Fund Selector Series: 'Income is back as rates are higher'

Karen Tan is head of investment solutions and managed solutions, Asia, for Pictet Wealth Management.

She covers the overall advisory business with a focus on managed solutions for Asia.

She joined Pictet Wealth Management in 2020 as a fund specialist.

The wealth manager has a diverse and large shelf of funds in its platform -- over 400 approved active funds and over 300 ETFs. Tan manages long-only funds.

Singapore-based Tan spoke to AsianInvestor on how the fund selection team adds and removes funds from its platform, among other topics in a wide-ranging interview.

Tan said she and her team always look at cultivating long-term relationships.

“Whichever asset manager we work with, we want it to be a long-term relationship that grows over time,” she told AsianInvestor.

“This encourages better communication for us as an investor and for them as a solution provider.”

This interview is edited for clarity and brevity.

AsianInvestor: Can you tell us the structure of the fund selection team? 

Karen Tan:  We have a team of 10 in terms of very seasoned investment professionals in our discretionary portfolio management Asia team, who manage the strategies.

There are some more in advisory. I head the investment solutions team in Asia and we are a team of eight.

In Asia, across Singapore and Hong Kong, we offer advisory solutions, and I double as the head of managed solutions, taking care of advisory of the mandate business overall.

Our due diligence (DD) team of 11, which sits in Geneva, handles the fund selection onboarding for the long-only funds globally and we work closely with them.

We have a very diverse and large shelf [of funds] on our platform. We have over 400 approved active funds and over 300 ETFs.

Does the funds platform include private funds and public funds?

I’m referring to what are the long-only funds. We also have private fund segments, which are handled by Pictet Alternative Advisors (PAA) who select and onboard private solutions, including hedge funds.

We also have another sleeve – it’s really granular – we also break down by whether an asset falls under liquid alternatives, in which case it is handled by a separate team.

So, there is a crossover between Pictet Wealth Management and PAA. When we need solutions on alternatives, we give our feedback to colleagues at PAA, who will help with this selection.

How does the fund selection process work, especially when looking at funds in Asia?

Number one is the long-term approach – whichever asset manager we work with, we want it to be a long-term relationship that grows over time.

This encourages better communication for us as an investor and for them as a solution provider. We also look at human capital – the investment team of the fund house.

Our team is highly experienced, and there are many cases in which our analysts have followed fund managers for more than 10 years.

They follow the long-term track record of managers and adopt a very long-term monitoring process.

There have also been instances where managers have moved from an organisation to set up their own shop. We assess the strategy and if we find it appealing, we become seed investors in certain funds. It is very much bottom-up driven.

We look for high-conviction funds while being very risk-aware. We don’t like fund managers who take excessive risk or drift in style of how they manage the strategy.

How often do you add or drop funds from the platform? And what are the main triggers?

There is no fixed timeline in terms of how we add or drop funds from the platform. But it’s very needs based.

For example, last year, when value was all the rage in performance, there was a huge sector rotation.

This year, we have added to our responsible investing solutions. We have a multi-asset responsible investing mandate strategy; hence we have added a few funds as building blocks for that mandate strategy.

In terms of dropping funds, there can be many reasons.

Sometimes, it’s due to assets under management, sometimes it’s due to the departure of a key fund manager, or changes in management or lack of corporate governance.

How do you decide whether a fund is good or not?

We are in a business that aims to achieve returns, so first of all, the investment has to make sense. Performance is key.

When we see performance that cannot be explained by broad market factors, we will zoom in to find out the real reason. If we find we don’t like the reason, we initiate a chat with the asset manager; then we can assess whether we keep or drop the fund.

We don’t drop funds quickly or immediately, unless there has been a very drastic change. We look at a few things here.

People is number one – we look at the team in terms of experience, track record consistency.

Sometimes, you have star managers who do well for three to five years and after that, may or may not be poached.

Process is another criterion – is the investment process clear? Is it consistent and explains the roles and responsibilities of the team because that needs to be clearly defined?

We also consider the alignment of interests – we have a number of fund houses on our shelf. We like it when they have a very strong alignment of interests because it means they have skin in the game.

Finally, we also look at portfolio concentration risk and liquidity of the portfolio. So, a general questions that our DD (due diligence) analysts will ask is, how much of your portfolio can you liquidate in a day? That gives us a sense of the fund’s liquidity.

How has client demand evolved over the past 12 months?

Income is definitely back, especially as rates are higher. If you look at developed market rates that have always been below emerging markets, it is now giving you very nice carry.

Two-year Treasury yields have climbed above 5% and the 10-year bond yields have reached 5% - these are 16-year highs so income does make sense again.

I went to an industry event recently and an overwhelming 70% said they will be adding to investment-grade bonds next year.

I will say that cash delivering such high rates over the past 12 months has been a hurdle for investments. But now that fixed income investment grade bonds of less than three years can give you 6%, it is making a very big comeback – especially in October and all through the year.

Artificial intelligence is also a big theme with clients. We have several AI thematic funds on our shelf. Clients are curious about this segment and want to know more. The interest is more equity oriented.

They want some exposure, but the question is how they can access it.

We also have interest in structured products within funds, but they are just nibbles here and there.

I wouldn’t say they are huge tickets because of concerns such as geopolitics, conflict, economic slowdown and high interest rates.