Funds Global: Asia Report 2010

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fc41 28/5/10 17:08 Page 1
funds global
Asia Report 2010
Asia’s fund brands Special focus: Hong Kong
How long until they’re global? Mutual funds: Appetite for risk
Pensions: $15bn coming your way
Asset servicing Real estate: Locked out
Panel discussion
EXECUTIVE PANEL • INDIA’S KOTAK • NEWS

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01 EditorialASPTSnf:Layout 1 28/5/10 17:09 Page 1
funds global
EDITOR
Nick Fitzpatrick
Tel: +44 (0)203 178 5875
[email protected]
Global brands made in Asia
DEPUTY EDITOR
Angele Spiteri Paris The number of foreign financial services firms that set up
Tel: +44 (0)203 178 5876
or expanded in Hong Kong last year aided by InvestHK,
[email protected]
an official body, was 29 – a record year according to the
EDITORIAL DIRECTOR
Fiona Rintoul organisation. Overall, there were 265 foreign firms across
[email protected] various sectors that launched or expanded operations in
EDITORIAL ADVISORY BOARD Hong Kong with InvestHK’s help, again a record, though
Penelope Biggs
Northern Trust, London
only modestly breaking the previous year’s record of 257.
With China and Asia often described as being the engines
Dominique Carrel-Billiard
AXA Investment Managers, Paris of global growth in the coming years and beyond, then the figures for foreign
companies setting up in Hong Kong and elsewhere may be less modest in future.
Nadine Chakar
BNY Mellon, London These companies, including fund managers, will of course be competing with
Peter Elam Håkansson
strong Asian companies already here, and a reminder that competition is a two-
East Capital, Stockholm way street – and increasingly a global one, not just limited to Asia itself – is
Robert Parker presented by Harvest Fund Management. Harvest is a firm from Mainland China
Credit Suisse, London and in 2009 it set up a wholly owned subsidiary as part of its Asian and world
Todd Ruppert expansion strategy.
T. Rowe Price, London & Baltimore
Many European asset managers entering Asian markets hope to benefit by
ASSOCIATE PUBLISHER providing access for Asian investors to markets outside of Asia. The trouble is, in
Andrew Chesney
Tel: +44 (0)203 178 5878 places like Hong Kong, as in Europe, there is a home-market bias.
[email protected]
Hong Kong investors, for example, are well aware of the growth story happening
PUBLISHER on the mainland and are hardly likely to be distracted by lagging Europe. There is
Alan Chalmers
Tel: +44 (0)203 178 5877 now a growing number of credible local players positioned to benefit from this and
[email protected] leverage it to expand abroad.
ART DIRECTOR But there is hope for those with a typically offshore approach to providing
Lucy Erikson
Tel: +44 (0)203 178 5873
international funds. Distributor Manulife and fund manager Aberdeen, which
[email protected] both have an Asian presence, report interest in US equities among Hong Kong
CHIEF SUB-EDITOR investors, while Eastern Europe is also quite popular for risk takers (see pp 6, 10
Tania Sansom & 20).
Tel: +44 (0)203 178 5876
However, it could be less than ten years before a fund manager from China,
OFFICE MANAGER
Iain MacArthur
South Korea or India is a global brand, according to Martyn Cuff, of Allianz
Tel: +44 (0)203 178 5874 Global Investors Europe (see p14).
[email protected]
For foreign managers moving the other way, those firms that claimed a first-
CONTRIBUTORS mover advantage seven or eight years ago will be glad now they did so.
Martyn Cuff
Subscribe to Funds Europe

Delivery in Europe: €385
Nick Fitzpatrick
Delivery outside Europe: €495 Editor
enquiries: [email protected]
funds europe limited, 2010
ISSN 1477-4453
Published by
funds europe limited
4th Floor
288 Bishopsgate
London EC2M 4QP
Tel: +44 (0)203 178 5872
Fax: +44 (0)203 178 4002
Printed in Great Britain by Buxton Press
The views expressed in Funds Europe do not

necessarily coincide with the views of the publishers.
Although the publishers have made every effort to
ensure the accuracy of the information contained in
this publication, neither Funds Europe Limited nor any
contributing author can accept any legal responsibility
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03 contentsASPTS:Layout 1 28/5/10 16:48 Page 3
contents
06 Pensions
US$15bn of pension savings in Hong Kong is
to be up for grabs
10 Mutual funds
Retail investors have reverted to IPOs rather
than funds, but there is some risk appetite
14 Industry growth
Asian fund management brands could be
globally recognised in 10 years
18 India
Interview with Shyam Kumar, CEO of Kotak
Mahindra Asset Management
20 Distribution
Manulife talks about the type of funds that are
in demand among its Hong Kong clients
22 Real estate
In spite of some woes, Asian property has
strong fundamentals, though access is restricted
24 Threadneedle
The firm expects to double its Asia-based
staff, says its regional head of distribution
26 Executive panel
We assemble a virtual roundtable, asking
executives about the Asia funds industry
32 Asset Servicing Roundtable

Asset servicers based in Asia discuss the forces
shaping the funds industry
44 Talking heads
CEOs in the region give us their views about
the industry going forward
4-5 Asia NewsASPTSnf:Layout 1 28/5/10 14:03 Page 4
ASIA NEWS
BNY Mellon wins QDII custody mandate

China Construction Bank (CCB) awarded
the global custody mandate for a new
Qualified Domestic Institutional Investor
(QDII) fund, to be launched by ICBC Credit
Suisse Asset Management (ICBCCS), to BNY
Mellon Asset Servicing.
The new fund will be called the ICBCCS
Global Selected Equity Fund.
ICBCCS is the first fund management
company to have two QDII products on the
market following the completion of the new
fund’s fundraising. The firm’s first QDII fund,
the Global China Opportunity Equity Fund,
was launched in 2008. CCB, on the other
hand, is one of the largest providers of
domestic custody in the Chinese market, from
both QDII and QFII perspective.
ICBCCS is the first asset management joint
venture initiated and held by a commercial
bank in China. It is owned by the Industrial
and Commercial Bank of China, Credit Suisse up to the end of March, it is clear that the insurance firms, to invest funds pooled from
and China Ocean Shipping, who hold 55%, door is wide open again after being closed for their mainland clients in approved overseas
25% and 20% of the company, respectively. about 15 months.” financial markets.
Following the mandate win, Chong Jin The State Administration of Foreign In other QDII news, Canada is looking to
Leow, head of Asia, BNY Mellon Asset Exchange suspended the issuance of QDII benefit from asset pools in China. Jim
Servicing, said in a statement: “QDIIs have quotas in May 2008 after the crippling Flaherty, Canada’s minister of finance,
had a difficult ride over the last couple of market losses, which reached 80% in certain welcomed an agreement with the China
years, due in part to the reduction in investor cases. The ban was lifted last October when Banking Regulatory Commission that
confidence triggered by the global financial the regulator perceived that the global designates Canada as a destination for
crisis. However, confidence is rapidly economy was past the worst. Chinese banking wealth management
returning and with in $4.2bn (€3.4bn) worth The QDII programme allows approved business. “This agreement will give Canadian
of QDII quotas granted by the State institutional investors in China, including financial markets access to up to US$8bn in
Administration of Foreign Exchange in 2010 banks, fund management companies and investment capital,” said minister Flaherty.
Alfi to open Hong Kong office

