CEO Gerard Lee on Adapting the Lion Global Investors Model to Thrive Amidst Rapid Change Ahead

Gerard Lee is CEO of Lion Global Investors, having joined in November 2010 from his previous lengthy roles as CIO of Temasek’s Fund Management Division and then CEO of Fullerton Fund Management. He brought with him over 30 years of experience in in the world of investment management and has taken the helm of a long-established, home-grown fund management business that today boasts funds valued at almost USD52 billion. Hubbis had the opportunity to meet him recently by video call to learn more about the Lion Global philosophy and future, and to learn of his vision of the world of asset management in the future, of the ongoing consolidation to only a number of global majors, and to define where he sees Lion Global fitting in to the asset management universe that lies ahead. Lee also highlighted a new global, Asian-tilted portfolio of funds strategy the firm has launched in partnership with Saxo Markets, a move that he explains is at the same time is both defensive and evolutionary for the firm.

Saxo and Lion Global Investors (LGI) launched their new ‘LionGlobal Dynamic Growth: Asian Perspective’ fund of funds strategy in late February, a retail investor targeted managed portfolio constructed with an Asian inclination and offering buyers high flexibility and a low service fee.

The fund, comprising nine mutual and ETF funds spanning equities, gold, and fixed income, has been designed for investors who want their investments to be globally diversified, tapping into various growth opportunities across the different asset classes.

“This strategy allows investors access to best-in-class funds while incorporating robust risk monitoring and rebalancing and is positioned to maximise risk-adjusted returns so that risks taken are commensurate with potential returns,” Lee explains. “At Lion Global Investors, we believe that quality investment advice and solutions need not be complex, expensive or inaccessible to retail investors. We are excited about this partnership between our Curated Portfolios team and Saxo Markets; together, we’ve worked hard to create a premium private-banking-type investment solution that is simple to understand and easy to access, and they can rest assured that our investment professionals offer the best possible asset allocation, fund selection, portfolio monitoring and quarterly rebalancing.”

LGI’s expertise, Saxo’s technology

Leveraging LGI’s expertise in Asian markets, the portfolio offers what could, and the partners hope should, be a greater exposure to growth and return opportunities from China, broad Asia and other EM investments compared to more ‘normal’ global portfolios which have large weightings to US and European equities and fixed income, but whilst still offering plenty of global exposure.

The fund assembles its exposures from low-cost ETFs and what they deem best-in-class actively managed funds. The strategy comprises nine underlying investments that make up the fund of funds. They are the Aberdeen Standard Gold USD ETF, the BGF US Dollar High Yield Bond, the BGF US Growth, Fidelity APAC Strategic Income, the Schroder ISF European Special Situations, GSAM Asia Equity Base, LionGlobal Japan Growth, PIMCO GIS Global Bond, and the Schroder ISF Greater China.

All of the holdings start out as 10% allocations within the strategy, except the Japan Fund at 5% and the BGF US Growth the largest at 25%. Quarterly re-balancing will then take place based on market movements and evolving outlooks.

Elevating the offering

Lee explains that the rationale for LGI to work with Saxo on this project comes from wanting to offer the retail market more of a discretionary style of fund of funds approach that is normally available only to wealthy private bank clients.

“This brings a low cost, institutionally managed product easily to retail, mass affluent and also HNW investors who access the Saxo platform,” Lee explains. “With Saxo’s technical ability, through what they call ‘fractionalising’, we are able to invest directly for the end investor into the nine sub funds, allowing for the access point to start only at SGD2,000. And we are proud to be the first pure Asia partner to work with Saxo on their SaxoSelect platform.”

Adeptly curated in Singapore by LGI’s Curated Portfolios team, it is available in SGD and USD denominations. With the partnership, LGI joins a high-quality handful of industry-leading names working to provide managed portfolios on Saxo’s managed accounts platform, including BlackRock, Nasdaq Dorsey Wright, Morningstar and Brown Advisory.

