Lion Global Investments (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-lin, the firm’s head of A.I. investments, will lead the new investment team.

Tipping point

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 will 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!

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 Singapore-dollar denominated
liquidity funds 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.”