As Ucits continues to have a strong hold on Asia and many global fund distributors and
Asian investors, the Association For fund managers have large operations in this
Luxembourg Investment Funds (Alfi) part of the world.
announced it will be opening a representative In terms of headcount, Kremer said that to
office in Hong Kong, to further support start off with, the office will probably staff just
the development of the Ucits brand across one person. “This person will play quite an
the region. ambassadorial role. We think that having a
President Claude Kremer said: “We hope for person locally to talk to the investors and the
the office to be operational by the middle of fund promoters in the region will help us
summer.” He explained how the association better develop our relationship with the actors
plans to create an Asian hub in Hong Kong. in the industry.”
“Out of the new office we will be able to cover He said that Alfi chose to begin its
a number of the Asian markets such as international expansion in Asia because the size
Singapore, South Korea and even Australia.” of the Asian representation in the overall Ucits
At the recent Alfi conference in London, market. Kremer added: “I have no concrete
Kremer said that one third of the Ucits plans of how this will develop and grow in the
Claude Kremer, Alfi
subscriptions registered in 2009 emanated from future, but it’s a foot in the door.”
4
4-5 Asia NewsASPTSnf:Layout 1 28/5/10 14:03 Page 5
Funds back in black, but bonds Appointments

reign supreme in Asia
Asian fund flows improved in the last quarter MERCER EXPANDS
of 2009, with Southeast Asian mutual fund MULTIMANAGER INTO ASIA
assets reaching an all-time high, but net new ‘Japan's asset Stephen Roberts has been appointed
money favoured low margin products as
opposed to equity funds.
management market still Mercer’s Asia Pacific regional business
leader for investment management, as
Market analysis by Cerulli Associates, a has ample capacity the company expands its multi-manager
consultancy firm, showed that Asian net flows
for the last quarter of 2009 came in at just less
for growth’ business into Asia. Roberts will be
responsible for leading the growth and
than US$3.4bn (€2.7bn), which is positive The Cerulli analysis showed that South Korea development of Mercer's investment
considering they were in the red to the tune of lagged the rest of the region as it was hit by management business in the Asia Pacific
approximately $35bn in the third quarter of redemptions from expiring regular savings region. With the appointment, the firm
the year. plans. With the exception of South Korea, all is building on its established investment
The consultant found that overall assets under countries showed growth in mutual fund assets. consulting capabilities and will now
management in Asia rose $88.6bn between The strongest asset performance was in China. offer its clients in Asia a complete range
September and December 2009, showing that In fact, Lipper FMI said that unsurprisingly, the of investment advisory services.
market appreciation did the heavy lifting in the best equity sector was Chinese equity with an
asset recovery. According to Cerulli, India, annual sales total of $30bn. However, Cerulli RUSSELL CATERS FOR
Taiwan, and China registered the best flow warned that the prospect of policy tightening in GROWING DEMAND
performance in the final three months of 2009. the country could curb risk appetite and slow Russell Investments announced the
In another Cerulli report, focused on the down its stock market. appointment of several senior
Southeast Asian markets, the firm found that Cerulli found that Japan lost market share, and executives across Asia, including
assets under management jumped 42% in 2009 now accounts for approximately 35% of the Singapore and South Korea. The firm
to $145.2bn, surpassing the previous peak of region's assets while China, India, and Taiwan said the additions were made to
$133.5bn set in 2007. But although the funds all gained ground. strengthen management to cater for
are back in the black, the flows were Interestingly, according to a report by growing business demand. Edmund
disappointing because of the cautious investor McKinsey, another consultancy, Japan will Teo, who will be based in Singapore
sentiment. present a much greater opportunity for asset joined Russell from First State as
Lipper FMI statistics showed that, over the managers. “Japan's asset management market regional director sales and sarketing. For
whole of 2009, India recorded the strongest still has ample capacity for growth. Although it Taiwan, the firm appointed Joey Chao-
sales, although they slowed in the last quarter. is the world's second-largest economy, Japan Yu Chen as director business
Lipper said: “Support for equity had been currently ranks only ninth in terms of its mutual development and DongKi Kim joined
inconsistent all year, but industry insiders believe fund market,” the firm said. as chief representative within Russell’s
the banning of sales commission spurred Q4 According to Cerulli, Asia now offers a better- Korea representative office.
outflows in the equity category where front-end balanced opportunity set when compared with
loads are highest.” The research house also said the pre-crisis period. DB ADVISORS MAKES MENA
that Thailand was the year’s surprise. The “This is especially so for Asia ex-Japan, since APPOINTMENT
industry recorded its second best year, with China no longer dominates as it once did,” the Nicolas Kahale joined DB Advisors —
$18bn and was a billion short of its 2007 best. firm said. Deutsche Bank’s global institutional
“After a visible slowdown in Q3, flows picked up Within Southeast Asia, Malaysia is said to asset management business — as head
in Q4. Importantly, equity funds returned to offer the best expansion opportunities for global of the Middle East, Africa & Central
positive territory,” Lipper said. managers, due to a comparatively well- Asia. Roelfien Kuijper, global head of
But Cerulli found that the net new investment developed regulatory structure, a fondness for DB Advisors said: “DB Advisors and
in Asia was skewed toward bond and money saving, government backing for the the Deutsche Bank Group are strongly
market products, rather than equity funds. development of the mutual fund sector, and committed to expanding the services
Data from Lipper FMI supported this, high profit margins. we offer in the Middle East, Africa and
showing that bonds reigned supreme in Asia “Expansion into Southeast Asia is best suited Central Asia. The need for global asset
with sales in India and Japan heavily tilted to global managers with an existing Asian management solutions continues to
towards the conservative end of the investment footprint, whereas those new to Asia are better grow, and we are seeing increasing
spectrum throughout all of 2009. As a result, off focusing on North Asia initially, since its asset demand from both public and private
bonds were the clear winners of the year, with size dwarfs Southeast Asia,” said Sunil Jagtiani, sector institutions for a wide range of
two thirds of all Asian sales of $63bn. associate director at Cerulli Associates. investment strategies.”
Joachim Faber, AGI

