Global CIO Office CEO Spreads the Word on Institutional Level Investing for Asia’s Private Clients
Gary Dugan is Co-Founder of The Global CIO Office, whose mission since opening its doors in October 2019 has been to elevate research, deal selection and advisory to institutional levels for smaller EAMs, or single-family and multi-family offices that need to upgrade product selection for their clients. As the world has changed so dramatically in the roughly one year since he and investment expert Johan Jooste opened their doors, much greater selectivity in investments is needed, as the differential between the performers, the also-rans, and the non-performers has become far more acute. Their mission is to support family offices and EAMs by providing outsourced investment ideas and research services driven by a deeper analysis of companies and a better understanding of sectoral and geographical trends and outlook. In their view, this is central to the theme of improving the quality of advice offered to HNW and UHNW private clients in Asia, and importantly at a manageable pricing formula. Hubbis met up with Dugan, a well-known CIO in the private banking world, to hear more of the firm’s progress during the year of the pandemic, and of their plans for the future, even in the still-imaginary times ahead when the world might be restored to some degree of normalcy.
“This has not been the ideal time to launch the firm from the perspective of wanting to get out and about and meet prospective clients,” Dugan begins, “and of course with all the chaos and ongoing uncertainties. However, after Singapore began to tentatively reopen, the good news has been that, as people have just got settled back into work again, we have found more and more interest in our concept.”
Overcoming the hurdles
The hurdle the firm most needs to overcome, he reports, is that in Asia, there is little familiarity with outsourced CIO services. “Honestly, we needed to be clearer ourselves as well,” he says with humility. “Sometimes, a concept is so clear in your own minds that one automatically expects others to grasp it straight away. However, we have been working hard to refine our message, and our modes of communication to make sure the market truly understands what we do, how we work, and our value proposition.”
The more positive backdrop that Dugan and Jooste continue to see in the wealth market is the ongoing trend for senior private bankers to either join or open independent asset management firms. “Very quickly,” he remarks, “and especially if starting their own firms, they realise that outside the mothership bank, they really need a more institutional level, serious investment proposition, based on in-depth, curated research and analysis. And that is what we offer.”
Seeing the value
As a result, the firm has picked up new clients who had sought a full-time CIO but who quickly saw the value of the Global CIO Office services. “We offer an immediate and quantifiable solution, we can without any delays deliver a list of funds that they should consider for their platform, and we can immediately offer model portfolios and research that they can white-label,” he reports. “We have enjoyed most traction with multi-family offices and smaller IAMs and EAMs.”
China in the sights
Dugan explains that China is a central focus and offers great strategic potential. The firm has connected to other parties embedded in that market to help broaden the global investment allocation for Chinese HNW and UHNW offshore investors who are increasingly looking at building multi-asset and multi-region portfolios.
“We see a great opportunity there,” he says, “so we are developing products and strategies with local parties there to build this proposition. Chinese onshore investors are increasingly looking to businesses such as ours to bring them a very broad spectrum of quality offshore investment opportunities, but at affordable pricing away from the more expensive private banks.”
A sharp lens on Asia for US partners
The second growth path Dugan sees is in working with some of the very big outsourced CIO services businesses in the US, very few of which have any presence in Asia, and becoming their outsourced provider of Asian content for the portfolios they build back in the United States.
“These US outsourced CIO operations have been so domestic-focused, but they are gradually waking to the reality of how vast the Asian economies are,” he explains, “especially China, and by working with firms like us, they can build their offering at home to encompass this vast region. Accordingly, as we scan the next 12 months ahead, we think there's a tremendous opportunity with being the supplier of Asian product to the Western world, and particularly the growth opportunity that we see China.”
Why not up the game?
There are views, he reports, that in terms of allocation, 10% to 15% of global bond and equity exposures could be directed to China very reasonably, given the size of the bond markets there and the economy.
“We really do think that asset allocators have a huge opportunity here to buy cheap Chinese assets and with yields there of around 5%, in what will be the largest economy in the world very soon, when earnings are going to be growing by 10% to 15% in large swathes of that market,” he states. “We will be a standard-bearer for Chinese assets in global multi-asset portfolios. Investors should forget about MSCI weightings and think about what a realistic allocation should be and get to that quickly before everyone else catches up and markets are substantially higher.”
From public to private
Dugan explains that the firm does not look only at mainstream public markets but is also increasingly leveraging its expertise in private equity and venture capital to help filter the better opportunities for clients.
