- 3 months ago
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00:00You were at the dinner, there was a welcome dinner last night.
00:02There was, yeah.
00:03What was the mood like in the room?
00:06Well, really upbeat, actually.
00:07I made the comment that I spent the weekend here in Hong Kong,
00:10and there's a real vibe that's come back to the city.
00:12Each time, I've been here four times this year,
00:14so each time there seems to be more and more energy building back in Hong Kong.
00:18It's great to see clients and old friends in the room last night.
00:22And importantly, I heard about the Four Trails Challenge of the 298 Endurance Run.
00:29OK, wait, are you about to embark on that journey?
00:33I'm sticking to asset management, not 298 kilometers.
00:35That's harder.
00:38Tell us a bit more about just, it seems like capital markets are very strong right now.
00:43How does that make you feel about, overall, the greater China market right now?
00:47I mean, the deals seem to be a flurry of them of late.
00:51Well, actually, you know, this is a great part of the world for wealth creation.
00:55So we've been in the region for more than 150 years.
00:58We've been here in Hong Kong with the physical office for more than 50 years,
01:02on the mainland for 30 years.
01:05Actually, Hong Kong is one of the few markets where you can see a really strong deal pipeline
01:10from an IPO perspective.
01:12Really excites me about this part of the world is the growth in wealth, right?
01:15So it's at least 2% higher than any other part of the world.
01:19We've got a 47% explosion in Chinese ultra-high net worth individuals, forecasted 28.
01:27So, you know, I think even as we look at what's quite a difficult and choppy set of markets globally,
01:32we're really positive about Asia.
01:34Yeah.
01:34Do you have a sense that you have enough resources and manpower complement to, I guess,
01:39take advantage of just the trends you're mentioning, right?
01:42By 2028, it's quite a substantial amount of money that's up for grabs.
01:45What's been really important to Schroeder's is we build our business by having investors here on the ground in Asia.
01:50So we don't just have salespeople, but we have right here in Hong Kong, we have a big Asian equities team.
01:56We have on the presence investors in China, in Taiwan, in Australia, in Indonesia.
02:03And that gives us a really local flavor to what's actually happening.
02:06And it's important for us to help our clients that we get the real beat of what's happening in the individual markets.
02:11A local flavor is interesting because you saw a bit of outflows in the latest quarter when it came to Asia real estate.
02:19What's the latest plan to really kind of streamline your strategies right now?
02:22So what we outlined, Yvonne, back in March was a process to get Schroeder's back to profitable growth.
02:28And importantly, one where we deliver for our clients that were relevant on an ongoing basis.
02:32So what we said we would do is streamline our business and that would enable us to take cost out.
02:37Now, taking cost out is important because it means we can deliver our products to our clients at the price point that they really need.
02:44As well as actually some pretty aggressive revenue growth targets that we talked about.
02:48So in terms of Asian real estate, what we saw is we've seen the market, commercial real estate has been depressed.
02:56A really positive sign here in Hong Kong in particular is we can see the residential property market certainly lifting.
03:02But in terms of commercial real estate, we continue to work through some of the challenges of the marketplace and streamline the business.
03:09I mean, you do have some properties here where, let's just call it, the time you went into the transaction is no longer the value of the properties right now.
03:20Properties under your property management.
03:21Just get us up to date.
03:23Let's avoid speculation.
03:24Let's hear it directly from you.
03:25Well, look, I think we and the whole industry have the challenges of a commercial real estate market that is significantly down from its peak.
03:33We have three properties, you're right, that relate to an investment business that we acquired.
03:39And those investments go all the way back to the early part of the last decade.
03:44Of the three properties, one is being worked out and two are actually being dealt with by the banks at the moment.
03:51But we've kept our investors fully informed and we're on top of it.
03:53Are they for sale?
03:54When you say you're working them out, like one is actually for sale and when do you plan to sell that, if I could ask that to you?
03:59So, one has actually been fully let and the lending associated with those properties has been renegotiated.
04:06And the other two are being worked through with the banks.
04:09Are you willing then to commit more capital to this city then if there are concerns whether you get the value back or not?
04:15I mean, I'm just wondering, you mentioned about residential property.
04:18What are you seeing there in terms of opportunities?
04:19Well, residential property isn't our main investment thesis here in Hong Kong.
04:24What we're really focused on growing is helping people pivot into global equities.
04:29We can see a real shift in the market into global investing.
