In October, DBS completed the acquisition of the Asian private banking business of Societe Generale in Singapore and Hong Kong.
DBS’ high net worth assets under management are now S$88bn ($70.4bn) and assets under management for all wealth customers are S$129bn, which make it the eighth largest wealth manager in Asia.
Qualitative due diligence
DBS’ Hong Kong business is 100% advisory and Chong deals directly with high net worth clients. The discretionary business is centralised in Singapore, and Hong Kong clients who requesting discretionary portfolio management are referred to the team there.
Fund selection begins with the bank’s internal product due diligence, which is methodology that is applied across the region. The criteria include looking at fund volatility, the consistency of performance, the objective and the methodology of the fund.
The bank added a set of criteria last year.
“We started to have direct dialog with the fund houses and added more qualitative criteria,” Chong said.
“Our Singapore team goes and talks directly with the fund manger to understand their rationale and presence in the market. We’ll then include these additional observations in our [quantitative] methodology.”
The analysis also considers the level of frontline support in local markets. “A big name does not necessarily mean the fund house has sufficient support in the local market. A fund house may have different support in Singapore and Hong Kong.
“We need them to support us with their views on the market, and for example if they have plans for new products and whether there will be any advertising.
“The level of support from the fund house will also affect our decision. We cannot have a fund house with slim support in the local market and get into a situation where we can’t meet the client’s needs.”
A fund house’s capability to provide products for both professional investors and retail investors is also important. “Some will be more focused on professional, some on retail. But if they have both, that would be advantageous for them.”
The internal due diligence process will result in an approved list with thousands of funds, which are not necessarily the funds DBS focuses on. On a quarterly basis, using an asset allocation model suggested by the CIO, they will narrow the list down to 20-30 funds per quarter, which effectively becomes a recommended list.
The bank will also add on a tactical play each month to capture opportunity.
“Sometimes clients will bring their own choices. If there is some demand, we’ll help clients do more analysis to back up their choices.”
Growing compliance team
The bank recently hired one compliance person for the due diligence team and plans to add another.
“We used to share regional resources within the bank but now the Hong Kong Monetary Authority requires local assessment on top of regional, so we need more hands locally.”
The whole due diligence process, including the questionnaire for the asset manger to fill in details about their funds, will usually take 2-4 weeks, she said. “If we get all facts we need, it takes 1-2 days to do analysis.”
Chong’s biggest concern is the transition period for private banking regulations. Guidelines by the Monetary Authority of Singapore were released last year and the regulators are assessing industry feedback.
“These are guidelines for professional investors and we hear some comments from clients about how lengthy they are. We are adjusting by not overdoing what we need to do but insuring we meet regulatory requirements.”
Asia equities overweight call
In the last quarter of 2013, DBS made a buy call on US and European equities and clients who followed the advice were rewarded due to the rally in the respective stock markets, Chong said.
Since the beginning of 2014, the bank has recommended shifting from fixed income to equities, with emphasis on Asian and emerging market equities. The house view is overweight in particular China, and neutral on US and European equities.
“Asian equities in the past few years have been quite volatile. So if we make a call to overweight Asian equities, it’s quite a bold call and not every investor will follow.
“The majority of private banking clients still prefer conservative funds like fixed income and more balanced funds rather than following the trend to more equities.
High yield fixed income has been popular among clients in Hong Kong, but yields are softening as the price decreases.
“We ask clients to shift part of the portfolio from fixed income or they won’t preserve wealth effectively if the price continues to go down. That’s how we balance their objective and our focus — we remind them that risk is getting a bit higher.
“The softening [in fixed income] is why we need to advise clients to have more balance and not just chase high yield. If the products continue to give high yield, then there is high risk. If you can take some risk, then consider equities, where you could also get capital gain rather than just high yield. So we try to explain and let them be convinced of the house view.”
In the last two quarters, DBS has invested in the Schroder Asian Income and First State China funds. Currently the bank is doing due diligence on products from Neuberger Berman, a new relationship which came over with SocGen.
SocGen additions
DBS has gone over the SocGen portfolio and found five of their fund houses to put on the focus list, Chong said. Other fund houses in the SocGen portfolio are niche and their desirability will depend on the specific needs of clients.
“The more familiar names will be our focus. In others, if we see potential, we will work with them to do promotion. If they’re willing to support us more, they will be integrated into our focus list.”
In addition, the integration and merger with Societe General added some personnel.
DBS has 50 relationship managers for HNWI clients, $3m and above. It also has 22 relationship managers for a “mini-private banking business” for clients with $1m to invest.
The bank intends to add about 25 more relationship managers for professional investors in 2015.
“We see the opportunity and capability to expand the private banking business further,” Chong said.