6-8 pensionsASPTSnf:Layout 1 28/5/10 14:05 Page 6
PRIVATE PENSIONS
Playing the long game
Rule changes may see pension providers competing for US$15bn

of pension savings in Hong Kong, finds Nick Fitzpatrick
The fact that The Hong Kong Jockey Club When the Mandatory Provident Fund Under one of the three options in the MPF,
is both the largest tax payer and biggest (MPF) was set up in 2000, workers had to tie employers have to choose a pension plan
private contributor to charity funds in Hong their contributions to one provider chosen from a range of providers for their
Kong points firmly to the population’s love for them by their employer. employees to pay into, together with an
for nail-biting finishes that come with the Pension fund members are now set to be employer contribution.
hope of riches. Similarly, their passion for able to invest their contributions with Although workers could take their savings
trading mutual funds also reflects Hong whichever provider they wish when they with them when they found a new job, they
Kong residents’ liking of risk if large, change employment, and this could unleash still had to invest with whatever provider
quick returns are in the offing – although US$15bn (€12.3bn). their new employer had chosen.
much to the frustration of asset managers At least this is the amount of money Terry But in future they will be able to invest their
who have to cope with the volatile fund flows Pan, vice chairman of the Hong Kong own contributions – 5% of salaries – with
that result. Investment Funds Association (HKIFA), says whichever provider in the MPF scheme
By comparison, long-term saving for could be available from the fund, which is a they wish.
retirement severely lacks adrenalin, but that compulsory defined contribution pension Any changes they make could start to
could change following a relaxation of rules scheme. “Employees will have the happen next year, though perhaps slowly at
that gives members of Hong Kong’s opportunity to change all of their own first. As the MPF is a young scheme, Pan
compulsory state pension fund more say in contributions and this means that around believes many members have not yet realised
how to invest their money. US$15bn could move,” Pan says. just how much money they are sitting on.
6
Hong Kong Jokey Club
The MPF could make for a source of stable cashflows for providers, who
can keep hold of business once the new rule takes effect
Investment changes will not happen until withdraw their savings until they retire. In a Pan, adding: “After the top 30 names the
they do. region where individual and institutional mandate size gets extremely small.”
“The MPF is only ten years old. Because it pensions saving still lacks development, the Yet around 50% of the client base that falls
is very young, you have to ask when will it be move by the MPF – which could be seen as under Alex Boggis, director at Aberdeen
that their MPF savings become big enough quasi-institution – is a notable one. International Fund Managers in Hong Kong,
for employees to take notice of what they is institutional, and he believes that
have saved, and say to themselves, ‘Wow, look Institutional investment institutional investment within Aberdeen will
at all that! I’ve got to do something with it’. Institutional pension funds are relatively thin grow more than the wholesale sector, which
“They get an annual statement, so 2011 on the ground in Asia, although there are makes up the other half of his business.
might be too soon for them to realise this, but some. There are, of course, other types of “I expect our share of institutional
it could be two years from now.” investment institutions, including sovereign investment will grow more than the more
Current providers of MPF funds include wealth funds, and, again in Hong Kong, there retail side of the business, partly because the
Invesco and Fidelity, as well as banks and is the Hong Kong Jockey Club itself, which retail segment got hurt by the 2008 crash and
insurance companies like Manulife. invests primarily to support the club’s the resultant scandals,” he says, referring
The MPF could make for a source of stable corporate aims. mainly to the collapse of a Lehman Brothers
cashflows for providers, who can keep hold of “There are large corporates in Hong Kong minibond scheme which scandalised the
business once the new rule takes effect. like the Jockey Club and Swire [a diversified Hong Kong public. “It will take a while for
Members are, unsurprisingly, not able to conglomerate], but the list is not long,” says the retail investor to regain confidence.”
7
PRIVATE PENSIONS
He adds: “The institutional market here is Hong Kong residents are to take decisions
dominated by consultants who have intimated about pensions savings for time horizons that
that institutions were thinking much more ‘The institutional last longer than a horse race.
about restructuring their portfolios after 2008. In June last year, at a meeting of the Hong
This probably means that if you are one of
market here is Kong Hospital Authority, which runs the
the big institutional houses, you will be dominated by HK$30bn (€3.15bn) Hospital Authority
worried about maintaining assets, and if you Provident Fund Scheme, a pension scheme
are a newer entrant, or just someone
consultants who have for health workers that predates the MPF, it
challenging the status quo, you have plenty intimated that was suggested that the scheme should
of opportunity. give quarterly updates on the market outlook
“We’ve had some pick-up from this and the
institutions were to facilitate members’ choices when they
demand we see currently is for global equity, thinking much more switch investments.
Asian and emerging market fixed income, and The fund suffered significant losses
for domestic equity.”
about restructuring following the financial crisis. The meeting
Fixed income has also included local their portfolios noted that 60-70% of the total equity in
currency instruments. Regional clients are lifestyle funds had been invested in the US
said to understand the case for local currency
after 2008’ and European markets – a significantly
investment, which hangs on the expected higher allocation than the market average of
growth in emerging market currencies. They 40-50%. The Hospital Authority agreed to
also know that government authorities in the introduce a global equity fund and global
region want to increase the role of bond bond fund and open up a money market fund
markets in raising company finance. to all members.
Similarly, Lieven Debruyne, chief executive The Hospital Authority scheme is part of
at Schroders in Hong Kong, says that there the Orso scheme, a voluntary pension system
has been a high level of activity on the that was a forerunner of the MPF.
institutional side. Hong Kong has a rapidly ageing population.
