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BNPP IP: EM multi-asset funds a hard sell

Although multi-asset funds have become popular in Asia, those that focus on emerging markets are not favoured by private bank investors, according to Christian Bucaro, BNP Paribas Investment Partners’ Singapore-based head of private wealth distribution for Asia-Pacific.


Multi-strategy funds have become very popular in the region. For the full year 2016, they gained the most net inflows from Asian investors, attracting around $8bn in assets, according to Morningstar data.

“But the multi-asset solution in the context of emerging markets is considered very risky,” Bucaro said in a recent FSA interview. “There was no appetite for emerging market multi-asset.”

According to him, the firm tried to promote its emerging multi-asset income strategy to private banks in the beginning of last year. But the firm soon realised after the first month that it had rethink the sales strategy.

They found that some private banking clients were so conservative that sometimes they would have 40% of their assets in cash. The BNPP IP team therefore decided to sell a product that is more suitable for the conservative Asian investor — fixed maturity plans.

“[The private banks] were looking for a solution that was conservative enough to propose to the client that would move money from deposits to managed investments,” Bucaro explained.

A fixed maturity plan, he explained, is a closed-end fixed income fund. It aims to give clients yield every six months and return their capital after the maturity of the plan, according to Bucaro.

He added that shorter maturity plans, or those of around three years, are better since clients do not want to part with their capital for too long. 

Bucaro said that fixed maturity plans are very popular in Asia. A Swiss competitor, which was the first to go into that space, was able to raise $3bn last year, he added.

Besides fixed maturity plans, private banking clients are now looking at agency mortgage-backed security products, he said.

“Private banks are very welcoming of new ideas, and this was a new idea because only institutional clients so far have bought exposure to these agency mortgage-backed securities,” Bucaro said.

Market education

However, he noted that BNPP IP had to spend a lot of time educating the private banks about these instruments because most people associate them with the 2008 global financial crisis.

Bucaro explained that the agency mortgage-backed securities are not the same as the sub-prime securities that caused the crisis in 2008.

“[Agency mortgage-backed securities] are the ones issued by the three agencies, Freddie, Fanny and Ginnie… and the rest are non-agency mortgage-backed securities, where you do not have the US government behind them, and therefore you can have defaults.”

According to him, some of these non-agency securities were defined as sub-prime and caused the global financial crisis in 2008. 

Market education requires some creativity, he said. For example, during client presentations, his team would make references to the movie “The Big Short”, which re-visits the experiences of people who were involved in the 2008 financial crisis.

Part of the Mark Allen Group.