In the first half of last year, Christina Au-Yeung found it tough to persuade clients to move out of cash and money market funds. However, midway through the year, many started to shift into enhanced income products, and the next step will likely be a move into other assets, including fixed income for yield and equities for growth, she told FSA in an exclusive interview.
As head of investment management services (IMS) and executive director at Morgan Stanley Private Wealth Management Asia (PWM Asia), Au-Yeung’s role is to serve the needs of ultra-high net worth clients via both discretionary and advisory portfolio management solutions. It involves countless meetings with clients and fund managers, as well as coordinating her team of 18 colleagues.
IMS is responsible for the origination, diligence, marketing and distribution of managed solutions and advisory portfolio services.
Hong Kong-based Au-Yeung’s primary task is to identify clients’ risk appetites, and then onboard funds to meet their requirements. Clients fear three main risks, namely: concentration, performance, and headlines.
Taking appropriate risk
“Therefore, we encourage greater diversification away from their home bias, provide regular performance data and fund reviews, and we ensure that our relationship managers are fully informed about the major news that might affect their portfolios,” said Au-Yeung (pictured).
There are no fund quotas or fund raise targets, and selection is from an open-architecture framework, with a high conviction product shelf of around 180 funds, covering the full range of asset classes in traditional mutual funds and alternatives – such as hedge funds, private equity, evergreen or semi-liquids and structured product mandates.
“Typically, we’ll offer three or four funds for a major asset class, such as investment grade bonds, and one or two for more niche asset classes. It would demonstrate a lack of conviction to provide too many fund options for a particular category,” Au-Yeung said.
She looks for robust investment processes, clear strategies, and the delivery of strong, consistent risk-adjusted returns that meet her clients’ objectives, and uses both quantitative and qualitative measures, inputting independent data to help the screening process before making final selections,”
“Due diligence is simultaneously conducted on operational and legal factors as well as on the investment case for a fund or product,” she said.
Au-Yeung has a legal education, having completed a degree in anthropology and law at the London School of Economics and Political Science. Before joining Morgan Stanley PWM Asia in 2018, Christina was a vice president at Bank J. Safra Sarasin, Hong Kong, after starting her career as a marketing executive at Tiburon Partners in London.
Yet, Au-Yeung also makes time, when she can, for her outside activities, which include powerlifting and drifting (basically, skidding fast, rear-wheel drive super cars competitively). She understands risk and managing it, and she appreciates agility.
“Structured products, using leverage and derivatives to deliver a positive asymmetric return, are popular, and we can offer clients a portfolio comprising several of them which can enhance return potential and alleviate risk through diversification,” said Au-Yeung.
“Often these products have a high degree of complexity, so due diligence and monitoring is especially important.”
“Clients also often actively trade funds in a similar fashion to the way they trade individual stocks. There are usually few tax implications when they take profits. Indeed, it is incumbent on our specialists to be nimble and point out profit-taking and switching opportunities,” Au-Yeung said.
Investment strategies
A clear grasp of the macroeconomic environment is essential to determine appropriate investment strategies, and Au-Yeung is helped by Morgan Stanley’s global research resources.
Tighter US monetary policy is successfully inducing disinflation, so Morgan Stanley expects the Federal Reserve to cut rates by 100 basis points in the second half of this year. The US dollar should trade flat, according to the bank, and it is forecasting the S&P 500 to close the year at around 4,500 and the 10-year US treasury note to yield about 3.95%.
“US and global developed markets are generally a reliable and safe source of income, and offer a choice of companies with strong balance sheets,” said Au-Yeung. However, “the broad market is likely to end the year more or less where it is trading now, so it is especially important to find alpha opportunities”.
“Particular sectors offer great alpha opportunities,” said Au-Yeung. AI and bio-healthcare are already popular themes with enormous growth potential, but she identifies sectors, such as energy, materials and infrastructure, which should prosper as the business and capex cycles shift forward.
Au-Yeung also favours Japan as a “top pick”, where corporate governance is rapidly improving to the advantage of shareholders.
Among emerging market equities, beneficiaries of outsourcing can be found especially in Brazil, India and Mexico, according to Au-Yeung.
Meanwhile, in fixed income, “there is no need to go down the credit curve when investment grade bonds are paying so much yield,” she said. However, structured products based on a variety of underlying equity markets can generate enhanced income,” she added.
Among hedge funds, Au-Yeung prefers uncorrelated strategies such as relative value macro and low net equity long/short strategies; in the private markets, she sees good opportunities in private lending and evergreen (or semi-liquid) vehicles.
On China, Au-Yeung is more sanguine than other fund selectors and strategists. She thinks rich individuals might take the lead in raising their allocations to the country’s stock market.
“Wealth management clients might well be the first movers back into China stocks, ahead of institutional investors. Valuations are low, even for companies that are innovators in new technologies or are ramping up semiconductor manufacturing,” she said.
“Our clients in Asia Pacific have become more global in their outlook and investment horizons during the past six years. They recognize the advantages of diversification and the limitations of home bias.”
In the future, Au-Yeung expects mandates, whether discretionary or advisory portfolio management, or segregated accounts, will become a growing part of the bank’s business.
