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Creating Unique Strategies

Andrew Lee

EFG Asset Management

EFG Asset Management (EFGAM) is part of EFG International and is a specialist asset management firm with a range of rather unique strategies. Its clients include financial intermediaries and institutional investors all over the world that are attracted to its active and very often innovative investment strategies. Andrew Lee, CEO of EFGAM HK and COO of EFGAM Asia, met with Hubbis recently to share his insights into the company’s philosophy, how the industry is trending and to look under the hood of some of its current strategies.

“There are two key elements that we factor in to our approach,” Lee begins, “at EFGAM, we believe that asset allocation is the key to constructing any portfolio as asset allocation can explain 90% of a portfolio’s performance. Secondly, we are benchmark aware, not benchmark driven.  Active management is integral to everything we do and our managers are not constrained by benchmarks.”

Lee knows from his experience that different clients have different needs and the firm aims to tailor the solutions it offers to fit those needs. “We also have some strategies we manage that we believe are particularly interesting for clients of different types.”

A contrarian fixed income strategy

One strategy, he explains, is the New Capital Wealthy Nations Bond strategy, which invests into investment grade bonds only, and only of the ‘wealthy’ nations. “The idea is from a fixed income investment standpoint we do not invest according to the benchmark,” he elucidated.

“Most traditional fund managers have the majority of their bond allocation to the most indebted countries,” he continued, “Owing to the construction of bond indices the greatest weight is often given to the biggest debtors. However, we prefer to invest in companies or countries that have the best capability to pay back the money. Accordingly, we invest in creditors, not the debtors.  In fact, in the year 2012 when the European debt crisis peaked, the strategy performed its best.”

The New Capital Wealthy Nations Bond strategy has a stated objective of seeking long term appreciation, through a combination of capital growth and income, through investments in a broadly diversified range of debt securities issued by governments, institutions and corporations in both developed and developing markets.

The strategy is actively managed, holds debt securities with investment grade ratings and has no maturity limitations.

Lee explains that EFGAM has its own proprietary screening, looking at ‘Net Foreign Asset’ over GDP as a percentage. “Our rule,” he says, “is whenever it is below minus 50% then it would be out of our universe.  We believe the ‘wealthy’ countries, as identified by our screening, will be better positioned when they face an economic, political or financial shock in the global economy.”

Going digital

Lee also highlights another strategy, the New Capital Digital Economy strategy, launched because there were none in the market. The strategy, Lee explains, looks at companies that will benefit from the transformation or digitisation of the economy and EFGAM looks at it from a China-centric perspective but invests across the whole of Asia. 

“The idea is that digitisation will be our future,” he clarifies. “When we look at the Asian market we think that different countries are at different stages of development in their digital economies, so are the opportunities.  In order for the investor to benefit the most, you have to be able to invest across the whole digital ecosystem, expanding beyond traditional technology, auto or Internet sectors, that is how the strategy works.”

The aim of the strategy is to achieve long-term capital growth by investing primarily in equity securities issued by companies that can potentially benefit from the transformation or development of economy by digital technologies.

Boutique, but nifty

EFGAM is part of Swiss private bank EFG, which began life in 1995 in Zurich and ten years later listed on the SIX Swiss Exchange. In 2016 the bank took another leap forward by combining forces with one of the oldest private banks in Switzerland, BSI, in a nearly 1 billion Swiss franc deal.

Today, the combined entity has a growing global footprint with 40 locations worldwide, and through offices in Hong Kong and Singapore is on an ambitious expansion trail in Asia.

Lee explains that EFGAM currently has a team in Hong Kong, as well as in Singapore. “We also work very closely together with our London team, our team in Switzerland, our team in Portland and other offices, as one global team,” he reports.

Emerging trends in the region

Lee also turned his attention to the distribution. “Asia,” he explains, “is a very heterogeneous market, so you will find actually different regulations and different client appetite, demands, expectations and culture, in different locations. Accordingly, in the past, we have been focussing on a few countries to start with, and we are then gradually exploring opportunities in the emerging countries.”

