Lok Yim, head of international private bank APAC, Deutsche Bank shares his views with Asian Private Banker in ‘The Final Word’, a year in review by the region’s private banking leaders as they share their thoughts and opinions on key issues around industry trends, business performance, investments, regulations, and technology.
Industry Trends | In what ways has the COVID-19 pandemic irrevocably changed the private banking industry and your own bank’s approach to operations and service?
Digitalisation is a critical part of the private banking industry’s efforts to respond to the impact of COVID-19. As a bank, we are well-equipped to handle day-to-day business remotely. Our systems are fully set up and operational with fantastic IT support to see us through this crisis.
Furthermore, our CIO and the investment team are well geared to work through the potential economic impact of COVID-19 and create robust and diversified portfolios to meet the current challenges.
Early in 2020, we launched our Strategic Asset Allocation (SAA) fund offering to help our clients focus on the long term and build their core portfolios by harnessing the expertise and robustness of our portfolio construction and capital market assumptions. Empirical evidence shows that long-term portfolio performance comes from asset allocation and the right investment strategy, rather than from market timing. Therefore, it is imperative that investors should focus their attention on constructing a well-diversified asset allocation strategy.
Our robust approach to SAA helps our clients mitigate the adverse effects of volatility and build their core portfolio over the long term, with the option of advanced risk controls. We believe it is necessary to factor in the level of uncertainty that can be applied to each parameter of each forecast. SAA can create portfolios that are less sensitive to adverse market conditions, avoid the additional costs required to adjust portfolios that rely on more uncertain forecasts, and have higher potential for growth over the long term within a given level of risk.
Industry Trends | Few can deny the importance of Asia’s onshore wealth markets — in terms of asset pools and the need for wealth management from increasingly sophisticated domestic investors. What opportunities do these markets bring to your business, and to what extent will ‘onshoring’ shape your strategic agenda?
We combined our Wealth Management and Private and Commercial Business International units into a new International Private Bank in June 2020, serving 3.4 million private, wealth and commercial clients. The International Private Bank brings together Wealth Management’s globally connected clients across Germany, Europe, the Americas, Asia and the Middle East and Africa, along with private clients and small and medium-sized enterprises in Italy, Spain, Belgium and India. The business has around €250 billion of assets under management and a combined revenue of approximately €3 billion.
Combining our internationally focused Private Bank businesses is allowing us to make the most of each other’s strengths and develop our market share within and across local markets. We will be able to provide greater access for private banking clients to our wealth management capabilities and to combine forces to offer superior digital services to our private, wealth and commercial clients.
Investments | What important steps did your bank take to drive the sustainable investing agenda and to increase access to sustainable investing opportunities in 2020?
We screen publicly traded securities by a combination of financial criteria and ESG factors, based on independent research and ratings, to make investments in line with our clients’ priorities and risk-return profile. Investments can be screened based on the strength of different factors relative to their industry peers. This enables us to work with our clients to identify opportunities that can have a positive impact on ESG issues while supporting the overall investment strategy.
In ESG investing, we hope to add purpose to performance. Making a positive impact does not have to mean compromising on performance. We hope to help our customers to build a portfolio that ensures their wealth is invested in line with both their financial objectives and particular ESG goals.
We use four types of investing in which we integrate ESG factors into investment decisions and work continuously to develop and enhance our ESG capabilities. It includes 1) exclusionary screening — avoiding investing in companies or sectors that do not align with investor values or meet other norms or standards; 2) positive screening — actively seeking out companies deemed well-performing on certain ESG measures; 3) thematic — focusing on investments according to interest in specific ESG themes, such as clean energy, water, education or healthcare; 4) impact investing — investing in companies or funds with the intention of generating positive, measurable social and/or environmental impact, alongside a financial return.
In July, Deutsche Bank announced that it would conduct its sustainable finance and sustainable financial product activities in accordance with its Sustainable Finance Framework, which is aligned on a best effort basis to the EU Taxonomy. The Framework creates the basis for the bank to achieve its ambitious sustainability targets in accordance with credible criteria. We plan to increase its volume of sustainable financing and portfolio of ESG investments under management to over €200 billion in total by the end of 2025.
Regulations | Both Singapore and Hong Kong are placing a strong emphasis on cultivating a competitive and supportive environment for family offices. What further initiatives should each/either regulator undertake to nurture the development of a family office-supportive ecosystem?
We believe it is important for both Hong Kong and Singapore to maintain their competitiveness. We support education to nurture more talented people to join the industry.
Technology | Where do you see the best application of data analytics/machine learning in private banking?
We are using Salesforce to create a one-stop data shop for RMs. This is the first step in the bank’s plan to use smarter data analytics to add value to services to our clients in Asia. Achieving this traditionally required RMs and Investment Managers (IMs) to juggle a number of legacy applications and pull datasets from a range of sources. We believe that efficient access to data is not enough. Therefore, we also have downstream systems hosting financial data, but not all data can be easily translated into sales enablement functions for RMs. So, it is important for the right data to be fed into the system and there is a need to understand what key data are most relevant to the RMs’ daily lives.
We are interviewing front-office employees and important stakeholders across APAC to build a data roadmap to enhance our data analytics. We think that value comes when we start integrating data and driving coherence across groups. We must provide more than static data. It is about the relationship between data elements. We need to understand what is doing well versus what’s not. Data can tell us that a certain stock has gone through the roof, for example, but the much more important question is ‘what should we do next?’. That is something our clients need to know.
Meet 2020’s industry leaders in the full round up of of Asian Private Banker‘s The Final Word 2020.