Lion Global Investors (LGI), the fund-management arm of Singapore’s OCBC Bank, will launch a new fund whose performance is driven by artificial intelligence rather than by human fundamental analysis.
“This is the most exciting moment in my 12-year career at Lion Global,” said its CEO, Gerard Lee. “We’ll be using A.I. to manage our portfolio” of the new product.
LGI will continue to manage its existing suite of products in the traditional manner. The A.I.-managed funds will be overseen by a separate team, using machine learning and other A.I. tools.
Likening this to a carmaker that sets up a brand new factory to produce electric vehicles, he said, “We’ll still have our traditional portfolio managers and analysts, but with a new shopfloor that uses a new approach to managing money.”
Ong Ai Ling, the firm’s head of A.I. of investments, will lead the new investment team.
The only commonality will be the fact that LGI owns both manufacturing businesses – and that they will have to be packaged and sold as unit trusts.
The firm has spent the past two years developing this new business line. “A.I. technology now allows us to do this,” Lee told DigFin. “After twenty years of experimentation, A.I. has reached a tipping point.”
The new funds are set to debut in October or November. For now LGI does not plan to get them on the shelves of banks. “It’s a new way of managing money so it’s hard to get this through the traditional gatekeepers,” Lee said.
Instead, the firm could structure them as exchange-traded funds and list them on Singapore Exchange. Then it will rely on its in-house content marketing teams to promote awareness of the products, and leave it to Singaporeans to trade the products via SGX.
Changing distribution models
This may seem like a risky endeavor, as traditionally in Singapore (and most of Asia), funds distribution has been dominated by banks, either at the retail or private level.
However, LGI’s experience during the COVID-19 era is that the digital side of the business has overtaken bank distribution.
Lee says in the past year, LGI has sold more products through robo-advisors and other new digital channels than through banks. That’s a significant statement from a bank-owned fund manager!
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LGI manages about S$69 billion ($49 billion). Top-line revenues of the past year have reached about S$120 million, of which more than half is now coming from digital channels. Lee says the trend holds across all product types, from money markets to U.S. equity funds.
Nor is this a case of COVID crashing the traditional distribution business, flattering what would be rather small levels of growth among robos. Lee says it’s the opposite. “The robos are gaining market share.”
Rise of robo
The first platform alternatives to banks were arms of financial advisors such as iFAST and Aviva-backed Navigator. But the rise of consumer-facing wealthtech providers such as Endowus, Syfe and StashAway has created a new distribution model.
Lee says these players became vital during COVID, which made clear how reliant banks are on their branches and selling through their relationship managers.
The alternative trend is now morphing again, with LGI providing money-market funds to private-markets exchange ADDX.
ADDX is using two liquidity funds (one denominated in Singapore dollars, the other in USD) to provide a place for its users to park their money and generate a safe, annualized return of 2.22 percent to 2.38 percent, depending on the product.
For LGI, this is a straightforward money-market mandate – but via a new sales channel.
Marketing for mobile
The COVID experience changed LGI’s approach to marketing as well as to distribution. As it began selling funds via robo-advisors, it needed to develop marketing content to service these customers, who were accessing funds via their mobile phones.
LGI developed a line of short videos that get distributed across social media. Today it has converted a conference room into a full-blown studio for podcasts and videos.
In the process of doing content for its digital partners, LGI discovered that it could use the same tools to market its own ETFs that traded on SGX. Most Singaporeans have a brokerage account and are used to trading stocks. So LGI began to promote these too.
The experience has given the firm the confidence to launch the new A.I. funds as ETFs, without a bank distributor. There is some administration that goes into listing the products, but once that’s done, the costs are just around marketing.
Becoming a platform?
Looking further out, Lee says the nature of digital platforms means the ideal would be to combine manufacturing and distribution. OCBC has three arms: Lion Global for fund management, plus OCBC Securities and, in the insurance space, Great Eastern Financial Advisors.
For now he is not able to go direct to consumer with a digital platform. The licensing and compliance requirements are too onerous. And the three investment arms of OCBC have their own legacy setups.
“But ideally these would be in one entity we’d just call ‘Wealth Management’,” Lee said, wistfully adding, “Someday.”