Funds industry needs to streamline: Stefansson
As head of distribution for Asia Pacific at UBS Wealth Management, Paul Stefansson oversees the bank’s distribution of investment funds, hedge funds and private equity funds in the region.
Singapore-based Stefansson has more than 30 years’ investment experience. He joined UBS in 2006 in products and services consulting. Previously he was CEO of Ipac Financial Planning, a subsidiary of Axa.
Here he talks to AsianInvestor about what products investors are demanding, what the industry needs to do to cope with a changing environment, how he chooses managers, and crucially how he help his clients eat well during the day and sleep soundly at night.
Do you select managers with no track record? Are you willing to be the first investor?
UBS prefers fund companies that have been around and have experience in risk control and all the systems in place. In general UBS requires funds to have at least a three-year track record.
Usually we will not invest in companies that have no track record. A fund company that launches a strategy with no record in that category may have track record in a similar strategy. But UBS does not like to own the whole fund. We have concentration limits.
How long does due diligence take?
It depends. UBS has known funds and managers for a long time. Therefore the due diligence can be fast, but it really depends on the complexity, size and liquidity of the asset class. We would rather do due diligence the right way than do it fast. UBS says ‘no’ to funds more often than we say ‘yes’.
Do you have Chinese managers on your list?
We are careful with due diligence, but we have no additional selection criteria for emerging market managers or mainland Chinese managers. UBS currently works with the Hong Kong subsidiaries of two mainland managers. Asset management in China is still a very young industry compared with other jurisdictions.
What are investors demanding now?
There’s a global search for yield, so we see demand for high-yield bonds and multi-asset funds. UBS follows its CIO asset allocation and is focused on equities, hedge funds and private equity. We have a higher allocation to alternatives year-on-year. Our CIO suggests up to an 18% allocation to alternatives.
What about ETFs, do you see any demand?
UBS offers ETFs, especially for more developed markets such as the US and Europe. In emerging markets there are more opportunities for alpha than in developed, but we don’t see huge demand [for ETFs] from emerging markets.
Are you happy with the service fund managers provide? Is there room for improvement?
UBS has long-term partnerships with many fund companies. It’s a very competitive business, with new fund companies coming to Asia. The industry needs to streamline and specialise to add alpha.
Would you prefer more specialised managers?
A fund manager doesn’t have to be specialised. What’s important is they have to be in the first quartile performance-wise, have a good track record and unique process. UBS wants a manager that has something different.
What challenges do you find in your job?
The biggest is helping investors to manage behaviour that could hurt their investment return. I have seen investors’ overconfidence in the dotcom era and their fears during the 2008 crisis.
How do we help clients to stay with their investments during this period? Market timing is very difficult. UBS focuses on our CIO’s asset allocation to keep clients invested in a portfolio that meets their risk and return needs. That is, a client needs a portfolio that can beat inflation, so you can eat and the portfolio is balanced enough to allow a good night’s sleep. Balancing eating and sleeping is very challenging.
What areas will you focus on this year?
We have a solution offering investment advice and systematic portfolio monitoring where clients retain full decision-making power over their own investments. This is one area. We are also focusing on alternatives. In a world where the cash payout is zero percent and high-yield trading is overcrowded, hedge funds and private equity are a good alternative. Through the illiquidity premium, investors get a higher return premium.
What other trends have you observed?
We see fund houses reorganising their sales, product development and investment capabilities, adding depth in investment and product development. They use this to improve their chances of capturing the attention of distributors like us and clients. We will often sit down and design products with them if there is a gap in our recommended list.
The full interview with Paul Stefansson can be read in the latest (April) edition of AsianInvestor magazine