in Hong Kong. D’Souza explained that technological improvements have lagged behind regulatory developments because wealth managers have
adopted a piecemeal approach to the issue, adding “regulation on top of regulation”, thus increasing system complexity despite spending more money on streamlining KYC processes. “A lot of money is currently being thrown at digital transformation, and digital is being treated as a completely separate entity. If banks are not careful, this will, in effect, be another legacy system. If you’re going to throw this much money into digital, do it properly,” he said. “Banks should reengineer from the back forwards so that processes can be applied to the front-end. It’s a more structured way of reengineering processes, and ensures compatibility with other digital environments that you are working with or may work with in the future.” D’Souza added that client-RM collaboration could also improve onboarding times and lower dropout rates and suggested, as an example, that AML screening is done during the prospecting stage and/or RMs open a bank or investment account during the data verification stage so it is ready once the client is green-lighted to onboard. Further, he stressed that integrating self-service modules into the client onboarding process could make a significant difference. “Self-service is a good way to reduce time in onboarding, because 40% of onboarding time and cost is wasted on client outreach, which is waiting for clients to send a document in or for them to confirm a piece of data,” he explained. “If you’ve got a full self-service account opening process, you’re at least saving that 40% of the time.” Looking forward, Fenergo’s research found that 41% of wealth managers are focusing on implementing end-to-end digital onboarding systems by 2021 — a fast-approaching and important goal given the ongoing transfer of wealth to the younger generation. “Onboarding clients in 2019 should be a pain-free process. We live in a world where you can now open a bank account with a selfie, so firms need to consider if their onboarding technology is good enough to support the retention of assets as wealth transfers to the next generation,” D’Souza concluded. 25
ADVERTORIAL
Go beyond borders, biases and benchmarks in fixed income Fixed income investing has rebounded in 2019 as the US Federal Reserve stood ready to keep the global economy on track. In July, the Fed cut its benchmark rate for the first time in a decade, and global central banks have stayed accommodative and in sync.
F
ixed income investing would likely remain on investorsâ&#x20AC;&#x2122; radar as a mixed picture persists in the markets.
Fixed maturity strategies have been attracting strong inflows from Asian private bank investors in 20191. Fixed maturity products (FMPs) are bond funds with a fixed maturity, and generally invest in a single fixed income sector. FMPs may be listed but as the trading volumes of FMPs are generally low, investors may not be able to redeem before maturity. Thus, FMPs may be relatively illiquid.
In a complex and uncertain market environment, investors could strive to be dynamic2 and invest opportunistically across the fixed income universe based on their investment objectives and risk appetite.
No borders, no biases and no benchmarks The size of the global bond market is about US$110 trillion3 and income opportunities exist across a wide range of sectors from government bonds and investment-grade corporate bonds to non-traditional ones, such as high-yield corporate bonds and securitised debt. Fixed income covers a broad spectrum. We employ an unconstrained fixed income strategy, which manages risk through diversification4 and strives to harvest uncorrelated risk premiums from the global fixed income landscape.
1 2 3 4
5 6
We aim to enhance total returns and manage risks in JPMorgan Global Bond Opportunities Strategy by diversifying across 15 traditional and niche fixed income sectors, and in more than 50 countries. We seek high conviction ideas from 278 investment professionals from our global fixed income platform and build it into one single portfolio. With our flexible asset allocation, we are also dynamic in shifting our allocations for different market environments. JPMorgan Income Strategy manages risk through diversification and strives to harvest uncorrelated risk premia from the global fixed income landscape. Our aim is to harvest all the risk premia, and incorporate them together in a balanced way which could help reduce risk while striving to preserve the expected return. We have an income bank mechanism to save our monthly coupon income5 for rainy days, giving us more flexibility to pay income in a sustainable way. This could help pave the way for an income stream with much less volatility.
FMPs or an unconstrained approach6? In many ways, you could say that choosing a fixed income strategy is much like selecting which bike to use for different journeys. Let us illustrate:
Bond strategies dominate private bank fund inflows in Q2â&#x20AC;?, Asian Private Banker, 30 July 2019. Investment involves risks and not all investment ideas are suitable for all investors. Source: J.P. Morgan Asset Management, Bank for International Settlement, as of 30 June 2019. Diversification does not guarantee positive returns or eliminate risk. Provided for Information only based on current market conditions subject to change from time to time, not to be construed as Investment recommendation. Forecasts/ Estimates may or may not come to pass. Positive distribution income / yield does not imply positive return and it is not guaranteed. Distributions may be paid from capital. Investment involves risks. It is for illustrative purpose only and not indicative of the actual return likely to be achieved.