Lee expanded on this, explaining that the offshore or international investments of the emerging countries are expanding and their approach is becoming more mature. “These are markets that we have been closely looking at and also finding some onshore partners to work together with,” he reports. “We know that the key is the client experience, the performance, and when we can deliver those, then the clients’ interest will be with us.”

Going local

Lee also notes that there is a trend in different jurisdictions towards the promotion of local domiciled funds and regional fund passports. “The local governments generally have the ambition to promote themselves to be local fund investment and distribution centres,” he comments. “Such fund passports will proliferate when the uncertainties surrounding tax treatment, sales channels, cannibalisation of existing structures are cleared.”

The second trend Lee observes has not yet fully materialised but is in its early stages. “We see the mass-affluent market looking at funds one by one and that the average portfolio is under-advised or under-managed,” he observes, “but what we really should be looking at is helping them view the portfolio in a holistic manner. So, first start with what their long-term objectives are, what their risk appetite is, their liquidity needs, preferences, then the asset allocation and the risk parameters, the control and review process.”

Lee believes this will give investors a much better outcome and a more sustainable approach. “That is what I think the industry should be really trending towards and is moving towards, albeit gradually.”

Differentiation a key to success

Lee closes the interview by stating that EFGAM is well differentiated in the competitive space.

“In fact,” he observes, “we aim to always try not to launch a ‘me-too’ product. We aim to provide innovative products that are uniquely positioned in the market.”

By way of example, he referred to the roughly three-year-old New Capital US Future Leaders strategy. “With that innovative strategy,” he explains, “we are trying to find the companies of tomorrow, the future leaders. We invite industry and academic experts from different areas, including innovation, behavioural psychology, finance, corporate strategy and ESG/SRI, to help provide insights to further shape our investment process, to identify the key qualities behind visionary leaders and their management team.”

Lee expounds on this by explaining that, “once we identify those quality management teams,there will be a key differentiator and a key contributor that will propel their companies to future success. That will reflect well in the share price.” Owning to the success of the New Capital US Future Leaders strategy EFGAM has more recently launched its New Capital Asia Future Leaders strategy.

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Lee’s Priorities for EFGAM

Lee’s priority, he reports, covers two key areas, client experience and performance. “From a client perspective,” he observes, “we know that in our fund industry there have been a lot of people turnover and there will be products that will be created more from an overtly sales and marketing driven angle. But what we look at is launch a fund or strategy only when we see there is a long-term investment case. Accordingly, there might be cases when we launch the fund or strategy, it will make us appear contrarian relative to the wider industry, and we take a longer-term investment horizon to earn good money return for the clients.”

At the same time, Lee adds, EFGAM puts in a considerable focus on what its clients actually experience and might experience when they contact the company, or perhaps when they talk to EFGAM’s distributors, to make sure the deliverables and the commentaries, all facets, are of good quality and in good order. “That's what I think is key to our client experience,” he says. “We are highly focused on this, and we are still making improvements.”

The second element Lee is focusing keenly on is performance. “What we are targeting,” he says, “is to deliver long-term outperformance to our clients, and the key part is also related to client experience as the performance has to be in terms of the expectations aligned with the clients, so we have to make it very clear under what market circumstances our strategies will perform well, or under what market circumstances they may not perform as well.”

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Getting Personal with Andrew Lee

Lee hails from Hong Kong, where he was educated through to completion of his university degree in electronic engineering, with a key subject in semiconductors, at the Chinese University of Hong Kong, graduating with a master’s degree.

His career has spanned firms such as JF Asset Management, ABN AMRO and then Legg Mason. He then started his own company before taking up his role at EFG, where he enjoys the entrepreneurial and innovative spirit of the firm.

Married with two children, Lee enjoys spare time with the family, or watching his favourite soccer team Manchester United, or supporting the managerial career of his former favourite player, France’s mercurial Zinedine Zidane, newly reappointed as Real Madrid’s head coach.

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