Ultra high met worth (UHNW) individuals are keen to put cash to work in the face of rate cuts – but are wary of buying into the top of an AI bubble.
“AI and technology are very topical items at the moment, but the reality is that a lot of them are afraid of coming in late,” Gabriel Chan (pictured), head of investment services at BNP Paribas Wealth Management Hong Kong, told FSA in an interview.
Aside from interest in AI and technology, a lot of investors have expressed interest in moving cash from the sidelines, shifting away from cash deposits into other options.
“A lot of UNHW individuals were paid to do nothing in the last year and a half, but they have realised that they need to find a way to lock-in the high coupon rates at the moment,” Chan said.
As a result, he noted a growing interest in fixed income mutual funds, direct investments into investment grade bonds and certain products that lock in a high yield but also allow exposure into other investment themes.
Chan said that since share prices of the leading AI companies have rallied so much in such a short period of time, some clients are still cautious about investing in AI names.
Upside exposure with downside protection
Clients are more interested in investing in structured products where the principal is protected but they still gain upside exposure to growth themes, Chan revealed.
He said: “If you ask clients whether they want to directly jump into Nvidia right away it is difficult, but if you go into some sort of principal protected or lowered risk exposure, they are interested.”
While IG bond funds are very popular amongst his clients, he is seeing more interest in multi-asset funds.
“Quite a few clients in this part of the of the world have a local bias and may have missed out on quite a bit of the upside in the last year and a half in Japan and the US,” Chan said.
“They still want to gain some exposure in the growth side, but they are afraid of catching the cycle late. That is why income and growth funds with a tilt towards the conservative side are very popular and have been quite well received.”
Some clients prefer to gain exposure through private equity funds as well, due to the diversification benefits and the growing trend of high growth technology companies staying private for longer.
Recommendation quality matters
For Chan, what he believes sets his firm’s approach apart from other wealth managers is the emphasis on recommendation quality and quantity – as well as the open architecture platform embraced by BNP Paribas Wealth Management.
“For myself I care a lot about the investment ideas and the recommendation quality and quantity,” he said. “It’s something that we keep track of very closely: the performance of our product specialists.”
Additionally, he said the firm “truly embraces” the concept of an open architectural platform where it can act as an independent fund selector and gatekeeper for funds recommended for inclusion in products handled by the bank.
“We try to leverage the advantage of being open so that we can gain absolute advantage in terms of pricing, in terms of execution efficiency and gathering the best investment ideas from all the counterparties,” Chan said.
“I can collect investment ideas from all the bulge bracket investments firms and once clients identify an idea they like, I can source the best pricing among them as well.”
Selecting the best funds
Chan said before he can recommend a mutual fund for clients, they go through a lengthy due diligence process for both the fund house itself as well as the individual fund strategy.
“All the mutual funds on our product shelf go through internal specialists who debate which one to put on shelf, then they go through due diligence by a third party,” he said.
“We also have regular discussions with fund managers and take a methodical approach to fund performance.”
One example of this approach is in the firm’s alerts which it sends to relationship managers depending on their investment goals, he revealed.
For example, for a conservative investor invested in a strategy that experiences significant volatility in its NAV in a short period of time or more than expected, the firm will alert the relationship managers and offer alternative solutions.
Chan said: “If you recommend them something if something has happened and if the investment is no longer aligned with the macro environment, even though it is a top-notch fund for that mandate, we still may recommend they switch out because the fund is not suitable for the environment anymore.”