“A lot of the searches we have been involved In 2009, the proportion of the population
in were for global equity, global fixed income over the age of 65 was around 13%, but by
and global emerging markets, rather than 2036 this is projected to rise to 26.4% owing
regional emerging markets.” to low birth rates and increasing life
Debruyne expects the broader pensions expectancy. Life expectancy is much greater
market in Asia to develop along defined in Hong Kong than the global average: over
contribution (DC) lines. “The MPF in Hong 86 for women and almost 80 for men.
Kong has continued to grow, and the pension Before the implementation of the MPF
fund market in this region will develop mainly system, only about one-third of the Hong
through DC, but on the whole, there’s a long Kong workforce had some form of retirement
way to go to build pensions systems in Asia. protection.
“A key factor of the success of 401k plans in As more people come into the system and
the US was the tax incentives, which we do employers and providers expand their
not have in Asia.” offering, fund managers will inevitably be
expected to play a role in providing high-
Reaching out quality information for investors to take
For fund managers to find success in the MPF intelligent decisions.
market, Pan says, it is necessary for players to Investment choices may not be at the
reach out to members. “It is no longer about complex level of hedge funds yet, but absolute
a provider being able to rely on the fact that it returns are playing a greater role, at least
might know an employer very well. Pension going by the experience of Gerry Ng,
fund providers and fund managers will have managing director at Baring Asset
to talk, not just to the employers any more, Management in Hong Kong.
but to the members too.” “The pension funds that we provide to tend
The HKIFA has a pensions working group to look for balanced, multi-asset portfolios of
that has been liasing with the Mandatory stocks and bonds. Some are benchmarked and
Provident Fund Schemes Authority to see some are absolute return. I think absolute
how the industry can expand the offering in returns will feature more in the near future
the pensions sector. because pension funds are more focused on
It also has a working group that focuses on the fact that they could lose 5% even though
investor education, which is necessary if the market is down only 3%.” fe
8
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10-12 mutualfundsASPTSnf:Layout 1 28/5/10 16:36 Page 10
MUTUAL FUNDS
Simple risks
The Lehman Brothers downfall has scared Hong Kong investors, with many
of them reverting to buying direct stocks and ETFs, finds Nick Fitzpatrick
When Terry Pan, the vice chairman of the For the Wall Street bankers of dotcom hardly surprising given the economic story of
Hong Kong Investment Funds Association folklore, retail interest in internet stocks was a the region. They know what is going on in the
(HKIFA), arrived home one night and a signal to sell the Nasdaq. For Pan, the fact Asian markets as much as Westerners do –
workman at his apartment block said that he that a workman was playing currency futures and they too are buying into it.
was shorting the Canadian dollar through a made the educational programmes that he But any notion that their adventurous spirit
leveraged futures contract, the conversation works on, both with the HKIFA and within was not dented by the financial crisis due to
echoed discussions between chauffeurs and his day job as head of Hong Kong business their low levels of indebtedness falls down
their Wall Street passengers reported just prior at JP Morgan Asset Management, all the almost as abruptly as the collapse of the
to the dotcom crash. Drivers had casually more pressing. Lehman Brothers minibond scheme did.
informed the besuited clients over their Hong Kong and Chinese investors certainly The minibond fiasco took place in the wake
shoulders they had bought into hi-tech. have a spirit of adventure, though this is of Lehman’s collapse and harmed some
10
40,000 Hong Kong investors. It led to 16 Gerry Ng, managing director at Baring
Hong Kong banks agreeing to spend more Asset Management in Hong Kong, says:
than HK$6bn (€0.6bn) to buy back Lehman ‘The Lehman minibond “People here tend to go for higher volatility
Brothers minibonds from around 29,000 funds rather than shorting if they want to
eligible customers. In return, Hong Kong’s
issue in the last two take more risk.”
Securities and Futures Commission (SFC) years has upset a lot of He adds that Baring funds that have been
would discontinue its investigations into the popular in the region are Eastern Europe,
sale and distribution of minibonds by
people but it also made global resources, global emerging market and
the banks. them understand that high yield.
Mutual fund managers have been at war “The Baring Eastern Europe fund has been
with banks offering structured products for
structured products are popular, particularly in Taiwan, where the
years now, but the Lehman problem is said to very complicated. This fund is a household name,” he says, adding
have impacted the funds industry as much as that the Baring Hong Kong China Fund is
it has the banks’ own product lines.
could be a positive Barings’ best-selling fund in Hong Kong and
“People are scared and some of them have development for mutual the largest in terms of assets under
reverted back to type and started buying management within the Barings stable.
direct stocks and using ETFs [exchange-
funds in the longer run’ Ng also says that he thinks the Lehman
traded funds]. I do feel that an element of Brothers minibond issue will ultimately help
short-termism has crept back into the mutual funds as people begin to differentiate
market,” says Alex Boggis, director at between funds and structured products.
Aberdeen International Fund Managers. “The Lehman minibond issue in the last
two years has upset a lot of people but it also
Surge in sales made them understand that structured
Yet it is notable that Asian investors were a products are very complicated. This could be
large source of inflows for the Luxembourg a positive development for mutual funds in
Ucits funds industry in early 2009. the longer run.”
It is also notable that fund sales in the But despite the positive sales figures for
region have surged again. In Hong Kong funds, no-one is understating the damage
there are 2,093 authorised unit trusts and done by the Lehman Brothers minibond
mutual funds available with a net asset value fiasco to the mutual fund industry among
of US$628.30bn (end March 2008 – a nearer retail investors. Whereas the average investor
figure was not readily available). Net sales in may well grasp the broad market outlooks for
March 2010 were $971.79m. Asia versus Europe and the US – “Investors
