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The FSA Spy market buzz – 1 December 2017

Stashaway adds; CIC disappears; OMGI’s pricing; Wealth management AUM; Eastspring and AI; Credit Suisse and Crypto; UBS and ESG; Natixis and BNY go tech; and much more.

Spy’s Christmas invitations have been dropping through the door with a pleasing regularity. It seems austerity is out and the good times are flowing, with venues and menus to match. Champagne cocktails, single malt whisky and finicky hors ‘d’oeuvres are the order of the day. The drink and food menus are getting more creative, the cocktail lists more inspired. Spy is almost pitying those “fresh” Atlantic salmons who will be smoked by the tonne and all those oysters by the barrel who will be sacrificed in an ocean of lemon juice over the next few weeks. There is one notable exception from every menu Spy has seen so far, though: Black Swan pie is nowhere to be seen. Just because it is not on the menu, Spy is not convinced it is not hiding in the kitchen.

News reaches Spy that Stashaway, the Singapore-based robo-adviser, which already has on its advisory committee Pranay Gupta, former head of multi-asset strategies at Temasek’s Fullerton Fund Management, has added a rather prominent person to the advisory board. The former CEO of Morgan Stanley Private Wealth Management, Ms Hwee Hoon Sim has joined the ambitious start up.

Goodbye CIC, hello Indosuez Wealth Management. As of this weekend, notes Spy, CIC will cease to exist as a brand name as the company becomes a full subsidiary of the Swiss wealth manager, Indosuez, the wealth brand of Crédit Agricole. Apart from CIC, it occurs to Spy that in 2018 we have “lost” ANZ to DBS, ABN Amro to LGT and TTG to CBH.  Guesses on a postcard, please, for which letters in the private bank alphabet soup will be next.

How do you compete with ETFs and their rock bottom pricing? If you can’t beat them join them, says Spy. It seems Old Mutual Global Investors has been doing some real innovating in this area. The firm’s North American Equity Fund is being offered to Asian wealth managers in a specific share class at a meagre 15 basis points but with a performance fee. This seems really smart to Spy. The clients get ETF-like pricing, still have the chance to outperform a dull benchmark and OMGI can be rewarded for active skill. Everyone is a winner.

It is easy to talk about how large the wealth management pie has grown in Asia over the last decade. What were AUM figures of a few tens of billions, have become figures of hundreds of billions. However, how much of that money is actually in mutual funds, wonders Spy? The truth is, not that much. For some large players, it is only 10-15% of their overall book. If Spy can spot one clear opportunity for asset managers in the years ahead, it is converting wealth assets already held at the banks in the form of direct bonds, stocks and structured products into well-managed, wrapped-up solutions. Now there is a marketing campaign…

T’is the time of year that companies think about what happens next year. Spy feels like he has been transported to the Spanish city of Pamplona where, annually, the biggest “running of the bulls” takes place. It is hard to find any prediction that is negative. Commentators aplenty are calling for more of the same in 2018. Fun, fun, fun.  That is not say commentators are unaware they should be looking for downside. The problem is, few can find much to be “downside-ish” about. Eastspring has produced a rather beautiful outlook with an intimidating bull. Virginie Maisonneuve, Eastspring’s CIO, thinks we are still looking at the goldilocks scenario but is watching for a few bears. One suggestion she has, which Spy wholeheartedly agrees with, is that some surprises could come in the form of companies who are on the losing side of AI. Interesting thought.

Meanwhile, Credit Suisse, also bullish, thinks those millennials will drive everything forward and are terribly excited about their investment potential. Spy was amused to note some real honesty in CS’s explainer of crypto currencies, within their outlook. “Central banks are also studying the possibility of transitioning to digital money, not least because their monetary monopoly is threatened by it [Spy’s emphasis]. They could provide cryptocurrency accounts to the private sector directly or in cooperation with banks.” Never a truer word spoken.

UBS Wealth Management, another bull for 2018, spots a few troubled areas around the world, but not many in Asia. As they point out, “China’s investment in One Belt One Road infrastructure projects is gaining momentum. We see spending doubling in the next five years to $90–$160bn and regard emerging market infrastructure companies as the biggest beneficiaries.” Expect to see funds investing in Asian infrastructure get some top billing next year, thinks Spy. UBS is also getting into another trend in a big way – ESG. Expect a lot more ESG focus from the Swiss giant, if their outlook is anything to be guided by.

If Spy had a dollar for every time he saw an article with the line, “we are introducing an iPhone killer” he would be a rich man. So, too, in asset management in Asia, this year’s much worn phrase is “We have a Pimco Income killer”.  Year-to-date the Pimco GIS Income Fund is up 6.46% and 7.5% over the last year. “Alright, David, show us your slingshot…”

While bitcoin has been in the limelight, a far more old-fashioned benchmark has been quietly shining, too. The Dow Jones Industrial Average, or The Dow, which celebrated its 121st birthday this year, has jumped to 24,000 from 23,000 as of last night’s close. The jump took place in a mere 30 days. Crypto investors may shun a paltry 4% performance in a month, however, Spy thinks Dow investors do actually have the distinct benefit of owning real companies such as Apple, Intel, Johnson & Johnson, Goldman Sachs, Visa and twenty-five others and not just an entry in a distributed ledger.

Spy’s quote of the week comes from Barton Biggs the founder of Morgan Stanley Investment Management and Traxis Partners via venerable, quotable, legendary investor, Warren Buffet. “A bull market is just like sex. It feels best just before it ends.”

How do you tell your story better in the intangible world of wealth and asset management? Another trudging tram or another stodgy billboard? Technology seems to be part of the answer. Last week, Natixis Asset Management introduced what is thought to be an industry first: a 360 degree video to tell the story of risk better. Disclaimer: Last Word, the parent company of Fund Selector Asia, was involved in the production of the video. Now news reaches Spy that BNY Mellon Investment Management has adopted augmented reality to help clients understand their perspective better. Isaac Asimov would be proud. Expect a lot more of this sort of thing 2018. The floodgates are opening.


Until next week…


Part of the Mark Allen Group.