Supplements » Global Industry 2020

Hong Kong roundtable: Anticipating the next black swan

Funds Europe – How prepared were asset managers in Asia for the Covid pandemic given previous experience of dealing with a health crisis such as SARS in the 2000s?

Vengayil – A global pandemic was not exactly front of mind when we settled towards the end of last year on this label of ‘The Great Instability’ as the best way to describe our concerns about the fragile nature of the global economy and wider society. Looking at the current scenario, the Covid-19 crisis fits comfortably within the framework and neatly illustrates the broader point. Economic, political and environmental factors are all converging on an unprecedented scale.

The Covid-19 outbreak clearly presents a danger, apart from the health and humanity concerns. For everyone, the intermediate focus is on protecting the human life, but there is also major emphasis on preventing any kind of economic collapse, and we are seeing that all over the world.

Another notable development is the global commitment for a green recovery stemming from the European Union, who, in July this year approved a €500 billion green stimulus package with 30% of funds earmarked for climate action. The aftermath of the pandemic provides an opportunity to build back better, and aggressively ramp up investment in green and sustainability.

Ultimately, we are focusing on the importance of not losing sight of the medium term, we know we need to manage and tide over the current volatility, but we have to keep an eye on the medium term. It also shows how important resilience and sustainability are for the corporate investors in the mid to long-term, so that’s where sustainable investing is also becoming very relevant in the current scenario.

Understanding the sources of ‘The Great Instability,’ and what it means for society, the economy and the markets will remain of paramount importance for investors in the interim to long term, and we believe the world was and will remain a volatile place for some time.

Fu – It’s very important to make sure that while we are dealing with this crisis, we are still able to manage clients’ money professional and effectively. In order to do that, the company has to transform itself in the way that we’re going to use more technology and how we service and report back to our clients.

In terms of how Asian managers have been preparing for the crisis, I seriously don’t think anyone has been preparing for that in terms of the scale, but relatively speaking, because Asian clients and managers have previous experience with SARS, we are a bit more sensitive, which helps as we change ourselves and put people in a better position to deal with this crisis.

Compared to other regions, Asian markets have been relatively more resilient and also, except for some sectors, general businesses are dealing with a lot of problems relatively easily and more effectively than in the other sectors. To asset managers, the biggest disruption is that we are grounded. In Asia, when we wanted to do regional or global business, we travelled a lot to see clients, bring fund managers to do roadshows and address questions face-to-face. Now everybody is talking about a ‘new normal’, and there’s a new way to go about that. Historically we would bring a fund manager to Singapore, Taiwan, or wherever, but now we can do similar things digitally and can cover hundreds of advisers without flying in fund managers.

Since the very beginning of the pandemic, asset managers have relatively been much more agile in running the business globally, but going back to the client side, especially to the distribution side, they are local and don’t have this kind of set up. It has taken some time for them to really change their model to make sure that the end clients are being well informed.

Going forward, fund managers should be able to really service clients more effectively or even more directly. Nowadays we can do a Zoom or Microsoft meeting, invite people from different branches, find a good time to do that and address all the questions simultaneously, and most importantly, that training can be recorded and further disseminated in the branches. This kind of ‘new normal’ is helping distributors and the salespeople to have a much closer understanding about the market and the products. The crisis is changing the way we do business, so information is being exchanged much more effectively.

Chan – To an extent, the asset management industry is very lucky in the sense that remote working is feasible for us. We already have the Business Continuity Plan (BCP) in place so when things happen, we can react quickly. The cause is not necessarily SARS, but more a combination of various factors, including technological advancement, which enables the whole remote working mechanism. Overall, the asset management industry and even wealth management industry mostly converted to working from home or remote working seamlessly during the crisis. Our interaction with clients is business as usual. Hong Kong was one of the markets which first entered into the lockdown in February, and we quickly converted physical roadshows into virtual ones and since then, we have 14 virtual webinars for Hong Kong clients to participate in.

The fact that the current crisis is a combination of both a health crisis as well as a market crisis also helps speed up the adaptation. The market sell-off in the first quarter and the subsequent rebound were one of the sharpest historically, so for those periods of time, on one side, the asset managers were ready to serve our clients digitally, and on the other side, there was a strong demand from distributors and clients to convert to digital channels for the information. From this client-servicing perspective, everything has been done well and we enjoy the efficiency.

Zhong – Asset managers in Asia were much better prepared following the experience of SARS in 2003. Decisive actions were taken, including the introduction of remote working to avoid virus contagion. The previous experience with SARS taught us a lesson, which also partly explains why some developed countries in the West were not able to control the situation at the beginning of the pandemic.

From an investment perspective, we have observed that asset managers have tended to be more cautious with risk-taking during the pandemic.