In the whole of the first quarter this year here are pretty savvy and pay close attention
gross inflows increased by 252% over the to what’s happening in the US and European
corresponding period last year, equalling markets,” says Ng at Barings – knowledge
$6.425bn. Net inflows were $2.413bn. about how to play those markets through
Despite the minibonds problem, it would managed products rather than direct stocks
seem that Hong Kong investors are simply still has some way to go.
indomitable, particularly where their appetite Pan, at the HKIFA, says: “The investor
for risk is concerned. The experience of probably does not differentiate between fund
Lieven Debruyne, chief executive of managers and other types of providers. They
Schroders, seems to confirm this. look just at the product and do not see any
“Around 70% of our mutual fund sales a particular differences.”
few years ago were equity funds. Although In Hong Kong, and to some extent in the
the percentage of bond funds has gone up, broader region, a wave of educational
the interesting thing is that higher-risk bonds programmes is being rolled out.
– such as high yield and emerging market The Hong Kong SFC has proposed the
debt – have been very popular. launch of an investors’ education council.
“This tells me that, with volumes still being Meanwhile, the HKIFA has launched its own
down overall, those investors prepared to buy initiative and an education panel forms one of
funds are still willing to take risk.” its three working groups.
The absence of ‘newcits’ products, or hedge “The industry as a whole has been doing a
fund-type offerings that invest long and short, lot of education in the past year,” says Pan,
could account for the take-up of high yield while his own firm, JP Morgan Asset
and emerging market debt by people who Management, has held a series of brand-
want riskier investments. agnostic investor classes for members of the
11
MUTUAL FUNDS
public to explain key nuts-and-bolts details “Investment banks are not launching these
about funds, such as the fact that assets products now partly for reputational reasons.
are segregated from a fund manager’s ‘Investors treasure the Also, they are a little taboo with distributors.”
balance sheet. Pan adds: “Investors treasure the reputation
Notably, the unit trust subcommittee of the
reputation of the of the product provider. They like a firm that
HKIFA, which has responsibility for investor product provider. They has been working with the Hong Kong
education, also focuses on distributors, authority for a long time. Lehman Brothers
indicating that in Hong Kong, as in Europe,
like a firm that has been had not been very transparent to Hong
fund promoters feel that distributors also need working with the Hong Kong retail investors, but at least it was
to be better informed about the advantages of known to be the fourth largest investment
funds and the correct way to sell them.
Kong authority for a bank in the world.”
Needless to say, the rapid turnover of long time’
mutual funds by investors in Hong Kong and Staying local
China plays into the hands of distributors Those brave Hong Kong investors that can put
who sell them. But market players report that the Lehman Brothers minibond collapse aside
although distributors have been much more and continue to invest (or rather trade, given
reticent to sell structured products following the Chinese infamous tendency to turnover
the Lehman minibond scheme, mutual funds funds quickly) in mutual funds, then, are
have not filled the vacuum in third-party surprisingly still seeking risk in high-yield and
distribution channels. emerging markets.
One reason, of course, could be lower fees But the funds that look likely to sell well in the
earned by distributors for mutual fund sales. nearer future are generally targeting markets
Not that this has hurt ETFs, it would appear, closer to home.
and these tradable-indices products are a The recent inflows to equity funds were
further challenge to managed funds. primarily registered by only three categories,
Patrick Ho, managing director of iFast namely Greater China Region equity,
Financial, a financial adviser platform, notes emerging markets and sector funds. Altogether,
that ETFs have seen an uptick in sales, despite they pulled in $2.409bn, accounting for about
the fact that those products also command 72% of the total inflows into equity funds.
lower margins for distributors. “For China mainland investors looking to
“I think structured products will always be take advantage of the QDII schemes in the
there and funds will be constantly facing last few years, it is unfortunate that they had
challenges. ETFs are affecting mutual fund started to diversify outside of China, and then
sales at the moment. Their volumes are quite suddenly the world collapsed,” says Boggis, at
high even though advisers do not make much Aberdeen. “This has resulted in a definite
margin on them.” slowdown in QDII activity – which is a
He adds: “ETFs will be very, very important shame. The perception that there should be a
in efficient markets. At the moment fund stronger Chinese currency has also dampened
managers are finding it very difficult to investors’ enthusiasm, in this regard.”
outperform the markets, except in emerging Nevertheless, Aberdeen – which though
markets where they can easily outperform mainly an institutional house in Hong Kong,
indices with active management because the also has a significant wholesale distribution
markets are less efficient.” too – plans to promote more US equity later
The Hong Kong regulator, according to Pan, in the year.
who chairs the regulatory working group at the “Our strength is in stock selection and we
HKIFA, is working to standardise rules can see that there are some great companies
between structured products and mutual in the US, despite the macro issues. Our
funds. In the meantime, banks see structured investment process for equity is already well
products as being taboo, and the regulator is respected and now utilised globally. We feel it
signing fewer off. is time to tell clients about the product,
“The issuance of new structured notes over especially as a number of investors in Hong
the past nine months has been very, very little. Kong have gone passive on US equity, which
In the past it was easy to launch these products we intuitively think is probably the wrong
to retail investors. A lot of issuers thought that way to go.”
a $20m deal would be sufficient for them but But now is not necessarily the time for
yield is so low now that is hard to do an issue workmen to go long on the US dollar through
that is attractive enough. futures contracts. fe
12
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14-17 industrygrowthASPTSnf:Layout 1 28/5/10 16:27 Page 14
INDUSTRY GROWTH
A force to be reckoned with

