Managed accounts and Asia: Right product and right time for Asia’s HNWIs

Managed accounts are growing in stature in Asia’s wealth management industry. Owned by individuals, managed by a professional entity, they are now worth USD 5 trillion in the US alone. Anthony J. Harper, CEO & co-founder of Axial Partners presented a workshop on what is one of the fastest growing segments of the wealth market.

Axial Partners is an independent platform to provide an open architecture service for wealth managers to offer individual investors access to managed accounts in Asia. Founded in Hong Kong, Axial is a Type 9 investment manager licensed by the Securities and Futures Commission. 

“We operate a unique platform that enables wealth managers to manage assets in their client’s own managed account, using investment strategies from leading asset managers at compelling low account minimums of USD500,000 or even below,” Harper explained to the audience at the Hubbis Asian Wealth Management Forum in Singapore on May 10. 

He added that client accounts can be invested through Axial into a menu of global equity, global fixed income, ASEAN, APAC and other regional equity and fixed income strategies as well as multi-asset class portfolios. Each account can be tailored, with full beneficial ownership, up-to-date transparency of holdings, and customised multi-currency reporting.

An ideal solution to the issue of control and transparency

Harper positioned managed accounts in relation to other solutions available to wealth advisers in the region today. “Mutual funds are on one side of the spectrum and on the other you have mutual funds, asset management certificates, structured notes, and variations on that with dedicated funds and hedge funds. Those markets that are considered highly developed in terms of wealth platforms – for example the US, or out here in APAC in Australia – managed accounts are prevalent and solve the issue of third party access while at the same time allowing for tailoring and transparency.”

Harper explained that as a managed account is a personalised investment portfolio run by one manager for one individual, there is an embedded one to one relationship. “The market is changing rapidly, with managed accounts used more regularly, especially as bankers go independent or as banks shed their own wealth management unit. Despite being USD5 trillion in size roughly in the US, the penetration is modest so far in this region.”

Discretionary portfolio management – DPM – is gaining greater sway in this region, but in truth it is seldom above some 10% of AUM at the private banks here, even today. A managed account to a certain extent fits within a discretionary framework. “But,” he noted, “the one key difference is that a managed account gives access to a third-party asset manager, versus a proprietary team, that will be part of the tailoring experience to reflect the client’s individual needs at the security, sector, or market level.”

Personalised management for individual accounts

A typical managed account in terms of global equity strategy might hold 70 underlying positions. “In a mutual fund there might be a similar number of holdings and we know a certain amount, but not that much. In a fund, we receive trailing information, it is on a synthetic basis, representing a NAV run through an administrator and a transfer agent. But in a managed account, the investors own their underlying positions and those can be adjusted. For example, with some of our clients in Malaysia there is a Sharia concept or ethical screen of what must be avoided. In short, these accounts are customised to the client experience.”

Additionally, it is typical in a managed account structure for the client to pass discretion over to the wealth manager, as a service under a fiduciary agreement with ongoing delivery. 

Individualised reporting is another advantage. A managed account platform will allow an end client to view all of the holdings; because they can see what the underlying holdings are rather than the net asset value clients are less inclined to sell in times of stress. “Monthly reports are provided in an institutional grade GIPS-compliant wealth management report,” Harper added.

Performance monitoring and analysis

With the managed account, the wealth manager can provide views that are far more institutional in nature for the end client. 

Harper explained that the portfolio visualisation that is available depending upon the sophistication of the platform can build greater obligation on the wealth manager to do things like quantitative and qualitative analysis, not just on the strategy itself but on the delivery of that strategy for the client.

As to fees, Harper noted that a structured note or a mutual fund typically in Asia will have a front-end commission, it might have a back-end commission, and there may be a hidden retrocession. 

“For those products, the fund manufacturer and the distributor share the economics,” he elucidated. “But in the case of a managed account structure for any of the strategies that would be available the client has a discretionary agreement. There is a fee, which represents the total cost of ownership.”

Citing the example of a bulge bracket US investment bank with a USD250,000 portfolio invested into US equities he reported that the fee is typically 1.5%. “That,” he said, “is the total cost of implementing the invested management and the investment bank then controls the payment for all the various services. At the private banks, DPM fees for a USD10 million portfolio might be between 1.5% and 1.8% by comparison.”

Fees:  upfront and transparent

The end client, he believes, therefore has a sense of confidence that they know what they are paying for. But on the other hand, a challenge here is to discuss the fee with clients, whereas in a mutual fund, for example, the fees are embedded. “For managed accounts,” he noted, “fee discussions need to take place upfront.”

While in the US or Australia, Axial estimates that about 95% of managed accounts are localised, domestic investment plays, in Asia there is much more of a regional and global approach. 

Harper also ran through some of the tailored solutions that Axial now offers. 

These include individually customised investment accounts tailored to investor needs at the security, sector or market-level. 

Investors can, for example, set an ethical screen according to their interests. There is single channel to access a network of top-tier asset managers, or a multi-asset manager, multi-strategy menu across asset classes, accessed through a single relationship. 

And he also gave more insights into Axial and the firm’s philosophy and unique propositions. “The idea of delivering third party money management to third party wealth management is our particular value proposition. We partner with investment advisers and wealth managers in Hong Kong, Malaysia and Singapore – and expanding elsewhere in Asia - to achieve that.”

Axial’s view is that a money manager would be very challenged to create the necessary infrastructure to individually manage portfolios, and secondly, while DPM is a great benefit to end clients, ultimately there needs to be more diversification in terms of using external managers rather than internal ones. 

Rising demand for customisation

“We provide customisation and transparency at a low minimum investment,” he concluded, “with institutional access to global and multi-asset investment strategies through a single channel and turnkey process.” 

“And when I refer to a modest minimum investment, a platform such as ours can begin at USD150,000 or possibly lower, whereas if an investor were to go to an asset manager directly and seek a managed account the minimum might be USD20 million, for example.”

Harper concluded with more detail about the types of offerings and account Axial offers. But his overriding message was that Axial’s platform provides access to a variety of managed account solutions at a time when demand for this model is on the rise in Asia.