Article first published in Asian Private Banker on 22 September here.
Lombard Odier believes its discretionary portfolio management (DPM) business in Asia is first-rate, after investing heavily in its platform and technology. The Swiss pure play has also seen strong inflows and performance in its DPM mandates, and attributes this to market volatility driving clients towards professional investment services.
“We truly believe we have a tier one DPM business,” Jack Siu, Asia head of discretionary portfolio management at Lombard Odier, confidently asserted to Asian Private Banker in a recent interview. “The performance is top-quartile, and the availability of product selection is definitely at the tier one category.”
Siu shared that the performance of the bank’s DPM solutions in Asia for the US dollar balance account is 11% year to date. He suspects that most of his competitors have underperformed compared to this number.
If he is right, he believes this is because the Swiss bank has built a strong, experienced global investment team and invested heavily in its platform and technology to support the DPM business. The DPM team follows a disciplined, regularly reviewed investment process, with the ability to make proactive, ad hoc decisions in response to market changes.
Compared to some banks that focus more on transactional revenues, Siu said clients will experience the difference in the “client-oriented” investment services offered by the DPM team, which will give them a higher level of confidence.
“I think that’s why pure plays like us are getting the love from clients about DPM. It’s truly high-end private wealth management, as opposed to DPM as a sideshow. We’re very serious about this business,” he said. The bank offers DPM services for various client segments, with different minimum thresholds.
Without disclosing the Asia DPM penetration rate at the bank, Siu also believes Lombard Odier stands above the industry average. However, the bank does not appear in APB’s DPM AUM penetration rate table for 2024, which only covers the top 25 private banks.
Lombard Odier believes its discretionary portfolio management (DPM) business in Asia is first-rate, after investing heavily in its platform and technology. The Swiss pure play has also seen strong inflows and performance in its DPM mandates, and attributes this to market volatility driving clients towards professional investment services
Fair winds may also be benefiting DPM adoption. ‘Trend following’ or simple thematic hot stock-picking becomes more challenging during market volatility, and clients are increasingly relying on the professional investment process to help them navigate these situations, according to Siu. And in this context, DPM stands to benefit.
“The complexity of the world has now led to a rising demand for discretionary services, and this trend would likely grow,” Siu said.
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Fixed income flows
The bank has enjoyed strong inflows for its fixed income DPM mandates over the past two years, with all mandates outperforming the benchmarks after taking account of transaction and other fees, Siu shared with APB.
Lombard Odier offers tailored fixed income solutions – whether for deposit replacement, higher yield, or global diversification – focusing on single-A-rated bonds with one- to five-year durations for stability and lower risk.
The high income solution, on the other hand, includes both emerging market and high yield exposure, but with careful risk controls, such as not including lower-rated (single-B and triple-C) bonds to maximise excess return whilst maintaining peace of mind to the client, according to Siu.
For clients interested in broader diversification, the bank offers active duration-managed US Treasury and global fixed income solutions with exposure to sovereign and non-dollar bonds.
“I think that shows the difference to the shelves elsewhere, which are more benchmark-driven. We are more client demand-driven to suit the current market scheme of things, targeting the solution to what a client is actually looking for. I think this is something more innovative,” Siu said.
With trillions of dollars gradually rotating out of money market funds as interest rates come down, clients are looking for diversified yield. Siu said this will help boost demand for dollar fixed income, which still provides sufficient yield, as well as dividend income and multi-asset income solutions in dollar mandates.
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Long-term portfolio performance
There are multiple layers of collaboration and engagement between the DPM team, relationship managers (RMs) and clients of the bank, according to Siu.
Beyond regular RM interactions and joint client meetings, the bank uses technology for real-time portfolio updates and collaborative servicing. RMs and clients can also meet fund managers, strategists, and CIOs to gain insights into different investment approaches.
“Everything is well communicated in different formats in order to facilitate a better understanding of how DPM operates behind the scenes and in front of those clients,” he said.
Instead of having quarterly revenue pressure, Siu pointed out that Lombard Odier, being a privately owned bank, focuses on long-term wealth management. This client-centric approach also helps to align incentives and objectives between the DPM team and RMs, Siu explained.
We are more client demand-driven to suit the current market scheme of things, targeting the solution to what a client is actually looking for. I think this is something more innovative
Regional, generational differences
Siu observed that DPM adoption and preferences in Asia are shaped by both the region’s economic and cultural context and the client’s generational background.
“Every location has a different perspective about how they use the DPM service, and it is through understanding where the needs are and addressing those needs with the right solution, and to penetrate each market,” Siu explained.
For first-generation wealth, Siu said these clients tend to prefer more control over their assets and may adopt DPM later in life, often after reaching a stage where they desire less stress and more focus on personal life.
The second generation is directly learning how to utilise the service, while for the third generation, DPM or similar professional management is often the norm. Their focus is on understanding and adjusting the discretionary mandate for the medium to long term, rather than questioning the value of DPM itself.
“The beauty of discretionary is being able to serve the long-term interests of different client segments and deliver with tailored solutions […] You can’t say that for a lot of products. I think this is definitely a powerful tool for wealth management,” Siu told APB.
Source: Asian Private Banker. Permission required for reproduction.