LGI is incorporated in Singapore and is a member of the Oversea-Chinese Banking Corporation Limited (OCBC) Group, and one of the leading asset management companies in Southeast Asia. Established since 1986, LGI is positioned to provide Asian equities and fixed income strategies and funds to both institutional and retail investors. As at 31 December 2020, the firm boasted the equivalent of more than USD51 billion under management.

To offer investors more flexibility, the new LionGlobal Dynamic Growth: Asian Perspective is available as a SaxoSelect managed portfolio requiring a lump sum of USD10,000. For those who prefer to invest in it as a Regular Savings Plan, they can also start with an initial investment of SGD2,000 and make a minimum contribution of SGD100 subsequently. Investing in this portfolio under SaxoSelect also means investors enjoy a low cost of service fees at just 0.25% per year.

“We are thrilled to launch the LionGlobal Dynamic Growth: Asian Perspective portfolio together with Lion Global Investors, a trusted partner of Saxo,” said Adam Reynolds, Asia Pacific CEO of Saxo Markets at the time of the launch. “We have seen more people taking control of their investments, and many are either entering the markets for the first time or reviewing their portfolios and allocation strategies for more diversification and yield. The new portfolio is a great choice for investors with a high-risk tolerance looking for capital growth. Saxo’s technology facilitates investing into multiple fund providers and combined with Lion Global Investors’ expertise in asset management, we are excited to be offering investors a well-curated product to diversify their portfolios.

Beta trumps Alpha in the world ahead

Stepping back somewhat from the detail of this strategy, Lee elaborates on his perspectives on the evolution of asset management globally and the impact on Asia. He concedes that “asset management companies are actually fighting for dear life”, with a vast percentage of new assets under management migrating constantly to the really huge global names, such as Blackrock, Vanguard and only a few others.

“It has become like an oligopoly,” he reports, “and the rest of us are actually becoming rather irrelevant, unless as is the case with Lion Global, we have niches in our home and regional markets, and are well supported within major financial groupings. Actually, I see the biggest players are continuously redefining the game as one driven by technology, with the drive to deliver beta cheaply and rapidly rather than alpha.”

You cannot row against a heavy tide

In fact, Lee reports that he is a big believer of this trend.

“In reality, we must be pragmatists, and my own position here is that it is better to be part of the technology game than row against the tide,” he says.

“In fact, another thesis of mine is that in the longer run, we won't in the future be making the distinction between private banks, trading platforms and asset management. The whole thing will just simply be called wealth management, and if you are into wealth management, you must have the technology to deliver cheaply, you must have the technology and the skill to do the curation, and you must have relationship with all the good managers in the world, and that universe will shrink from the current thousands globally, to perhaps 50 to 100 big names.”

That is partly why even with the service fee of just 25 basis points per annum, and with the managers of the funds in the strategy collecting their own fees, Lee believes this new strategy makes sense. “Part of this move is that we are in a game of survival,” he states. “This might sound alarmist or controversial, but we must acknowledge realities. Or potentially we collectively face our own Kodak moment. Actually, I have said this for five plus years, and although it might not come true for another five years, I am convinced that within this decade things will change dramatically.”

Beware resisting change

He points back to the decline of the Nokias, Ericssons and Blackberries, as smartphones proliferated, and the market consolidated between Samsung and Apple as the behemoths. “Those are constructive lessons we must draw upon,” he says. “We cannot simply think we can continue as things have been, we must be agile, we must be imaginative.”

He points for example to Charles Schwab, which today is an asset manager, a wealth manager, a technology platform provider and electronic broker. And in Singapore, iFast, which began humbly some 20 years ago and today has everything on their platform.

“That is the game of the future, and LGI is working to make sure that we adapt and survive well in the future,” he reports. “Somewhere ahead, we can really bring to bear all the power and resources of our owners, Great Eastern and OCBC, but that would result in major disruption, so at this time we take smaller steps by partnering with a platform provider such as Saxo. We learn a lot in the process, and we make some money today and over the years of the fund ahead. In fact, both of us are testing this concept and building this online, seamless experience for our end buyers. It is so easy to invest via Saxo, so this is a bet on the future that we are taking. We have seen dramatically and clearly how savvy the end investors are with digital access since the pandemic hit. Self-directed investing, robo advisory platforms, and so forth, these are all here and expanding rapidly, so we aim to be part of that revolution.”