How long will it take for Asian fund management companies
to become a global competitive force, asks Martyn Cuff,
managing director of Allianz Global Investors Europe
Looking at the chronology of the global economic and demographic changes,

fund industry, and if you assume it started at estimates of which are highlighted in the
the same time as stock exchanges were What is clear is that table overleaf.
formed, then the European fund influence is shifting What is clear from these statistics is that
management industry has the longest history influence is shifting from Europe and the US
(around 400 years ago), followed by the US from Europe and the US to other parts of the world, namely Asia,
(started around the end of the 18th century) to other parts of the Latin America and the Middle East. This has
with Asia being the most recent entrant into been underway for some time and is not a
the business. Mind you, Bombay claims to world, namely Asia, surprise to anyone. The question is how this
have had a stock exchange since 1875, so Latin America and the affects the emergence of future fund
‘recent entrant’ is a subjective term. management businesses, particularly in Asia.
However, the past 400 years of history Middle East There are plenty of examples of Asian
should not necessarily be seen as an indicator companies that have become global brands.
for the next 400 years or even the next 40. These include industries such as motor
Between 2010 and 2050, there will be many vehicles, electronics and heavy plant
14
machinery. In addition, we have seen Asian UTI Asset Management, Reliance Asset
banks venturing beyond their national Management and SBI Fund Management.
borders for a numbers of years. However, There is still a long way China: Like India, the local authorities
why have we not already seen Asian fund have encouraged established non-Asian
management companies playing on the
to go before the Asian companies to enter the Chinese market
global stage especially since the barriers to domestic fund through joint ventures. This is a calculated
entry into money management are very low way of opening the Chinese capital markets
and there is always scope in our industry for
management industry is in a controlled fashion while allowing the
new creativity? at a fully mature stage. importation of skills and knowledge from
developed nations so help the establishment
The early stages
Even so, there are a few of the Chinese fund management industry.
Before the internet era, companies in most early signs that sights In addition, some domestic fund companies
industries would typically start to build their have been established, such as China
business in their own country. They would
are being raised beyond Asset Management and China Southern
establish a strong presence and use profits domestic boundaries Fund Management.
from their domestic business to expand However, we should not get ahead of
abroad. While the internet potentially allows ourselves. There is still a long way to go
companies to go global much more quickly, it before the Asian domestic fund management
is still mostly a case of going local first, then industry is at a fully mature stage. Even so,
global. With this in mind, there is clear there are a few early signs that sights are
evidence that we have seen the first stage of being raised beyond domestic boundaries.
the Asian fund management industry. This is
being accompanied by: The next phase of development
• Economic growth This natural next phase of the industry’s
• Increased cross-border trade development is strategically significant,
• A growing savings pool (be that certainly up there with the expansion of US
individuals, sovereign wealth funds, pension money managers outside of the US in the
funds) 1970s and ‘80s and the introduction of ETFs
• The greater embracing of capitalism around the turn of the century.
• The development of capital markets There are several drivers that will push this
All of this activity, in turn, breeds a next phase forward and these are:
growing population of investors, both • Desire to see national champions: Certain
institutional and retail. Examples are: countries are not hiding their ambition to
South Korea: There are 10,000 mutual create national champions in a wide range of
funds domiciled in Korea, almost twice as industries and the fund management
many as in the US, whereas the population is business is no different. This is both as a
one fifth the size. Most of the funds invest defensive measure, given the strength of
domestically and it is mostly Korean fund established non-Asian firms, and as an
companies that dominate. The largest player offensive measure to establish a share of the
is Mirae Asset, which has a 25% market share. growing global marketplace.
India: There are around 30 fund • Desire for growth and scale: While Asia
management businesses in India. These are has the majority of the world’s population,
joint venture companies such as ICICI and today they do not dominate the store of
Prudential, BNP Paribas and Sundaram, wealth. In addition, the capital markets are
Sun Life of Canada and Aditya Birla Nuvo, not mature in the various countries, plus the
plus fully domestically owned firms such as culture of investing is not fully embedded. As
GLOBAL ECONOMIC AND DEMOGRAPHIC CHANGES

Category 2010 2050
Top 5 countries, ranked in order of nominal GDP USA, China, Japan, Germany, France China, USA, India, Brazil, Mexico
World population Asia 59.5% Asia 59%

Africa 14.5% Africa 19.5%
Europe 11% Europe 7%
Latin America and Caribbean 8.5% Latin America and Caribbean 9%
North America 5.5% North America 4.5%
Others 1% Others 1%
15
INDUSTRY GROWTH
Birla Sun Life Asset Management, which has

very recently announced its plans to expand
into Singapore as a first step to developing a
global fund management business. In South
Korea, with Mirae’s 25% domestic market
share, it has already expanded abroad to
locations such as Brazil, India and the UK as
well as in Luxembourg where it operates a
Sicav. This is impressive for a company that
did not exist 15 years ago.
• Recognition of competitive advantage in
managing money: There is a major trend at
the moment that sees many investors moving
away from their ‘home bias’ and allocating
assets to emerging markets. Given the future
economic and demographic situation, this is
set to continue. It is quite feasible that Asia-
based fund management companies will
claim that they are better placed than
anyone else to handle this money, given their
potential competitive advantage of being
from the very emerging markets in question.
Is it so difficult to imagine a fund buyer in
the US or Europe adding a South Korean or
Chinese fund management company to their
buy list for exposure to these respective
equity markets?
• Demand for Asian money management:
Building upon the above point, it can be
argued that even if there is no local
competitive advantage, there will be increased
demand for Asian investment skill. Supporting
this is the fact that Asian GDP and market
capitalisation will become larger, both absolute
and relative. Hence, global benchmarks will
see an increasing Asian component, which in
turn requires money allocated to this region, to
be managed. Statistics from Cerulli also show
that Asia ex-Japan has the highest growth of
assets under management by region which
further supports the notion that the
importance of Asian money management will
such, the actual size of the fund industry is increase. In an interesting twist to this point, in
relatively small, albeit growing rapidly. 2009 Deutsche Asset Management transferred
Accordingly, a successful fund business can There is a major trend its Hong Kong equities and Greater
find natural domestic growth limitations
at the moment that sees China teams to its JV partner, Harvest
relatively quickly and will be forced to look Fund Management.
beyond domestic boundaries. In China, for many investors moving • Distribution power: Domestic financial
example, they are doing this by establishing
away from their services companies in Asia have potential
funds in Hong Kong for QDII purposes so distribution power, whether these are
that the domestic savings pool of China can ‘home bias’ and insurance companies, banks or agent
be channelled into global markets. It will be
allocating assets to networks. Without access to such networks,
no surprise for a Chinese investor, who is non-Asia fund management businesses
considering investing outside of China, to go emerging markets struggle to gain traction, whereas for the
through a company that is well known to local Asian businesses, such distribution is a
them or at least has a strong existing brand. powerful weapon. To date, Japan is a good
Another example is the Indian company example of this, though this experience is
16
also being played out in other Asian markets. Given that today the world is more global
Interestingly, looking the other way, it is not and interconnected and given that the
yet that easy for Asian fund managers to It is hard to see why process of Asian companies venturing
establish distribution outside of their beyond their domestic markets is already
domestic markets. As ever, distribution
fund management firms underway, it is hard to see why fund
remains critical to the dynamics of a fund from China, South management firms from China, South Korea
management business. or India will not be recognised brand names
• Insurance asset investing: With the
Korea or India will not in the global marketplace within the next
insurance industry set to grow in Asia, this be recognised brand ten years.
will result in the need to invest the insurance This means that the existing fund
assets, eg premiums and contributions, just
names in the global management companies from Europe and
like in any other region. Given that 59% of marketplace within the North America will see increased
the world population is based in Asia and competition and this should ultimately feed
there is a growing middle class, then this has
next ten years through to benefits to the end consumer of
the potential to be a significant source of investment products.
money to be managed. It is understood that As for the established global fund
Franklin Templeton has a relationship management companies, they have a head
established with China Life for the sole start over domestic-only Asian firms since
purpose of managing their insurance pool they already have global experience plus will
of assets. claim a certain degree of local expertise in a
variety of world markets. Accompanying
Timescale this, the best talent in Asia may be drawn
So how long will this next phase take to play to already well-known and established
out? It took Honda Motorcycles 20 years to worldwide firms. It will be fascinating to
break out of its domestic market and become see how these two forces play out over the
a real player in the European/US markets. years ahead. fe
17
PROFILE
Passage to India
International in focus, Kotak Mahindra Asset Management hopes to
become the first port of call for foreign investors, reports Fiona Rintoul
‘Think Investments. Think Kotak’. So runs

