In Indosuez Wealth Management’s view, de Boer notes that the first quarter of 2019 has been a reaction to what was an over-reaction to the downside of the final quarter of 2018.
“Across all asset classes,” he remarks, “we saw financial gains partly because the markets think Trump’s tweets mean that there will be a solution to the trade issues between the US and China. The markets are viewing the economic situation in Europe, the US, and China as reasonable, with earnings having held up relatively well. And clearly the central banks are now more dovish, or neutral, compared to this time last year, so that is also a big reversal. The market seems to be pricing in an orderly Brexit and the end of the trade conflict between the US and China.”
Seemingly solid, but porous foundations?
However, de Boer considers that in order for the market to stabilise and advance, more evidence of continued earnings growth is required, as is an orderly Brexit, and so too a US-China trade deal must fall into place. “If any or all of these go wrong, we might see a lot more volatility,” he says. “In short, all those risks have not formally been resolved. Moreover, the markets have priced in rate cuts instead of hikes, but while the central banks might have paused hiking, we are not sure that they are actually going to cut or be more accommodative. So, that could also be too optimistic a view going forward.”
Finally, he notes that the US yield curve has actually inverted now for the past three months. “In the past 55 years,” he comments, “every single time that happened, a recession soon followed. On the other hand, there are all kinds of other signals that are not yet saying a recession is guaranteed. However, we shouldn’t ignore the possibility. In fact, this environment requires more prudence, much more selectivity, a little bit more risk off, some profit taking and great care when it comes to choosing risky assets.”
The road ahead has warning lights
In light of all this, de Boer reports that Indosuez Wealth Management is somewhat cautious on equities, as the firm does expect an increase in volatility in the near future. Accordingly, on balance we remain selectively quite positive on Asia ex-Japan followed by the US, then followed by Europe. I say selectively because we are now more thematically-driven than before. For example, we like the theme of ageing population, we like disruptive technologies, we like new healthcare innovations, and we like ESG-driven corporations.”
On the fixed income front, he notes that the generally more accommodative stance of the central banks is positive for the sector but explains that the firm prefers high grade to high yield these days.
On commodities, de Boer notes the rebounds, especially in oil, but adds that with the US now producing 12 to 13 million barrels a day as the biggest global producer and beginning to export aggressively to the tune of roughly 3 million barrels a day, there is a significant price ceiling. “We foresee USD60 to perhaps USD65 per barrel regardless of other developments,” he reports.
Consistent application required
Risk management, de Boer explains, must be consistently applied over time in bullish or bearish markets. It must also be applied across all asset classes from equities to fixed income and structured products, and across all types of liquid or illiquid assets.
de Boer has enjoyed an exciting two years plus at Indosuez Wealth Management to date. Soon after he joined the firm, he was deeply involved in the challenging yet transformational merger and integration of the Asian businesses of Credit Industriel et Commercial (CIC). He has also been central to the firm adding to its business leadership, expanding its discretionary portfolio management (DPM) and private equity teams, as well as adding more investment advisers and a night desk to enhance its client service.
KPIs honed for client enhancement
de Boer believes that the firm has adapted its concept of KPIs to hone its offerings in the best interests of the clients. “By way of example,” he explains, “our structured products team comes up with creative ideas, which are positive for the bank and clients, but a key KPI for us is that a very, very high percentage of those structured products at maturity need to have proven successful for the client, which in turn means the team must be conservative in their creativity.”
In terms of the approach to the firm’s DPM mandates, our focus is to produce performance, but at the same time, balancing volatility within the mandates. “So,” he explains, “they need to either perform at par or overperform their benchmarks, but they also need to have that performance realised with lower volatility, which is very specific in their KPIs.”
He also cites the example of private equity, which is a very long term and very illiquid asset class. “For this we team up with substantial third-party partners, the big global names, purely because of their strong risk management which allows us to ride on their expertise. On the FX side, we have long held a view that clients should have part of their portfolio in gold, simply as a reducing factor of the overall volatility in their entire portfolio and we therefore advise having this as an uncorrelated asset within their portfolio.”
de Boer observes the general trend towards more managed investments, which include DPM, discretionary private equity mandates, and discretionary managed hedge fund mandates. “Advisory can be seen as type of a hybrid between the client making decisions and following the advice from the bank,” he remarks. “Of course, then you have your funds business which is also a form of managed investment. So across the industry, we have seen this steady growth in managed investments as a percentage of our AUM, but the growth is not as rapid here as for our European counterparts, where we see huge percentages now slated as managed investments.”
de Boer adds that the firm certainly believes that the current global conditions make it worthwhile for Asian high-net-worth investors to move more of their portfolios towards DPM. “It is in precisely this type of somewhat uncertain environments that having a professional look after their portfolios on a day-to-day basis is reassuring for the clients,” he observes.
ESG moves mainstream
ESG, he says, is no longer a marginal hobby or merely just a fad. “There is substantial evidence today that securities with high ESG scores actually have better returns than those that do not. For example, in late January scores of large institutional investors globally wrote to the world’s six largest fast-food companies asking them to quickly make their entire supply chain greener, something that will mean trillions of dollars of investments. Those six big fast food companies have no choice but to prepare their action plans, so it is now supply and demand, with the largest pension and other funds of this world looking at parting ways with non-ESG compliant companies and investing instead more in those with high ESG ratings.”
On this topic, he notes that the firm’s keystone annual client event, Wealth and Beyond Asia Summit, took place in Hong Kong this year with the theme for 2019 framed under the banner ‘A Better World’. “We had some great speakers and covered some of the latest trends such as climate change, and there was a major focus on ESG, demonstrating to our clientele the growing relationship between ESG and portfolio performance.”
The human scale
de Boer notes that Indosuez Wealth Management is scaled at the size of a boutique firm offering a personal connection to clients, yet also providing the widest range of best-in-class products and services within a large, stable global banking organisation, meaning that clients enjoy the best of both worlds.
“We actually take pride in the fact that we are not a small player but also not a gigantic player,” he comments, “so we tend to like to portray ourselves as a ‘human-scale’ private bank and that translates in the way we interact with our clients. With regards to very specific product capabilities, even though we are not a top five player globally, we firmly believe that our entire suite of products and services is at least on par if not better with the top players, both in scale and quality.”
Moreover, he adds that the bank’s open architecture is very precise and streamlined with its due diligence process in such a way that the number of funds available is greater than average. “At the same time,” he notes, “we have in-house Indosuez funds for our clients that are tailor-made, Luxembourg-domiciled UCITs vehicles, available only for Indosuez clients. And we have our sister company Amundi, which is Europe’s largest asset manager, adding to our knowledge and expertise.”
Regarding structured products, he explains that Indosuez Wealth Management offers open architecture, while most banks do not. “We also offer over-the-counter structures,” he reports, “so we have the entire structured suite in an open architecture environment. The same applies to our FX, where we are a major player, being part of the vast Credit Agricole Group. Finally, private equity is a core platform, where we boast 25 professionals around the globe purely focusing on this asset class, where we can offer clients exposure either through a fund of funds, or purely direct investments, including where we co-invest with the biggest names in the industry. It is usually very difficult for private clients to get access to this sort of expertise and product suite.”
A new paradigm emerges
Looking at the industry as a whole, de Boer sees more of a trend to consolidation in Asia than to growth through hiring bankers with portfolios of clients, partly because of the problems of regulation and compliance. “The convertibility of those books of those bankers is becoming ever more difficult, so we see more of the trend. For example, with the takeover of ING by OCBC which then became Bank of Singapore, that really was to start of a now decade-long consolidation process which in my view is far from finished.”