UBS opens institutional fund strategies to Asia’s wealthy – with US$5 million buy-in

[SINGAPORE] UBS is opening a door, once typically reserved for institutional investors, to Asia’s wealthy, with a new funds programme requiring clients to commit at least US$5 million.

Its Exclusive Manager Access Fund Program, which the bank says is the first of its kind in Asia, will first be offered to global wealth-management clients in Singapore and Hong Kong, and then to those in Taiwan.

Clients must put at least US$5 million into the programme, with a minimum investment of US$500,000 in each underlying fund, Jansen Phee, UBS Global Wealth Management’s Asia-Pacific head of fund investment solutions, told The Business Times.

This puts the programme firmly on the upper end of the wealth spectrum, targeting high-net-worth and ultra-high-net-worth clients, along with family offices.

Phee said family offices sounded out ahead of the launch were particularly interested in managers they may otherwise struggle to reach, because such institutional managers typically have higher investment thresholds that some family offices and ultra-high-net-worth individuals may be unable to meet on their own.

What sets the programme apart, Phee said, lies in the managers it offers and the way they invest.

Many traditional mutual funds operate within relatively tight constraints that limit the extent managers can deviate from their benchmarks. A manager may, for instance, be limited to holding no more than 10 per cent in a single asset, despite holding a strong conviction in it.

Institutional-grade strategies, by contrast, give managers more latitude to back high-conviction views, while still operating within defined risk controls.

Phee stressed: “More active management does not mean taking on unnecessary risks. More active management just means managers have flexibility to express their conviction.”

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That distinction matters because the traditional active-fund proposition has become harder to sell, he added. Many mass-market mutual funds have struggled to consistently beat their benchmarks, leaving investors to ask why they should pay active-management fees when they could instead simply buy an exchange-traded fund.

Competition among Asia’s private banks has also intensified. When distributors offer much of the same pool of widely available retail funds, it becomes harder for banks to distinguish their investment propositions.

UBS is therefore seeking to differentiate itself by pairing exclusive strategies with reporting and analysis more commonly associated with institutional portfolios.

Clients can request consolidated performance attribution, detailed risk analytics and a look-through analysis of underlying fund allocations, as well as more extensive portfolio commentary and risk assessments.

“This is really giving clients a whole new experience, and a whole new way of doing the funds business with UBS,” Phee said.

Solita Marcelli, global head of investment management at UBS Global Wealth Management, added: “This programme demonstrates the strength of UBS’ global and local expertise and capabilities. Through close collaboration across regions, we were able to develop a distinctive offering tailored to the unique needs of clients in the Asia-Pacific.”

Keeping the club small

The programme will begin with six managers or strategies – three in equities and three in fixed income.

Four will make up the first wave, with another two expected in October after due diligence is completed. The managers named so far are DoubleLine, Acadian Asset Management and Wellington Management.

Some offerings were co-created by UBS with the managers and are exclusive to the bank in Asia; others have historically been available mainly to institutional investors.

UBS also intends to keep the programme deliberately small. Phee said it will eventually be capped at around 15 to 20 managers or strategies, with no fixed timeline for getting there.

“The managers I’m looking at here are managers who are truly active, who are prepared to take a strong conviction in their views, and who have consistently demonstrated that their strong conviction has delivered significant alpha,” he said.

For some institutional managers, the attraction works both ways. Rather than build distribution relationships with banks across Asia, they tap private wealth through a smaller number of partners with scale.

Phee cited DoubleLine as one example, saying the fixed-income manager had no formal distribution arrangement with an Asian distributor before working with UBS.

Acadian, on the other hand, has historically focused largely on institutional clients, he said.

While there is no fixed minimum tenure for the exclusive arrangements, UBS would typically review the commercial viability of a manager or strategy every three to five years. For as long as a strategy remains in the programme, it stays exclusive to UBS clients in Asia.

From trading to holding

UBS also wants these strategies to occupy a more permanent place in clients’ portfolios.

Rather than serving as tactical trades – shorter-term positions taken to capture particular market opportunities – these strategies are long-term holdings around which clients can build their portfolios, said Phee.

“To me, this should always be their core portfolio because the strategies you have created here are all core strategies that clients can hold for the long term,” he said.

Asked how much of a portfolio should broadly sit in such core investments, he said clients should have “close to 50 per cent”.

That would mark a shift for a region where wealthy investors have traditionally been more trading-oriented.

Phee said Asian clients remain relatively tactical, but UBS has seen them gradually put more money into core portfolios as the bank has expanded its mandate and discretionary offerings. Its biggest-selling fund this year, he added, is a multi-asset core portfolio.

Younger wealthy clients are also becoming more sophisticated and demanding greater access to investments and portfolio tools once associated primarily with institutions, he said.

UBS spent about 18 months building the programme, drawing on more than 100 employees across the Asia-Pacific, the US and Switzerland.

Phee said interest in the programme has so far been positive in Singapore and Hong Kong.

“The trends are only going to intensify,” he added.