“On the VC side,” he reports, “we have also worked with a business that filters deals using AI, taking a basket of over 10,000 deals down to about 100 currently. It is very difficult these days of course to conduct face-to-face due diligence but by using the AI and big data tools that this platform offers, we arrive at a much quicker and smart way to refine opportunities.”
Trending to ESG
In private equity, he reports, The Global CIO Office has narrowed the field down to an area of specialisation in ESG. “Here,” he explains, “we are working with a Canada-based party to help refine opportunities in the areas of technology. For example, it might be taking carbon out of the air or planting trees, with the whole philosophy around this that ESG-driven technology advances are not solely to save the planet, but also to make money. Combining the two offers a rather compelling proposition. The types of MFO clients we work with do not need numerous deals; they need really good and interesting stories behind one or two opportunities.”
He adds that the appetite for non-public assets has encouraged the firm to shift somewhat from its original assumption that the universe of public, liquid investments would be the most relevant or logical way of serving the clients.
“We have reassessed somewhat,” he says, “forming the view that the discretionary portfolio of the future will be far more than about leveraging our considerable abilities in stock, securities or funds selection. Instead, it will gravitate into the world of alternative investments. With the pandemic as a catalyst for that change, we are seeing portfolios already move rapidly into alternative investments and from largely liquid assets to more illiquid.”
No return to ‘old’ returns
As a result, there is much more interest in CIO views on the world of private debt funds, trade finance funds, private equity, private real estate deals, and so forth. “With very modest returns projected by the top research analysts,” he explains, “then there is a rising concern that a 3% to 4% gross annual return is going to be quickly eroded by fees, and of course with so much of the universe of high grade fixed income in negative yield, the need to seek longer-term alternative assets is fully understandable as part of the quest for returns.”
He says investors they meet and the firms they work with still aspire to the 5% to 7% type range of annual returns. “This means we need to educate the clients out there that these returns can no longer be attained with traditional public bonds and equities. The more advanced family offices have been going in the direction of private assets, and accelerating, but for ‘Main Street’ it is still a significant change of focus and it needs more education. But it's definitely the direction of travel.”
Seeing new realities ahead
Dugan also offers the perspective that the next 12 months could see the acceptance of a new reality, namely that this is the last term for equity before a major revaluation takes place.
“Any assumption that this is a temporary crisis and can be solved rapidly, for example by the massive government initiatives, is erroneous,” he comments. “Nevertheless, with zero or negative rates and tax handouts and social benefits on a scale of one or two trillion dollars in the US, equities will likely continue their shorter-term rise, even with stretched valuations.”
But that, he says will be the “last hurrah” because beyond that, governments will just not be able to afford it. “You then end up in the kind of Japan situation that if you don't continue to spend at that pace, you actually force your economy back into recession. In short, we think it's going to get far muddier beyond the end of 2021 when equities will struggle, and your bond yields will still be anchored at a very low number of 1% to 2%. So, again, the drive to private and less-liquid assets is reinforced constantly.”
But hedge your needs
But Dugan also explains that private assets are no panacea. If for example there are further crises ahead, another pandemic or whatever type of Black Swan event, the need for liquidity might significantly rise, as more cash is needed to bail out lifestyles and businesses. “So, there needs to be rigorous, robust planning around actual and potential liability management, especially as we have all seen that these things really do happen. To really grasp the greater exposure to illiquid investments, there must be much more detailed assessment of plans and projections,” he cautions.
Dugan says that the virus has, understandably, slowed their progress, to the extent that the firm is not yet on track with its original business plan. “But there are not many other small or even large businesses that have been able to avoid the chaos wrought by the pandemic,” he comments. “Most importantly for us is that we have been gaining traction at a reasonable pace and using this situation to better refine our proposition and our communication.”
Once the travel restrictions can be lifted, Dugan hopes to be able to travel, with the priority areas beyond Singapore and Hong Kong being China and the Middle East. Another priority is to visit the US to connect more immediately with some of those larger US outsourced CIO services businesses, to build the proposition of the firm acting as the Asia leg of their offering to their clients.
Leading the way
Dugan closes the discussion by reiterating that we are today in a very different environment from this time last year and that preconceptions of portfolio management and allocation for the HNW and UHNW community in Asia need to be rapidly reviewed and updated. “And we can offer this type of thought leadership for our clients,” he reports, “then helping them assemble the best-in-class ideas and opportunities, even in asset classes and sectors with which they might be less familiar. To be fleet of foot in this environment as well as cost-effective are two distinct advantages that we offer our clients.”
