ING Private Portfolio Management is the wealth management arm of ING Private Banking in Belgium. They are global investors and their investment approach is long-term oriented. They use various instruments and model portfolios according to the client’s risk appetite as well as tailor-made portfolios. Assets under management amount to $40 billion (ING Private Banking as a group), of which approximately $11-12 billion is managed in Belgium.
Moudy El Khodr is Head of Portfolio Management, South Region at ING Private Bank. Until 2018 he was at ING Investment Management (now NN Investment Partners) managing one of Europe’s largest US Equity Income funds. He re-joined ING Investment in 2014 after three years at Petercam where he had managed a similar strategy. From 2001 to 2011 he worked at ING Investment Management in Brussels and The Hague. He also worked at BGL (Banque Générale du Luxembourg) in asset management (1998-2001). Moudy started his career at Euronext Brussels in 1998. He graduated “cum laude” from Université Catholique de Louvain (UCL) with a Master in Economics, holds a CEFA certification and a Certificate in Risk Management from ICHEC in Brussels.
Where does ING Private Banking fit within the investment management sector in Belgium?
We are obviously more oriented to private clients than institutional clients. We have both a model portfolio and tailor made portfolios. Here, there are different characteristics for each client. We can invest in bonds, equities, third party funds and our own fund of funds. If you run a fund, your strategy is singular and clear. I used to run an US equity dividend fund but now I have a much wider choice of investment options. Private clients have a variety of needs. It’s a challenge but it’s a nice part of being on the wealth management side.
IROs tend to be very data driven, which can be a problem for firms like ING Private Banking because you don’t appear in any public databases in terms of AUM, or holdings. How should IRO’s think about ING PB? (Buying potential, size of holdings etc.)
That’s a very good question. We don’t have one single linear entity as a fund does. We get to big numbers but you don’t see public aggregation of that data. Our holdings are more sizeable than you can see. In Belgium, we have €10 – 11 billion AUM ($11 – 12 billion) with just less than half of that figure in equities. Private banks tend to be stable shareholders. Once you are in, there is more stability than a fund, as funds tend to unfortunately, be increasingly driven by shorter-term metrics. We obviously have performance pressure, but it tends not to be as short term. So, if a company is selected for our clients, we don’t trade around quarterly results. IROs should therefore consider us as long-term, stable holders.
Can you talk about your investment process?
Teams and colleagues collaborate and a very restricted team comes with a model portfolio , that is followed by portfolio managers or used as source of inspiration. However, because of the range of clients, some might want tailor made portfolios and for example, might not want energy stocks as they are polluting. Within discretionary management, there is more consistency. In advisory, clients may ask our advice or direct us.
Do you buy direct holdings as opposed to mutual funds?
We don’t have direct equity mutual funds labelled ING anymore. We have a true open architecture, benefiting clients but also our fund of funds. It depends on clients’ needs. The range of clients is extremely wide in private banking. So for example, if capital preservation is a key criteria for a client, we would choose something well diversified. If there is a low level of knowledge, we choose well diversified solutions. On the other hand, if the client is financially sophisticated and knowledgeable, direct lines are more appropriate as well as derivatives or hedging strategies.
What is the asset and geographic split of AUM?
Asset allocation decisions are made centrally by our Investment Office. We are currently slightly underweight equities so have <€5 billion in direct line and equity funds. We tend to favour Euro and US stocks. For more “exotic” markets such as Latin America and Asia, we tend to use funds. For US and Europe, we use both direct line and funds (including ETFs).
ING has other offices, is there any collaboration?
We do collaborate in the Benelux and have done for many years. In other regions, we increasingly share information. Needs vary by country, some are more international, some more regional, some more risk averse, some more growth oriented, some prefer dividend or income thematics. So, while we have our own solutions, we do share information and it’s a growing trend.
Describe your investment style?
Personally, I am a long established “value” guy. Buffet, Arnott, Graham have been our mentors for years. Today I don’t tilt to one style because each client has different needs. In our model portfolio we tend to be pragmatic. The committee deciding on the model portfolio is composed of four experienced portfolio managers. And we encourage diversity as an enriching factor within that team, including diverse investment styles.
