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The FSA Spy market buzz – 12 July 2019

Schroders Wealth hires; Asset management mood swings; Deutsche tailors and lay-offs; Fat finger trades; Public lists; advertising from CSOP and much more.

“I do genuinely think our bank does things differently”, said the Hong Kong-based, UHNW team head of a mid-tier Swiss bank to Spy this week. We were sharing several glasses of England’s quintessential summer drink, Pimm’s. Spy, naturally, nodded politely. The bank may, indeed, do things differently, but Spy did have to point out to his genial companion that practically every private bank on the street is singing from an identical hymn sheet at the moment. In Spy’s experience it can be summed up as, “Neutral on equities, tilt toward defensive positioning. We favour fixed maturity products.” Spy can seldom remember such a synchronised outlook and the contrarian in Spy thinks it is unlikely they are all correct.

News has reached Spy that Schroders Wealth has added an analyst to its team in Singapore. Zachary Ong has joined the wealth manager from Value Partners. Schroders Wealth has been growing organically and through acquisition in the last few years. The firm acquired Singapore-based Thirdrock in February.

Your humble Spy has been chatting to numerous asset management luminaries this week. From boutique managers to tier-one global behemoth’s and the mood music has definitely changed. Caution is being replaced with optimism. That is not to say that confidence or conviction is sky-high, but something is shifting, and as these things tend to do, shifting rather fast. One of the most interesting things mentioned by numerous ‘active players’ is that they believe the pricing war that has been sparked by the passives revolution is coming to an end. It may not be all over, but a bottom is, perhaps, being reached. One manager put it, “We have not had a pricing discussion for a year. It has simply not come up. And if you look at the passive share it is not growing much.” Spy assumes that many of the swingeing price cuts managers have had to endure have now put insti share classes within touching distance of their potential passive equivalents. The good news is that bankers and wealth managers can now focus on strategy, a far more interesting subject than pricing. That, combined with soaring US stock markets (the S&P touched 3000), have given everyone a much needed mid-year boost.

Seeing the pictures of Deutsche Bank staff recently made redundant, holding boxes of personal goods wandering away from various offices, gave Spy an awful sense of déjà vu from the dark days of the Lehman’s bankruptcy. One Deutsche alumni Spy spoke to said, “You have no idea how much wastage we had at the bank. We had so many people doing similar things and the bank had made itself a bureaucratic monster.” Not exactly the model of hyper-efficient market capitalism, one supposes. Still, nobody likes to see mass lay-offs, let alone your humble Spy. And it did not do the reputation of some bankers much good in London when the day the job cuts were announced, an upmarket tailor was at Deutsche’s offices fitting out several managing director’s with £1,200 suits, according to The Guardian. No doubt it was just poor timing. Apparently Christian Sewing, Deutsche CEO, is rather irate about the fittings.

Errors and mistakes are a fact of daily business life. For most people, the errors are seldom too public and life can move on swiftly. Spy felt a twinge of sympathy, therefore, for the trader who caused the shares of Asian airline, Cebu Pacific to fall 37% on Tuesday in full view of the public. A classic “fat finger trade” meant he or she put a large sell order in at 58 pesos instead of 98, causing the shares to plummet in last minute trading. Local Manila stock exchange rules meant the error could not be reversed immediately. The shares did recover the loss during the week but no doubt the trader in question had a rather uncomfortable 48 hours while the error wound itself out. Ouch.

Did you hear about the mega-successful robo-adviser gathering assets at a blistering pace and disrupting every other wealth manager in the market? No, neither did Spy. Spy can hardly think of a more hyped market innovation than Robo in the last few years and yet the real asset growth has been tiny. As one asset manager put it to Spy this week: “These robo-advisers are targeting millennials, but millennials have not built substantial asset bases yet. And when they finally do, they will be middle-aged and want to have a real person handle their increased wealth, just like their parents did before them.” Spy finds it hard to disagree with that.

It is fair to say there are public lists that most people would not mind being included on: Most eligible bachelor, most promising future star, most successful trader, etc. Take your pick of ambitious and gilded categories and put your hand up. What one does not particularly want, especially in the financial world, is to find yourself on a list ranking worst shareholder returns. One asset management CEO, Martin Flanagan of Invesco has found himself in that unenviable position this week. With remuneration of $12.9m and shareholder return of -52% it is not a great IR combo. In Mr Flanagan’s defence, Spy will point out that the crosswinds affecting the asset management industry of late have been numerous and particularly challenging and the slightest change in the weather could just as easily see the virtuous opposite occur.



Spy’s photographers have spotted some new advertising from CSOP in Hong Kong. The Chinese asset manager is promoting its inverse ETF.



Until next week…

Part of the Mark Allen Group.