Private bank client concerns over managing interest rate risk became more evident as 2014 progressed.
“In the second half, we had a dramatic flow into the Asian investment grade fixed income mandate on the discretionary side. Earlier in the year that was not happening,” said Roger Bacon, head of Citibank’s managed investments in Asia.
Clients decided to outsource the task to the bank in a discretionary context.
“A dedicated team of specialists managing the portfolio for the client is much more nimble. If you are actively managing the duration of the portfolio and overlying with total return swaps and interest rate hedging strategies, you can come up with a good risk-adjusted position.”
Bacon believes another factor is that discretionary portfolios are run on a flexible model, allowing clients to adjust asset class, geography or risk exposure.
“Clients just ring us up and we make the change at the end of the month. The world is changing quickly and clients want to move things around quickly. Particularly in Asia, they like tweaking allocations.”
Other parts of the bank’s discretionary business – multi-asset class, multi-manager portfolios – have performed well, Bacon said, but discretionary has less traction on the equities side.
Citibank plans to put more emphasis on addressing that in 2015, he said.
“We just started an Asian equity [discretionary] capability and it takes time to build a track record.”
He added that private bank clients have been shifting preferences away from equity income strategies.
“They have enough income and don’t need to focus on that. But on the consumer bank side, equity income is still important.”