Fund Selector Series: 'Growing interest in private credit, hedge funds'

Joffrey Desrousseaux is the head of investment solutions at DBS Private Bank in Hong Kong. He leads the fund selection team in Hong Kong.

The private bank has over 300 approved funds on its platform.

The platform includes public market funds and private market funds including but not limited to semi-liquid private credit, private equity and hedge funds.

In Hong Kong, there are four people on the managed/investment solutions team and one private equity specialist.

The team follows a comprehensive approach to fund selection, which includes assessing investment strategy, fund size and fund manager expertise, among others, Desrousseaux told AsianInvestor.

He also highlighted a growing trend of increasing allocations to alternatives in client portfolios.

The following interview has been edited for brevity and clarity.

Could you give us a broad idea of DBS Private Bank’s approach to fund selection?

Joffrey Desrousseaux: Since fund performances within the same category can vary significantly, we have a dedicated Fund Selection Team (FST) based in Singapore, Hong Kong and Taiwan to review and select the funds that cater and serve our clients’ needs, instead of being a fund supermarket which offers everything.

My team follows a comprehensive approach to selecting funds which aims to offer the best-in-class funds to our clients.

This involves evaluating factors such as the fund’s investment strategy, historical performances, risk-adjusted returns, expense ratio, fund size, the fund house’s background and fund manager’s expertise and track record.

We adopt a robust research process to study the fund’s performances over different market cycles, low expense ratios and transparent investment strategies.

Furthermore, we study the fund manager’s track record and the alignment of the fund with its objectives, where we would avoid some funds with erratic performances and high fees, to opt out some potentially poor funds.

What are red flags for your team while picking funds for the platform?

We usually pay extra attention and caution to funds with high expense ratios, high manager turnover rates, lack of transparency in holdings, small fund sizes and short historical records.

Some funds’ performances may be too good to be true and that should raise some concerns.

Inconsistent returns and deviation from the fund’s stated strategy may also expose some underlying problems.

What role does ESG play in the fund selection process for DBS Private Bank?

Sustainability is one of our key focus areas.

We are responsible for assessing the qualifiers and the ESG elements in the fund to decide whether it qualifies as an ESG fund, instead of relying on its fund name, ESG scoring and stated investment objectives that classify it as an ESG fund.

This includes gathering information and monitoring the investment purity, ESG reporting metrics used, ESG investment methodology and policies, etc.

We will speak with the fund managers to understand how ESG is applied to the fund, their firm’s screening process and ESG methodology among other things.

How do you see client preferences evolving over the next 12 months?

Clients are showing a growing interest in the alternatives space, specifically in private credit funds and hedge funds.

Over the next 12 months, we anticipate this trend to continue, given that private banking clients are generally underinvested in the alternatives space.

Additionally, there is renewed client appetite to capture returns from technology-related investment ideas, riding on the wave of artificial intelligence advancement.

Another noteworthy sector is the investment-grade fixed income sector, as clients are looking to capitalise on the current attractive yield offered by high-quality credits and preparing to capture potential capital gains from anticipated rate cuts in the future.

There is a visible trend that clients are focusing more on diversifying their investments from public to private markets as a means to diversify risks. Hence, we have seen a growing interest in alternatives funds.

The fund selection process is no longer just primarily focusing on picking asset classes and regions, it is now also about having both public and private investments in their investment portfolio.

Are there any other trends you’ve observed in the recent past?

Over the past year, we have observed keen interest from clients to invest in money market funds, driven by attractive yields and high liquidity, which could be partly due to underperformances of major public asset classes in 2022.

As mentioned, we have also seen a growing trend of increasing allocations in alternatives to their portfolios.