Funds to consider in 2015
Roger Bacon, head of Citibank's managed investments in Asia, shares some of the bank's fund selections and products under consideration in 2015.
Going into the new year, the bank is overweight developed and emerging market equities.
Along those lines, for Europe exposure, Bacon mentioned the Allianz European Equity Growth fund and for US equities, the Legg Mason Clearbridge Aggressive Growth fund
as some of the bank's live funds that have had good flows.
Technology and ESG themes
One of Citibank's investment themes for 2015 is disruptive technology.
Another Citibank theme in 2015 is investing with a social angle
Although this theme is gaining interest mainly in the US and Europe, Asian investors are starting to listen to social investing ideas, Bacon said.
He expects the region's ultra high net worth investors to increasingly support this type of manager over the next five years.
"We're starting to see more focus on social investing. Historically [Asian investors] have been behind the curve versus the West, but they are getting up to speed and the social angle is an increasingly important area for them."
The bank uses hedge funds not only to generate alpha but for downside protection.
Citibank has about 40 hedge funds on its list but only focuses on 10, Bacon said, though he declined to name specific funds.
"We don't like to see too much turnover in our clients' holdings of hedge funds. We want them to be a little longer term and patient.
"Hedge funds had a bad year in 2008, but if clients were patient with managers, some came back very quickly.
"The argument that hedge funds are overcharging sounds like a broken record. The reality is that you can't say hedge funds are too expensive. You must be more granular in looking at the industry. The best performers can justify their fees.
"If you've got a manager that's been compounding 15% over the last 15 years with half the volatility of the equity market, then he should be charging 2-and-20. He's done a very good job on a risk-adjusted and absolute return basis."
He said the scepticism toward the asset class, which spread after the Lehman-sparked financial crisis in 2008, is starting to fade.
However, he cautioned that it's necessary to do the homework on hedge funds and use exacting judgment in selecting them.
"A significant part of the industry has been, frankly, unspectacular."
Blind pool decline
Other alternative asset classes are in demand, but Bacon noted a shift in investor preferences going into 2015.
"In private equity and to an extent real estate, clients have moved away from blind pool investing and now they ask for individual assets.
"They like that transparency of seeing the asset before they write the check, and that trend will continue. It will become more difficult to sell blind pool funds."