The Global CIO Office – In Sync with The Needs of Asia’s IAM Community
High-profile veteran banker Gary Dugan and long-time financial markets expert Johan Jooste are respectively CEO and MD of The Global CIO Office. They joined forces to launch The Global CIO Office in Singapore in the second half of 2019. Their mission is to provide outsourced investment ideas and research services to IAMs/EAMs and multi-family offices, as well as single-family offices.
Although now only little over one-year old, they are already in a very different global environment to that in which the firm was first imagined; however, they believe the premise for creating The Global CIO Office has been reinforced by the events of 2020 so far, and they are optimistic they will find an even more robust client demand as the world’s asset markets are now set to demonstrate much greater divergence of performance than seen for many years past.
The Global CIO Office brand operates under the umbrella of Purple Asset Management, which is owned by the UK’s Fry Group and the Independent Strategy Group, who backed the pair as shareholders, offering both funding and resource.
The GCIO Office team looks after HNW and UHNW segments mostly, building its clientele through the provision of high-grade outsourced Chief Investment Officer services for external asset managers and wealth management businesses. This encompasses both advisory and bespoke discretionary portfolio management, investment due diligence, strategic asset allocation and market and product advice and research.
The GCIO Office has as its core mission the elevation of research, product selection and advisory to institutional levels for those smaller EAMs, or single- and multi-family offices that need to upgrade product selection, filter out better deals and boost the quality of advice for their end-clients, generally very wealthy global and Asian individuals or families.
They aim to offer their services at a competitive level to the costs that would be borne if the entire investment function was taken in-house by a family office or small wealth manager. “We have done case studies for prospects where we have shown that we can potentially cut the overall costs of a firm’s investment team by around 50%,” remarks Dugan. However, he also offers the caveat that the intention is not to necessarily to take over the entire investment function of the firms they speak to, rather to complement their key resources.
A source of price competitiveness is derived from the myriad of technological advances which are now available to the wealth management industry. For larger firms that lack the institutional nimbleness required to assimilate technology into workflow quickly, this is a threat. To smaller firms with leaner organisational structures, it is a great opportunity.
A further element favouring smaller entities is the lower headcount requirement to achieve the same level of service. Smaller firms do not suffer from the requirement to be a “one-stop-shop”, delivering a whole suite of services that can be expensive to maintain and deliver low margins.
The GCIO Office looks to both these avenues for cost savings that are built into the pricing model, but without compromising on quality. Such an approach allows for the creation of a strong network of external providers for essential items such as risk and attribution reporting on client portfolios and the use of an expert network to assist in due diligence of specialised investment strategies, to name but two. The approach also allows for costs to be focused very clearly on the specific service being provided, allowing the GCIO to achieve a high degree of scalability.
As such, the firm’s approach and its services are likely to see an even greater interest in the post-coronavirus world, as financial markets are no longer likely to be floating on a rising tide of optimism. Accordingly, cost effective research, analysis, and a more refined judgement are likely to be more rigorously sought and applied.
Whatever the precise lie of the land ahead, one of the firm’s missions is to ensure institutional quality due diligence on private debt, private equity and VC. “There is a gap in the market for greater professionalisation of this segment and the heavy use of technology such as AI, as there is plenty of supply of opportunities, plenty of demand, so we must efficiently filter the best for the clients,” Dugan explains. “There are limited resources for family offices and wealthy investors to rigorously assess and compare deals, so we want to be the go-to source of due diligence and independent advice. Often the only institutional advice is from the company promoting the deal.”
Another priority is to broaden the firm’s geographic horizons. “Singapore,” he says, “is an excellent base from which to expand and offers an edge in terms of reputation and perceived quality, but we also recognise we want to build on our connections into Hong Kong, and the Middle East. Of course, this will have to wait for the virus to abate, but it is core to our vision of the future.”
The third, somewhat more esoteric mission is to reshape asset allocation. “We have to re-think the whole approach,” Dugan says. “After the global financial crisis and the collapse in government bond yields post-Covid, there has been a lot of talk about the old portfolio approach being defunct, hence we see new horizons where illiquid assets are used more heavily in portfolios, with such opportunities needing far more in-depth due diligence coupled with the use of technology. “We would like to be seen as go-to-resource for family offices to enhance their ability to cope with this emerging trend,” says Dugan.
Dugan believes that in positive or adverse conditions, there is no substitute for experience. “We do believe that our collective experience of markets is an important resource for clients to tap into. Our experience allows us to control our emotions and deal with each challenge put in front of us for the benefit of the client.”
Get in touch with the Global CIO Office HERE.