04:32We can see the need to bring more private markets activity here into Asia.
04:38So, we have a team here in Hong Kong and we've invested pretty heavily in that team to grow renewable infrastructure.
04:45So, we have a business focused on the energy transition.
04:48It's really helping clients invest in the mainland in green supply chains.
04:54It's actually helping mainland clients invest in opportunities for mainland companies overseas.
05:02So, we're super excited about the growth area that we've seen in that part of the business.
05:06And of course, as I said, what we're really making sure we're doing is delivering the products that we think the wealth channel is going to need as we go forward.
05:13We work pretty extensively with partners here in Hong Kong and across the region to make sure that we can help them deliver what's needed for their clients.
05:22Two things have constantly and consistently come up as far as investing in equity or public markets, generally speaking.
05:29Concentration risk and AI.
05:31And the other extreme is really just completely outside of public equity is private markets.
05:37Where is your head on those two things?
05:39So, we remain pretty positive on U.S. equities and China equities, by the way.
05:44And there are two areas, of course, where we do see concentration.
05:47And that's why, importantly...
05:49Too much concentration?
05:50Well, that's why, importantly, we are passionate advocates for active management.
05:54That's all that we do.
05:55Okay.
05:55And that means we can balance risk and return.
05:58And so, when we see concentration that you're talking about in the marketplace, we can make decisions about how much of that concentration we participate in and where else we might choose to invest our money.
06:11So, passionate advocates for active management.
06:13Really important point for investors in terms of thinking about how they diversify their portfolios.
06:19Yeah.
06:19Interesting.
06:20You mentioned before that this whole active and passive debate is dead.
06:24How do you still deliver in this market when there are these players like the Black Rocks and the Vanguards of the world that have these very low-margin passive products out there and are only kind of squeezing your fees lower now?
06:35Well, look, I think the thing we forget, everyone talks about the passive, the rise of passive has been a new thing.
06:41I mean, we've been dealing with it for 20 years, candidly.
06:44So, it's quite a long trajectory.
06:47And it's an important passage, an important part for people to build efficient portfolios.
06:53But it comes, everyone, back to my point about let's make sure we think about return and risk trade-offs in the appropriate way.
06:59So, there was this nonsense of people will have barbells of just passive and private markets.
07:04Well, there's got to be a place in the middle where people think about that diversification.
07:09So, it's kind of interesting.
07:10One of our most successful strategies in the last few months has been actively managed U.S. large cap.
07:17Now, a year ago, I just said that was a pure passive play.
07:21But people are taking that concentration risk you talked about, David.
07:24Why is that an accurate strategy, if I could just ask you that?
07:26If it's a pure large cap, U.S. large, that sounds like a passive.
07:29Because if you're worried, because, of course, what's happening is if you're a passive player in the S&P, the vast majority of that investment, because the market weighting, is flowing into the top 10 stocks.
07:39So, actually, if you're really looking for value and thinking, well, maybe I'm a little bit concerned about how those valuations are stretched, you want to have an investment strategy that's a little bit more spread than just S&P 500 passive product.
07:52So, that's the great benefit of active.
07:55I think the other great benefit of active that we often don't talk about is just about active ownership.
08:01So, we get to choose who we invest in.
08:03We get to hold management to account.
08:05We get to challenge strategies and actually think about how organizations are developing in the marketplace, really looking for how they're delivering opportunities.
08:14So, I always say the great benefit of our investors, they get to choose every day whether they want to invest in a stock or not.
08:20But they get to engage with management and hold them to account.
08:23And that is one of the few things that, of course, passive people can't do.
08:28They don't actively engage because they've got to replicate the index.
08:32There's also this trend of de-dollarization.
08:34What are you seeing in terms of some of your institutional clients now and whether there is a need still to diversify away from the dollar?
08:41Well, it's a great question.
08:43Probably one of the questions I'm asked most as you go around the world.
08:45I think we're a long way away from seeing the U.S. threatened as pretty much reserve currency for the world.
08:52There are some things acting in its favor, by the way.
08:54The growth in stable coins is a great example of where dollarization is being reinforced by other trends.
08:59But it is also great to see the internationalization of the renminbi.
09:03I mean, that is a really important point to offer choice to clients.
09:08We're seeing more and more clients in trading flows actually having to settle in Asia, but not just with China, with renminbi.
09:15So I actually think we're going to see over the next few years a change in the landscape.
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