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JPMorgan WM wants ESG talk and reality to match

ESG is a nice conversation to have with clients, but challenging to implement, said Cynthia Lai, JP Morgan Wealth Management’s new executive director of managed solutions.

She said performance of environmental, social and governance-focused funds was an issue.

“It has been difficult to find ESG funds that can actually deliver the same returns as non-ESG funds,” Lai told FSA.

“The second challenge is that everyone professes to be ESG now. It’s the latest fashion. The problem is, when you talk to managers and understand how they think about ESG, there is a wide dispersion of views. Not everyone looks at ESG in the same way.

“A fund manager may be using ESG as a negative confirmation to omit certain stocks from the portfolio but not as a guiding force. There is a big mismatch between what the clients think about ESG and the actual portfolio.”

Lai, who is based in Singapore, started her role at JP Morgan in August. On the wealth management side, she leads the team that specialises in mutual funds and discretionary portfolios across multi-asset classes. She works with the manager selection team, asset class leaders, investment advisors and bankers to determine whether a product will fit client needs.

She has 17 years of experience in the industry. Previously Lai was at Standard Chartered in Singapore, where she held a similar role as director for managed solutions for Southeast Asia.

Before that, she spent 10 years at Citibank, where she was a member of the global manager selection team, covering the private and consumer banks.

Client expectations

In a previous interview, Adam Proctor, head of managed investments and advisory in Asia-Pacific for Citi Private Bank, who also started in his new role this summer, pointed out that in Asia clients are different than those in the UK in that they have higher risk tolerance and seek double-digit returns.

Similarly, Lai noted that in her new role she will be focused on the challenge of “managing clients’ return expectations and marrying that with changing capital markets conditions and getting clients to understand the relevance and importance of portfolio construction”.

“There is an appetite for high returns in Asia and clients tend to use leverage. The cost of leverage has been low and markets have been generally sanguine so it has been easy money in the last few years. If interest rates pick up, the benefit of using leverage will be reduced by the impact of rising leverage costs. If markets turn, a client’s portfolio performance may also be negatively impacted. Leverage should be used judiciously.”

Next year, it is not everyone’s base case scenario that a synchronized global recovery and low volatility will continue, particularly as the reversal of QE in the US and Europe picks up.

“Product selection will be challenging in 2018 due to higher valuations across asset classes,” Lai said. “Clients still have a preference for fixed income. Rising interest rates combined with tighter spreads pose some challenges.”

The bank, therefore, will be seeking “strategies that have the flexibility and ability to generate attractive total returns regardless of market conditions”, she said.

Part of the Mark Allen Group.