26
ADVERTORIAL
FMPs = Single-speed cruiser bike
Unconstrained strategies = Multi-speed mountain bike
Road conditions (market conditions for the specific strategy)
Built for flat, paved paths: suitable for a short commute, requiring basic pedalling, balancing and steering
Built to go anywhere: more tools at its disposal to handle all terrains and road conditions, but also requires a more sophisticated rider
User experience (what investors can expect)
Comfortable riding experience: wide, cushioned seats, with minimal bumps
With greater variation comes greater complexity: off-road biking can mean a bumpier ride, involving more gear changes
Performance
Simple and predictable: gets you from point A to point B smoothly and efficiently, but less tools to deal with variations in road conditions
Riding style varies depending on road conditions: can go faster when the road is flat, or pull back and switch gear to use more power on hilly terrain
Conclusion Market volatility can be unsettling. Our 278 investment professionals from our global fixed income platform, alongside a robust investment process, strive to dynamically manage the portfolios as market conditions change. A fixed income strategy isn’t always fixed. Your investment portfolio doesn’t have to be either.
For more information about J.P. Morgan Asset Management’s capabilities, please contact: Pbd_enquiry@jpmorgan.com
Important Information For Professional Investors and Financial Intermediaries only. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore and the Securities and Futures Commission in Hong Kong. Investments in funds are not comparable or similar to deposits. Investment involves risk, value of units may rise or fall including loss of any or all of the amount invested. Not all investment ideas are suitable for all investors. Past performance is not indicative of future performance. Diversification does not guarantee positive returns or eliminate risk of loss. Investors should make their own evaluation or seek independent advice before investing. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not be taken as or constructed as investment advice. Issued in Singapore by JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K) and in Hong Kong by JPMorgan Funds (Asia) Limited. All rights reserved. This is a sponsored article from J.P. Morgan Asset Management.
27
PEOPLE
PB team moves relatively safe in eyes of the law but caution is vital: Dentons
F
ollowing the recent judgment handed down by Hong Kong’s Court of First Instance in the McLarens Hong Kong Ltd v. Poon Chi Fai case, lawyers spoke to Asian Private Banker about how private bankers can avoid contractual and regulatory breaches when considering moving to another firm with fellow colleagues.
“A potential employer will usually want to know the value of the business a candidate team is doing and what it might be able to transfer. But the precise make-up of a team or size of a particular candidate’s book — the revenue figure — is confidential information belonging to the existing employer,” Keady explained.
The case in question involved the legality of a pre-planned team move in the loss-adjusting industry, with the court deciding that, given the absence of restrictive covenants in employees’ contracts, the resigned employee had no obligation to refrain from poaching or encouraging his fellow colleagues to join another firm.
“It’s usually okay to give a forecast projected range of revenue numbers and a description of the types of clients, but no detailed amounts should be disclosed.”
“Once the contract has come to an end, an employee’s duties essentially come to an end as well. The employer needs to include restrictive covenants if it wants to be covered after the end of the employment contract to stop the employee from approaching clients, for example,” Richard Keady, partner of Dentons, told Asian Private Banker. “When there are disputes, the court will determine whether such a covenant is reasonable and enforceable depending on the facts of a particular case, including the seniority of the employee. There is no such thing as a ‘one size fits all’ covenant.” The most recent team move-related case in Hong Kong’s finance industry was Cantor Fitzgerald Europe v. Boyer in 2012. Although the contract mandated a 12-month no-poaching period, the clause was unenforceable owing to the firm’s inability to justify the length or scope of the restraints. Meanwhile, in the McLarens case, the court found the defendants guilty of copying and deleting information from the firm’s database, some of which was confidential. Not only were these actions a contractual breach but also a regulatory one which could see an SFCregulated perpetrator incur a licence suspension. As such, employees must be careful of what they disclose when exploring alternative career opportunities.
28
While team moves aren’t uncommon in the wealth management space, Jenny Zhuang, of counsel at Dentons, told Asian Private Banker that banks adopt “very proper” recruitment procedures, thus minimising the possibility of litigation. “It is quite rare now to find litigation about team moves in the financial services industry as these firms are sophisticated and know how to structure team moves to minimise possible dispute,” said Zhuang, adding that demand letters might still be sent but banks are “well-equipped” and “have well-established policies and mechanisms to respond”. Further, financial institutions enlist the services of legal advisors and headhunters to prevent the possibility of legal disputes and facilitate team moves. “Each employee is ring-fenced individually as each has a duty to their existing employers and has a duty to notify their employer if they know any of their colleagues are leaving,” Zhuang pointed out. Keady added that it is “very difficult” for an employer to sue another firm solely for approaching employees, given that the firms have no contractual bond between them. “In Hong Kong, employees enjoy a general right to work. In certain circumstances, it may be possible to sue a competitor for inducing a breach of contract but it’s very difficult to prove,” he concluded.
6th CHIEF OPERATING OFFICERS LEADERS CONVERSATION 2019
Join COOs, CTOs and CDOs across Asia as they come together to discuss their respective private banksâ&#x20AC;&#x2122; technology and innovative agendas.
13 November Singapore For more information, please visit
www.apb.events/ registercoolc RSVP to Alice Chan alice.c@asianprivatebanker.com +852 2529 1737 This event qualifies for CPD accreditation.
Conversation Partner
31