He points to the first robo-advisor to arrive in Singapore about five to six years ago, in the form of StashAway, which only a few months ago exceeded USD1.0 billion. “The pace of change in these markets is incredible, just look at how tech-savvy we have all become, and so fast, myself included, since the pandemic hit. So many investors before the pandemic would ordinarily be handheld and spoilt by their relationship managers, but so many today are self-directed and increasingly reliant on technology for their support.”

Step by step

Zooming back in again on the new fund itself, Lee comments that this is far from revolutionary, in fact he compares it to another combustion engine and says it is certainly not an electric vehicle. “We are simply creating a portfolio of funds that is dynamically managed by investment professionals but targeted to retail and delivered digitally via the Saxo platform. The professionals at LGI behind the scenes do the asset allocation for you, and curate the best low-cost ETFs or the best-in-class mutual funds, then rebalance the portfolio and monitor risks.”

His colleague S K Selvan, Senior Director and Head of Curated Portfolios, explains that his Curated Portfolios team was born out of the needs of Great Eastern Insurance Company, one of the LGI owners, and their Investment Linked Policy Programme, for which there is an ongoing requirement for a team to monitor their funds that support their Great Eastern investment-linked products.

Curating best-in-class

“We are their outsourced provider of that expertise,” he explains. “We cover and monitor some 40 or so funds in that ILP programme, which has given us access to all the good fund managers out there, the big names, the household global and regional names such as the JP Morgans, Fidelity, PIMCOs, Schroders, Aberdeen and so forth. That helps us mine out the best-in-class funds in each asset or region or strategy. Whether gold, global high yield, Asian equities, China, or whatever.”

He adds that this is a differentiating factor, as the universe is large from which to choose these starts, and there is no obligation whatsoever to select in-house strategies. “We are agnostic in our curation of the portfolio,” he says. “We do not believe that any one fund manager is good in all asset classes. One big name might be great for high yield or US growth, but weak at Asian equities, or income.”

Objectivity and agnosticism

Selvan states unequivocally that LGI’s objectivity is unimpaired by the practice of trailer fees. “We do not receive any retrocessions from the nine funds in the portfolio,” he reports. “The objectivity allows us to build the portfolio with ETFs to some extent as they are low cost and provide beta, but we also need alpha to achieve the goals Saxo set us in ink as the mandate, so we have selected alpha providers from the active fund universe whom we believe will help us achieve both the right levels or risk and reward.”

He points, for example, to the Schroders Greater China Fund, run by Louisa Lo in Hong Kong. “She beat the benchmark hands down one year, three years, five years,” he reports, “and they are incredibly active in trading using AI and other digital tools to help them react rapidly to changing events. The type of excess returns of 5% to 7% a year when compounded over time really adds value. Another example is GSAM Asia Pacific Fund which perennially beats its benchmark. We talk to these managers, we know them, we keep track of them, and I can assure you we curate with objectivity, because they are really best in class in our view. LGI does not receive trailer fees for the funds in the portfolio.”

Leveraging data for differentiation

Selvan also points to his team’s use of data analytics, for which they have engaged a UK company called Inalytics run by Rick Di Mascio.”He employs a very interesting way to look at equity mutual funds that nobody has done in this part of the world. We use month-end holdings data on the funds for the last five years, we use transaction data for the last five years, we then pump them into the Inalytics system, and they report on how the manager is behaving, with details on their positions, whether they open or close those too fast, and so forth. Most people are not using this type of analysis, but we do and we believe it offers us a differentiating competitive advantage .”