We use screens as a support, i.e. as a tool to help deciding and building a portfolio. We do not use a pure quant model.
It depends on the client, on volatility etc. but typically 18 months. 35% turnover would be usual for us in normal circumstances.
Share price appreciation goal?
Most of the time we have an idea, but it is not purely quantitative – eg 20+% upside.
Any market cap restrictions?
There are almost no restrictions for advisory though we try to avoid very small and illiquid names. In discretionary, we focus on mid to large caps so $5 billion upwards.
Any sector restrictions?
There are laws and principles we follow, for example, Belgian law means we do not buy defence stocks. Increasingly, there is an ESG approach, so we avoid a certain number of controversial names. It’s going more in that direction but it’s up to the client to decide if they want more stringent ESG criteria. We also have our fund of funds in an ESG version which is increasingly popular.
So ESG is incorporated into the investment process?
Yes, more and more, starting with awareness and up to full ESG solutions.
Buy-backs or dividends?
I’m not a fan of buy backs. I think of buy-backs as a ‘date’ and dividends as a ‘marriage’ – much more stable (and harder to quit). Dividends are more serious. If a company has nothing better to do than buy-back stocks, it’s a pity, they should invest in their organic growth or bolt on M&A. Maybe this Covid-19 crisis might raise some questions on how we think about buy-backs (and even dividends) going forward.
Number of holdings?
In our model portfolio, about 40 names, so fairly concentrated. We review our holdings weekly to assess whether we are comfortable with the portfolio. Today we have some defensive names and the million dollar question is should we take out the defensive names and go more aggressive into sectors that have underperformed? Like selling utilities in the US and Europe and putting the proceeds at work in lagging sectors? Utilities year to date performed very well as they’ve only fallen 13 – 14 % whereas the market as a whole, has fallen north of 21%. So, the question is still an open one.
Average and largest position?
Average position for a blue chip ranges between €20 – 35 million ($22 – 38 million). Biggest position is €110 million ($120 million).
What do you look for in a stock?
We look at the strength of a balance sheet, free cash flow generation and recurring revenues. We obviously also look at the valuation as a company can be a very good company, but how much do you pay? Today, the resilience of a business is important given what’s going on with Covid-19. We have a monthly “equity forum” where equity specialists within private banking (and external guests) discuss a sector/idea/etc. Then some of us meet to decide how and what to implement in the model portfolio.
Do you like to meet management before you buy a stock?
Absolutely! I like to meet management or at least have a call before I make a decision on a stock. That can be for 15 – 20 minutes as I will have prepared the questions I want answered. For example, take a company with marginally positive free cash flow, paying a big dividend, doing buy-backs and with newly announced big capex plans – soon you will have negative cash flow – something has to give. So that’s something I’d ask about. My goal is to understand what levers they have in order to maintain free cash flow, dividends etc. These are the sort of questions I like to focus on, not necessarily listen to the pitch!
Consistency rather than a one shot visit!
It builds trust and you get to know a company really well. That’s where IR can add value. I’d like to get 45 minutes (in person or via video conference call) with a company at least once a year. I don’t want to meet management once and know I’m never going to meet them again or not for five years.
Any tips for companies visiting Brussels?
You don’t necessarily have to meet face-to-face but you can allocate time via conference/video calls. This crisis has shown that we can all work remotely and efficiently.
Brussels is not London or Edinburgh, still, there is big money beneath the surface, especially in private banking.
Why should corporates target ING PB in Brussels?
We are a stable, sizeable, long-term holder. Brussels is easily accessible from Paris (one hour and ten minutes) and London by train. It is less than an hour’s flight from Frankfurt. Great mussels, beer and chocolates too!
How will Covid-19 affect the investment industry long-term?
When will it end and how long will it take for things to get back to normal and at what “price”? It is still too early to say.
In 2008, the banks and the financial industry were the bad guys but now we could be the good guys as we will need to help companies and governments with loans to get the economy back on track. We are a facilitator and this crisis might give the financial community the opportunity to repair its bad reputation. So that might be a positive. In terms of AUM, we need to limit the damage to clients’ portfolios, and we are managing that carefully.