Kotak Mahindra Bank’s corporate slogan.
And it’s a mantra that Kotak Mahindra Asset
Management Company Limited (Kotak
Mahindra AM) has sought to export
worldwide, as it seeks to make itself the first
port of call for international investors looking
for exposure to India.
Launched in 1998, Kotak Mahindra AM is a
wholly owned subsidiary of Kotak Mahindra
Bank, one of India’s first privately owned banks.
The bank, which this year celebrates its 25th
anniversary, started life as a corporate in the days
when India’s banks were state run. It converted to
a bank in 2003 – the first time in India’s history
that a corporate has done this – when it received
one of two banking licences granted to private-
sector enterprises. For this reason, says Shyam
Kumar, CEO of Kotak Mahindra (UK) Limited,
the international arm, Kotak Mahindra
describes itself as a “20-year-old new bank”.
Since the company was founded in 1985 by
Uday Kotak, who, says Kumar, could have
gone to work for any of the big international
banks but preferred to roll out his own venture,
growth has been breathless. When Kumar
joined the bank in 1992 it had around 100
employees. Today, after what he describes as “a
wonderful story”, Kotak Mahindra Bank
employs 20,000 people across the group and
has a market capitalisation of $7bn (€5.7bn).
Alongside asset management, the group’s
business spans retail and investment banking,
life insurance, wealth management, real estate
and private equity. It has over 260 bank
branches in India, where it is the fourth largest
bank overall and the third largest in the private
sector. “In wealth management,” says Kumar,
“we are arguably the largest in India.”
But what really sets the Kotak Mahindra
group apart among Indian financial services
companies is its international business.
“Internationally, Kotak was very much ahead
of its time,” says Kumar. “We had our first
international office in 1994 and in 1995 we
opened in London. We were one of the first
Indian financial services players to come
18
outside India and we are one of the few Indian “India is still very underpenetrated, and so the
players to have a significant presence both at scope is huge.”
home and abroad.” ‘India and Europe are To better capture the many international
Kotak Mahindra learnt how the international investors who will want exposure to India’s
markets work from the masters of universe. On
similar. In India each growth story, Kotak Mahindra is stepping up
the investment banking side, it had a ten-year state has its own its international operations, investing in
relationship with Goldman Sachs. “We got a products, people and technology.
fantastic understanding of how international
language and culture. “We are investing more and more resources
business works because of the Goldman Sachs We understand that in the international business now,” says
joint venture,” says Kumar. Kumar. “The opportunity is big and we are
The investment banking JV was recently
about Europe because well positioned to benefit because we already
wound up when Kotak Mahindra bought back we have it back home’ have 15 years’ international experience. We
the Goldman Sachs shares, but a joint venture can only build on that.”
on the life insurance side with Old Mutual Thus, Kotak Mahindra AM plans to launch
persists. The South African company owns more Luxembourg funds and to bring funds
26% of Kotak Mahindra’s life insurance entity. It was perhaps not the very best of times to currently domiciled in Mauritius to
launch the Ucits III-compliant Indian Multicap Luxembourg. A Luxembourg domicile is an
International focus subfund. “The global crisis had nothing to do essential prerequisite for many European
Today, alongside its office in London, Kotak with India, but India suffered,” says Kumar. But investors, and Europe is viewed as a key
Mahindra has offices in Dubai, Singapore, after a stuttering start caused by the 2008 credit target market by Kotak Mahindra AM, not
Mauritius and the US, where it is present in crunch, investor interest has picked up enough least because it has a familiar feel for the
both New York and San Francisco. Kotak for Kotak Mahindra AM to add two further Indian company.
Mahindra Securities also has an office in subfunds: the India Infrastructure and Realty “India and Europe are similar,” says Kumar.
Bahrain. In total, about 60 staff are fund launched in November 2009, which “In India each state has its own language and
employed outside India. Their objective, says invests in companies operating in the culture. We understand that about Europe
Kumar, is “to provide Indian solutions to infrastructure and real estate sectors rather than because we have it back home.”
international investors”. in the assets themselves, and the Indian Growth This understanding may help Kotak
This is stage two in a four-stage business plan. fund, which focuses on large-cap investments, Mahindra AM avoid some of the mistakes
The first step, says Kumar, was to provide launched last March. made by US firms when they first started
Indian solutions to Indian investors. The third Investors who were sitting on cash are now selling products in Europe. Who can forget
stage – already embarked upon – is to provide redeploying it, says Kumar, and European encountering visitors from across the pond in
global solutions to Indian investors. This isn’t a investors in particular are increasingly the early days who seemed genuinely to
key strand at the moment, partly because allocating to emerging markets. “Money will believe that one day soon everyone in Europe
Indian investors are heavily focused on the move at a higher pace towards the East, and would speak English as their first language?
domestic market due to the high growth rates India’s share of that will increase,” says Kumar. Kotak Mahindra AM seems much less likely
available, and partly because exchange controls “Institutional investors are increasingly looking to look for one-size-fits-all solutions. Certainly,
have not been opened up completely, although, at allocations to India.” Kumar, who is in charge of global distribution
at $200,000 per person, limits on investment In the future, Kumar expects India to of Kotak Mahindra AM’s funds, displays a
overseas are now generous. compete particularly well against that other keen awareness of regional differences when
“There are investors who have been in India great emerging markets hopeful: China. When talking about his distribution strategy.
for many years, who would like to look at people argue that India’s infrastructure is not “It depends on the jurisdiction,” he says. “In
diversification,” says Kumar. “We are working as good as China’s, Kumar likes to point out the US we work with a lot of pension funds
on that opportunity and we have identified a that India is achieving the same growth levels, and endowments. In Europe, it’s more private
few players we could work with.” despite its poor infrastructure. Think, then, banks. In the Middle East, we work with a lot
At the moment, the Kotak Mahindra AM what it will achieve when the infrastructure of family offices. In certain regions local banks
range available in India includes a global improves. are more powerful than national banks.”
emerging markets equity fund and the Kotak The main theme driving an anticipated A diversified approach is also one of the
Indo World Infrastructure fund, which invests Indian GDP growth rate of 9% for this year is main benefits Kumar believes his company
in companies likely to benefit from the growth the same as that driving Chinese growth: can bring to international investors looking to
in infrastructure spending in India and across domestic consumption. As India urbanises, invest in India. While other companies may
the world. consumption will increase, says Kumar; people offer an India fund – possibly managed from
The fourth stage – global solutions for global moving to the cities will buy houses and London, Frankfurt or New York – Kotak
investors – is very much for the future. consumer products. Mahindra will ultimately offer a whole range
However, a significant step to facilitate stage To do this, they will need financial services of India funds.
two was taken two and a half years ago when products, and so he is particularly bullish on the “The India story can be cut in different
Kotak Mahindra (UK) launched its banking sector. “Consumption will increase and ways,” Kumar says. “We want to give all
Luxembourg Sicav in 2007. the banking business will benefit,” he says. possible solutions.” fe
19
20 distributionASPTSnf:Layout 1 28/5/10 14:06 Page 20
DISTRIBUTION
Hong Kong dividends