Incremental improvements

Lee adds: “We do not claim to have any secret sauce, but this firm in the UK adds that bit of differentiation,” he reports. “I met him some years ago because of my involvement with the CFA Institute, and was attracted to his quantitative approach for evaluating equity mutual funds – he was able to distinguish between skill and luck. He has also published articles on his approach in conjunction with University of Chicago professors. His universe consists of globally known funds currently and many of the funds that we are using and approaching are not in his database yet, but we are trying to add some funds in and obtain their data, which in turn would be fed to Inalytics and we can then obtain his insights. As I said earlier, we are still at the internal combustion engine level, but we are trying to boost the output.”

He adds that his curation team is considered with some concern by some of Lion’s in-house active managers. “But I believe there is a real need to actually curate funds alongside our active management,” he reports. “However, my mission is to drive the business forward, it is not only about trying to keep active management alive.”

Lee’s Key Priorities

Lee explains that his priority at LGI is to ensure the firm stays competitive today and adjusts its model to a rapidly changing world.

“As I indicated earlier, there is a massive consolidation taking place and I can see that there will be perhaps 10 global asset management companies in the future, dominated by the US and Europe, and perhaps a few from China,” he reports.

“In the future, I do not think the industry will remain as it has been in the past (primarily populated with many active asset managers), everybody will be using building blocks rather than creating all their own funds in-house. Technology has become the mode of delivery and is revolutionising this business, there will be huge disruption, the old norm of retrocessions will be disrupted away, distribution will be consolidated amongst fewer and fewer names. Remember thirty years ago, when stockbrokers collected 2% fees on buying or selling stocks? Well, time moves on and my bet is that there will be huge disruption ahead in terms of middle-man fees.”

His second and associated priority is for LGI to retain its position in Singapore as a niche provider offering Singapore dollar products.” The biggest players do not have time or interest in that,” he states.” In fact, we have seen some of those biggest names withdraw from this portion of the Asian market, turning to China instead as their future. We believe we have our place in the market, and will, continue to do so, but we won’t be a Singapore Airlines offering global capabilities, we will find more niches, focus on areas such as private equity or debt and new asset classes and niche strategies. And we need to evolve from an asset manager into a wealth manager, either organically, or through M&A, all the time with a clear eye on digitisation.”

His third priority is curation.” I choose the word ‘curation’ deliberately because it invokes my feeling of ‘omakase’, a Japanese dining term , where the customer essentially says to the chef ‘I leave it all up to you’. So, this is all about trust, that type of complete and utter faith and trust is what we are striving for as an organisation in our industry. Omakase encapsulates that complete and utter faith and trust.”

Looking to the future

Lee concludes the discussion by remarking that his mission is to solidify the platform, to devise the blueprint for the business for the years ahead, and then hand the execution of that over to his successors (he has been in the industry for close to forty years and he believes strongly that a younger person would be more suited to take the business to the next level).”We need to define and redefine our role in this business and how we can position ourselves to survive and thrive in the future,” he says. “I am optimistic that we can do so and encouraged by the robust support of the OCBC group. Exciting and interesting times lie ahead, for sure.”

Getting Personal with Gerard Lee

Lee was formerly CIO of Temasek’s Fund Management Division (FMD) from 1999 to 2004, and later became CEO of Fullerton Fund Management Company, a third-party asset management company. Before joining Temasek, he had held positions as Deputy Chief Investment Officer at Deutsche Asset Management Singapore, Head of Fixed Income Sales at SBC Warburg Singapore and Head of Government of Singapore Investment Corporation’s New York Office.

He was conferred the CEO of the Year (Singapore) award and the Best of the Best Lifetime Achievement Award by Asia Asset Management in 2018 and 2019 respectively.

Lee takes an active interest in the professional development of the Singapore capital markets and is currently an advisor to ACI Singapore. He is also active in other voluntary work and serves as chairman of Boys’ Town and sits on the board of St. Gabriel’s Foundation. He graduated from the National University of Singapore with a Bachelor of Science (Honours) in 1984. He is also a CFA charterholder and an IBF Distinguished Fellow.