Discretionary mandates in the spotlight

DISCRETIONARY mandates are slowly taking root among Asian clients, who welcome professional management particularly in times of sharp volatility. We speak to UBS' Stefan Lecher, managing director and head CIO Global Investment Management APAC, about UBS' offering.

How do mandates make sense for clients and how has adoption grown through the years?

Discretionary mandates aligned with our CIO House View are at the core of UBS value proposition and have proven to deliver consistently superior performance. Client adoption has steadily increased and invested assets have grown about 20 per cent annually on average over the last five years.

Clients typically employ discretionary strategies as part of their overall investment plan and their longevity and legacy needs. The share varies between 10 and 50 per cent depending on the client situation and ability to monitor and act on their own in a timely manner. Increasingly, clients are realising the benefits of delegation and continuous rebalancing along clearly defined investment profiles and objectives.

With our discretionary UBS Manage platform, clients can define their investment strategy and hire our professional portfolio management team to implement the CIO House Views in a disciplined way. They need not worry about day-to-day investment decisions, and this reduces the risks of emotional biases in times of volatility. The suite of investment styles range from fixed income solutions, to our flagship Sustainable Investment portfolio, to quantitatively driven systematic allocation strategies and our latest offering, MyWay.

Investors saw the value of a disciplined investment approach last year. Many self-directed clients decided to divest from risk assets during the market correction in their brokerage accounts, and missed out on the market rebound in subsequent months. Meanwhile, in our discretionary mandates, our disciplined investment approach paid off and we fully participated in the market recovery, providing investment performance boosts to many clients.

In our latest innovation, MyWay, we launched what we consider the future of discretionary mandates. On a technology-enabled platform, clients, jointly with their advisers, design their individual portfolio from a wide range of investment building blocks across asset classes, regions and themes in an iterative approach, and then delegate the implementation to portfolio managers.

What sorts of customisation are possible under MyWay?

There are almost 50 modular building blocks to choose from. Portfolios may be tailored as a single security portfolio or a selection of best-inclass open architecture fund strategies. The choices range from asset class-focused to longer-term investment themes. For example, clients have the most appetite for sustainability and technology themes. These can be accessed at a minimum investment amount of US$1 million.

What risk management disciplines underlie the portfolios, and to what extent are clients also able to profit from opportunistic ideas?

MyWay clients benefit from the same robust risk management process as our other discretionary portfolios. Our investment team continuously manages all building blocks and we check our clients' portfolios regularly to ensure it matches their risk tolerance and instruction. Clients receive regular updates on their current portfolio situation.

The access to almost 50 building blocks enables clients to implement ideas across various asset classes within a well-managed risk framework. For example, those who made some allocation towards a diversified commodity exposure since the beginning of the year enjoyed double-digit returns in 2021 as at mid-April.

MyWay was launched in October 2020 but some of the building blocks were already available in our discretionary portfolios. The Asia Single Stocks portfolio has had strong traction among clients as well as strong relative performance over multiple years.

The portfolio most recently performed well during the volatile market in 2020 and finished the year more than 5 per cent ahead of its benchmark. It continues to be among the best relative performing building blocks in 2021.

Sustainability is a major theme. How is MyWay able to incorporate sustainable investments (SI) and how do you undertake the due diligence for this?

UBS has 25 years of experience in delivering SI solutions globally and we have been at the forefront of innovative and bespoke SI offerings in Asia.

We were the first major global financial institution to recommend sustainable investments over traditional investments for private clients investing globally. In 2020, core sustainable investments for the year rose by 62 per cent to US$793 billion, giving it a share of 19 per cent of all client invested assets.

Within MyWay, clients can select among seven SI-focused building blocks across both equity and fixed income. We also give clients an effective indicator on the sustainability rating of their portfolio. This is highly appreciated and triggers discussions between the client advisor and clients around ESG (environmental, social, governance) topics.

We see strong demand, especially in global equity focused sustainability building blocks, on top of the growing client participation in our proprietary discretionary 100 per cent SI cross-asset portfolio.

To ensure ESG alignment and the quality of our offering, we run a robust selection and due diligence process in a product universe consisting of over 90,000 EU-domiciled funds. We internally developed an ESG screening process - using digital analytics tools and qualitative, in-person assessments. This allows transparency on the sustainable profiles of a wide range of investment funds with ESG ratings. The SI framework is based on an open architecture, and sources from multiple ESG data providers to guarantee the robustness and reliability of standards.

What client profiles readily take on discretionary mandates?

We see very broad adoption across all demographics and professions. There are three common drivers to take on discretionary portfolios. First are those who feel comfortable making their own decisions in markets they know well. But they feel others are in a better position to run global portfolios or different asset classes for them.

Two are those who are highly absorbed in their businesses and lives and simply lack time or willingness to follow markets and make investment decisions on a daily basis.

And third, some clients believe that they will achieve better outcomes by delegating the monitoring and analyses to our investment professionals across US, Europe and Asia, who continuously rebalance and align the portfolio along the prevailing market conditions. They also believe that UBS is quicker in reacting to market events and thereby to protect and grow their wealth sustainably and consistently though time.