Open-ended buyout funds turning popular, says fund selector

Cheryl Tan is head of fund specialists Asia at Swiss private bank Julius Baer.

Tan heads a team of specialists who are based in Singapore and Hong Kong

The team is responsible for providing active investment advice and sales for mutual funds, hedge funds and private equity.

A well-known name in private banking circles, Tan joined Julius Baer in December 2013, following the bank’s integration of Merrill Lynch International Wealth Management.

“We are advocates of adopting a core-satellite approach to constructing and managing fund portfolios.

"The asset allocation for the core is driven by recommendations from our chief investment officer, ensuring a strategic approach to portfolio management,” Singapore-based Tan told AsianInvestor in a recent interview.

This interview has been lightly edited for clarity.

Could you explain Julius Baer’s approach to fund selection?

As a dedicated fund specialist and advisory team, our process begins with thorough due diligence conducted by a specialised team of analysts based in Zurich.

These analysts are tasked with the critical role of evaluating funds to ensure they meet our stringent standards for inclusion in our fund offerings platform.

Our role as fund specialists involves translating our research and house views into actionable investment recommendations for our clients, taking into account current market conditions and specific client requirements.

Maintaining regular and close communication with our due diligence analysts is essential.

This collaboration ensures that our fund offerings are not only best-in-class but also comprehensive, from a client need and broader asset class or strategy perspective.

While a fund's historical track record offers insight into a manager's skill across various market conditions, our selection criteria extend beyond past performance.

We focus on the drivers of performance, consistency, and adherence to the fund's stated style.

We are advocates of adopting a core-satellite approach to constructing and managing fund portfolios.

The asset allocation for the core is driven by recommendations from our chief investment officer, ensuring a strategic approach to portfolio management.

How do you separate good funds from bad?

We favour funds with a clear investment objective, a robust investment philosophy and strategy, a skilled, well-resourced and knowledgeable portfolio management team, and strong risk management evidenced by a consistent and strong track record.

On the flipside, we shy away from funds that lack clarity in their investment objective and process, as well as funds that are showing signs of style drift.

We avoid funds that have become too large for their investable universe and thus present liquidity risks.

We also avoid funds that that represent ESG [environment, social and governance] risks, as well as those that have poor risk controls and governance structures among other things.

Any signs of persistent underperformance or style drift trigger closer monitoring and a thorough review of the fund.

What are clients interested in right now?

Our clients remain focused on yield and income, though their investment interests have moved beyond fixed income into multi-asset solutions and even private credit for the more sophisticated and patient investors.

Artificial intelligence and technology-related funds continue to attract attention; however, investors are increasingly seeking opportunities outside of the mega-cap tech behemoths.

There is a notable shift towards diversification, with strong interest in India and Japan equity funds, reflecting a broader geographical investment approach.

In the hedge fund space, the demand is for access to top-tier, established managers, especially those with restricted capacity.

Our focus has been on multi-strategy market-neutral funds, which offer a balanced risk-return profile.

Additionally, in the semi-liquid space, open-ended buyout funds have emerged as a popular product.

These funds offer a blend of liquidity and access to private equity opportunities, appealing to investors looking for innovative ways to enhance their portfolios.

Overall, our clients are diversifying their strategies, balancing traditional income-focused investments with innovative and geographically diverse opportunities to achieve their financial goals.

Have you seen any evolving trends related to the share of funds in client portfolios?

On average, we see fund penetration continuing to increase steadily, reflecting a growing allocation to funds for diversified and stable returns.

This trend is driven by heightened awareness of the benefits of professional management, the availability of broader fund options, amid increasingly complex global markets.