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How DBS PB selects funds

The bank is also aiming to add more liquid alternative products to its platform.

DBS has around 700 approved funds on its platform across Asia. Of the 700 funds, 280 are covered by the DBS fund selection team. Only about a third of the 280 funds are positively recommended, according to Pierre DeGagné, Singapore-based head of fund selection at DBS Private Bank.

The bank’s fund selection process is very qualitative, but includes a statistical monitoring system, DeGagné told FSA in a recent interview.

Pierre DeGagné, DBS Private Bank

The system involves the fund selection team’s analyst, who will give a rating or probability of the fund outperforming its benchmark on  a one- to two-year horizon. The system is more forward-looking as opposed to quantitative analysis, which is more backward-looking.

“We spend a lot of time qualitatively identifying these managers that we think are going to outperform. We monitor the analysts on how they do in their picks, and if they have a high conviction in the manager, they are much more rewarded if they are right.”

The bank looks at the qualifications and track record of the fund manager and the supporting team, as well as alignment of interests with investors.

“What we want to find are managers who have a great deal of experience, are committed to the product that they are with and have the resources necessary to be successful with their process.

“I am [also] interested in talking about the fund managers’ portfolios and how they changed since the last meeting. This helps us gauge how their convictions have changed, how they handle stressful situations, what were the triggers and what made them behave and act. So we spend a good deal of time talking about the developments of the portfolio.”

Standard Chartered Bank is another distributor that looks closely at qualitative factors. The bank focuses on three areas when screening fund products — performance, people and process, Annie Chen, managing director and head of managed investments and product management for wealth management in Hong Kong, said previously.

“Our fund analysts would interview the fund managers to understand how well they are able to articulate their strategies,” she said.

Standard Chartered also looks at whether the investment team has high turnover, which is often a red flag for the fund, she added.

When it comes to process, the bank likes to see how a team is able to generate their own investment ideas rather than depending too much on sell-side analysis.

Seeking alts

When DBS brings new products onto the platform, diversification is also important. For example, the bank makes sure that its analysts are not bringing recommendations of managers who have similar investment styles.

“We want them to be recommending two high quality teams that are producing alpha from different types of sources,” DeGagné said.

The bank is aiming to add more alternative products, particularly liquid alternatives, DeGagné noted. These include seeking what’s commonly referred to as the “holy grail” of hedge funds, which are the products that provide Libor plus 2-3%, and are able to provide positive absolute returns in a negative market.

The bank is also “modestly” expanding its ESG platform, he added.

DBS does not use ETFs much, DeGagné added.

“In a way, ETFs are akin to benchmarks. We need to be outperforming benchmarks, so our focus is on identifying funds that can add value over benchmarks.”

Part of the Bonhill Group.