Private market portfolios in Asia have room to grow, says fund selector
Jack Siu is head of discretionary portfolio management, Asia, at Lombard Odier, which has $378 billion in assets under management globally.
Based in Hong Kong, he is responsible for leading the Swiss private bank's discretionary investment strategies and offering in Asia.
Jack brings 19 years of investment management experience across asset classes. He previously worked at Credit Suisse, Generali Investments Asia and Citi Private Bank.
At Lombard Odier, Siu and his team have the task of generating performance for clients using the best asset allocation, funds, strategies and security selections.
“We have an asset management business and we are able to tap into the expertise and solutions they provide,” he told AsianInvestor.
“However, we also tap externally available opportunities because we use open architecture in the private wealth space, and offer both internal and external funds to clients.”
This interview has been lightly edited for clarity.
Can you outline some key criteria in Lombard Odier’s fund selection approach?
We consider several criteria in our fund selection including the solutions’ efficiency, the market for that product, fund size and structure, where it is domiciled, and how risk reporting is conducted.
The manager's skill, longevity or track record play an especially important role in our decision to onboard a fund on our platform.
I would say a five-year track record is a good point at which to take a fund more seriously.
There is also a minimum assets under management that is needed for different asset classes and hitting that minimum bar allows for a potential review [for inclusion].
We don’t only look at the largest and biggest funds, we do consider smaller funds.
We focus on funds with a strong track record and if the fund has performed well even against its closest peers, it could earn a position on our platform even though it might not necessarily be the most visible or famous name.
We have a strong selection of funds, but we don’t have a fund choice for everything. For instance, we only have two actively-managed funds covering Japan equities – we are highly selective in what we choose.
We also have due diligence teams that will select strategies and funds that match our house view.
How does the house view work its way into fund selection?
We have a very structured house view process where we review our strategic asset allocation once a year.
We have a very structured house view process where we review our strategic asset allocation once a year.
We might include a new asset class or exclude an asset that was included in previous years, as expected asset-class returns and risks evolve. This process will have implications for the funds we include or exclude.
For instance, we decided not to have a focused strategy specifically on China bonds (renminbi) although such bonds could be included in a fixed income emerging market bond fund.
But we decided not to have them as a separate standalone strategy. That means we have less demand for those kinds of funds.
Similarly, we also decided to add some categories, like thematic strategies in equity and credit.
We also looked at private markets and decided we wanted to onboard some external private debt funds, for eligible investors.
For example, a very long-term view could be an asset allocation stance of perhaps 35% equities, 40% bonds, 7% hedge funds, 3% gold and 15% private assets along with some money market instruments.
So based on this broad strategic asset allocation stance, we conduct regular reviews every month during which we decide on the tactical allocation.
In the case of equities, for instance, we might choose ETFs or, mutual funds, or other single-line securities and products as a way of incorporating equities in portfolios, depending on client’s preferences and risk tolerance.
We might also upgrade or downgrade certain asset types or geographies.
The last overweight we did on a country level was for UK equities a few months back.
How do you see client demand evolving over the next 12 months?
With interest rates coming down, investors are keen to lock in higher rates for a little longer.
There are expectations that US policy rates will fall from currently 4.875% to 3.375% by the end of 2025.
Clients are also wondering if they need to consider a multi-asset strategy because of the general consensus that the US economy will have a soft landing.
Also, the US presidential elections are raising uncertainty levels.
With a Trump win, it is likely he would raise tariffs on China, and this could turn out to be inflationary.
That could limit the extent to which the Fed can cut rates and expectations around rates may have to be recalibrated.
With Harris, it looks more like status quo. She seems slightly more domestic -focused and her policies appear less inflationary.
Private asset demand has soared among Asia’s wealthy in recent years. What is your take on how this demand can evolve?
In Asia there has been a surge to ramp up exposure to private asset strategies across family offices and high net worth individuals (HNWIs).
It has taken several market events to trigger this interest, one of which is the collapse in Chinese property bonds.
It used to be a market earning 12% or so in interest and while this existed, clients had little need for private assets. The collapse of the sector helped the rise of private assets in client portfolios.
Secondly the decline of the equity market in China, which has been one of the main holdings besides US equities for Asian investors, has also been another driver for eligible investors into private market assets.
Of course, there is a continuous learning process for investors who are relatively new (compared to the wealthy in US and Europe) to private asset fund investments.
Many of the ultra-wealthy in Asia are highly experienced in choosing local private assets themselves; but not many can claim they are an expert in this yet.
Nevertheless, I believe we are still seeing the ramping up of asset allocation into private market portfolios in Asia.
While there has been a global slowdown in tapping private markets, Asia seems to have stepped up to fill the gap.
This region has a lot of room for private asset allocation. For a typical client, the private market portfolio is still below 5% [of overall portfolios] so there is a lot of room to grow.