Lion Global Investors recalibrates as disruptions mount

MR GERARD LEE
MR GERARD LEEPHOTO: COURTESY OF GERARD LEE

In the midst of repositioning the firm, CEO also wants to make financial products for the masses

Veteran fund manager Gerard Lee dreams of redefining the financial landscape in Singapore - by changing the way the man in the street invests.

The chief executive officer of Lion Global Investors - the asset management unit of OCBC - aims to democratise financial products in the market.

"Some products are not widely available because they may be difficult to put together, or it's not easy to make money from them. I want to make financial products that are not only within the reach of private banking clients or high net worth individuals, but also widely available to the masses - that's my passion," Mr Lee said.

"Designing investment products with a much lower cost and of real benefit to the average person out there - this is my contribution as a financial professional to the industry. This is how I give back," he added.

The Lion-Phillip S-Reit ETF, launched jointly by Lion Global Investors and Phillip Capital Management in October, is one such example.

The ETF is the first exchange-traded fund dedicated to Singapore Real Estate Investment Trusts (S-Reits). It aims to provide investors with low-cost access to high-quality S-Reits that offer sustainable income streams and potential capital growth. As the ETF comprises 23 S-Reits that own a wide array of assets in Singapore and globally, it also offers investors the element of portfolio diversification.

PRODUCTS FOR AVERAGE FOLK

Designing investment products with a much lower cost and of real benefit to the average person out there - this is my contribution as a financial professional to the industry. This is how I give back.

MR GERARD LEE

Mr Lee was appointed CEO at Lion Global Investors in November 2010. He was formerly chief investment officer of Temasek's fund management division from 1999 to 2004. Thereafter, he set up and helmed Fullerton Fund Management Company, a wholly owned Temasek subsidiary, from 2004 to 2010.

Prior to joining Temasek, Mr Lee held the roles of deputy chief investment officer at Deutsche Asset Management Singapore, head of fixed income sales at SBC Warburg Singapore, and the head of GIC's New York office.

According to an annual industry survey conducted by the Monetary Authority of Singapore (MAS), global assets under management (AUM) grew by 7 per cent to US$69 trillion (S$93.4 trillion) last year, up from a 1 per cent year-on-year growth in 2015. Singapore's AUM expanded 7 per cent last year to S$2.7 trillion, supported by net fund inflows and improved market valuations, the MAS survey showed.

In an industry where everyone is obsessed with key performance indicators (KPIs) and profits, priorities can be skewed, Mr Lee admitted, adding that financial professionals should look at finance with a deeper purpose.

"Our primary motivation should not be our bottom line or the amount of fees we can charge. Those are the givens in any business or market economy. Instead, we need to go beyond that."

The ultimate goal? To meet clients' needs, and ensure they have a satisfactory investing experience.

"There are things we can control, and things we cannot. What we cannot control is market sentiment and consumers' response to products," he noted. "However, we can control how much we charge - we should be upfront with our fees, and rather than having products with multiple fee layers, we should simplify that. We can also control how we service our customers."

Mr Lee recalls many lessons learnt during his three-decade-long journey in investment management. One maxim is having the courage to move forward despite a potentially uncertain outcome.

"Making a decision is more important than making the right decision - the question is do you dare to take that step?" he pointed out.

"More often than not, we need to make decisions based on less than perfect information, and usually, the success or failure of that decision is dependent on how we manage developments along the way."

Being proactive is also important. Indelibly etched in his memory is the fallout from buying local currency bonds that defaulted during the early days of the Asian financial crisis.

"When a bond defaults, the typical solution is to wait for bond holders to convene a bond-holders group and discuss how to recover the funds. But it was very much a cowboy town there back then, and there didn't seem much point in organising a bond-holders group," he recalled.

In one episode, Mr Lee took matters into his own hands - he flew in to meet the issuer, accompanied by a credit analyst and a lawyer. The result? He recovered half the principal of the bond.

"Much later, when the Asian crisis reached its pinnacle, the rest of the bond holders were still trying to organise themselves."

MASSIVE DISRUPTION

Another important issue that weighs on Mr Lee's mind is managing the wave of disruption sweeping the asset management industry, and responding to those challenges in an effective manner.

Industry consolidation, fee compression, changing investor expectations, disruptive technologies, and the encroachment of passive on active management are all impacting current business models.

"In my 33 years of working life, this is the first time I've seen the industry so massively disrupted. We need to respond in a smart way so as to stay in business. We can lose our lunch very easily," he noted.

In the financial industry, threats come from the likes of Amazon, Alibaba and Google, with their massive balance sheets, cutting-edge technologies and customer databases that run into the hundreds of millions. "It would be easy for any one of them to step in and turn the financial industry topsy-turvy."

In the past, fund managers were able to generate alpha from individual stock picking as public information on companies was less widely available. But the proliferation of the World Wide Web put paid to that strategy, Mr Lee noted.

Now, it's difficult for asset managers to add alpha consistently. Instead, passive investing is in vogue.

"Passive investing is a game of scale and technology, and very soon artificial intelligence," he said, referring to the introduction of robo-advisers, which are automated portfolio planning and asset management platforms running on proprietary algorithms, usually managed by fintech companies.

"For the likes of Blackrock, Vanguard and State Street, ETFs and index funds characterise their offerings. Globally, they account for one-third of all assets under management."

The value proposition of an asset management firm these days is delivering beta cheaply and efficiently, while the role of alpha generation has moved into the private markets, namely private equity, real estate and infrastructure.

"Private markets are where your connections rule. There, you need to roll up your sleeves, be on the ground and kick the tyres, so to speak," he added.

Going forward, traditional active assets will continue to face pressure, losing share of revenue and AUM, the Boston Consulting Group said in an industry report published in July.

On the other hand, specialty and alternative investments - including long-short funds, hedge funds, as well as private equity, real estate, infrastructure and commodity funds - will persist in generating high fees and, along with passives, dominate the growth of AUM, the report noted.

Lion Global Investors has been caught up in the industry's transition, Mr Lee admitted. "We are repositioning ourselves - delivering smart beta in the public equity markets, while building capability in the private equity markets."

• This is an edited version of Alpha Chronicles, a regular column on SGX's My Gateway website that aims to profile best-in-class asset managers in the financial industry.

A version of this article appeared in the print edition of The Sunday Times on December 10, 2017, with the headline 'Lion Global Investors recalibrates as disruptions mount'. Print Edition | Subscribe