Manulife Asset Management handles over $2bn for Hong Kong investors.
Nick Fitzpatrick finds out what type of funds are most in demand
Responding to the global downturn last year,

Manulife Asset Management (MAM), part of
the Canadian-based insurance and financial
services firm Manulife Financial, launched an
Asia value dividend equity fund. “Dividends are
often regarded as a cushion during hard times,
providing investors with support against
excessive falls in equities when the market goes
through corrections,” says Raymond Kong,
assistant vice president and product manager for
MAM in Hong Kong.
MAM offers 28 mutual funds to
predominantly retail investors in Hong Kong
and uses both internal and external fund
managers. The firm manages US$2.3bn
(€1.8bn) for Hong Kong investors.
The dividend fund is managed by Value
Partners Group, an independent asset manager
in Asia Pacific. The fund, part of a global fund
platform that includes a European growth fund
and thematic funds like healthcare, is up 8.78% perhaps surprising, given the demand for
since its August 2009 launch, which compares to property in Hong Kong.
the MSCI AC FEE Free ex-Japan Index return ‘People love real estate “People love real estate in Hong Kong,” says
of 6.13%. Morin. “We have a couple of real estate funds,
Other external fund managers that Manulife
in Hong Kong. We have but real estate has not attracted the assets that
uses – which number six in total – include the a couple of real estate you might imagine. Fractional ownership has
investment management division of banks not attracted people as much as the real asset
Société Générale and BNP Paribas, and
funds, but real estate has, but the real asset is priced out of most
Charlemagne Capital, an independent manager has not attracted people’s reach.”
that specialises in emerging market equities. In November 2009, MAM announced it had
Kong says that when selecting managers,
the assets that you signed an agreement to purchase Fortis Bank’s
Manulife tends to choose managers that can might imagine’ 49% ownership in ABN Amro TEDA Fund
manage more than one fund for the firm. Management, a joint venture in China, for
The dividend fund invests in companies €105m. The new joint venture, which will be
that derive significant income from Asia ex- called Manulife TEDA Fund Management
Japan, such as Thailand, Taiwan, Singapore “In Hong Kong, people want exposure to Company, will provide traditional retail and
and China. overseas markets like Russia from us. institutional asset management across the
The focus of Manulife in Hong Kong is very Charlemagne Capital manages emerging mainland China market. This should enable
much on Asia and emerging markets. market Europe, and also manages other funds.” Manulife (International) to provide Hong
Kong says: “People in Hong Kong have a Beyond emerging markets, Morin says that US Kong investors with access to the Chinese A-
greater risk appetite, and emerging markets are funds have sold well lately, but the last three share market.
in our backyard.” years have been characterised by Asia, while last Morin says: “There is a home-country bias
Myles Morin, vice president, independent year bond funds were popular. wherever you are, plus, if you are sitting on the
distribution & investment funds at Manulife “Bonds are 30% of our mutual fund business doorstep of all that growth happening in China
(International) adds that emerging Europe is now as opposed to 15% a few years ago.” and Asia, then you are inevitably attracted to it
also popular among local investors. Real estate has had limited success, which is because you live here.” fe
20
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22-23 realestateASPTSnf:Layout 1 28/5/10 14:06 Page 22
REAL ESTATE
No entry
Asian property ranged from the best – Hong Kong – to the worst – Japan –
performing markets last year. Nick Fitzpatrick talks to two real estate fund
houses in Hong Kong that have launched Asian businesses in recent years,
and finds solid fundamentals, but restricted access for institutions
With good fundamentals in most Asian

property markets, foreign investors from the US
and Europe are keen to diversify their real
estate exposure to Asia. But there is a problem,
particularly in Hong Kong; access.
“Look at all those properties outside the
window,” says Thomas Au, director of Asian
research at Invesco Real Estate, as he stares out
from the 32nd floor of Three Pacific Place,
Invesco’s base on Queens Road East, Hong
Kong. “They are all owned by developers and
developers tend to keep hold of their properties.
“Because the real estate market in Asia is
largely dominated by developers, the presence
of institutions is not very big.”
There have been some sales to institutions,
says Au, but not of premium real estate.
“Developers tend to sell second-grade
properties through Reits [Real estate
investment trusts] listed in Hong Kong and
Singapore,” Au says.
At JP Morgan Asset Management, Douglas
Sung, managing director for real assets, is also
looking out of a window, this time from the
19th floor of JP Morgan’s Exchange Square
office in Central. Sung notes another obstacle
that lies between investors and Hong Kong
real estate.
“Real estate in Hong Kong is difficult to
diversify in because the necessary investment is
so big. One of these buildings out there could
easily cost a multiple of billions of US dollars,”
he says.
Despite these factors, both Invesco and JP
Morgan have launched Asian real estate
businesses in recent years – Invesco in 2006 and
JP Morgan in 2007.
Invesco has eight investment professionals
spread across Hong Kong, Shanghai and Japan.
Au says the team is in the process of assembling
a portfolio of residential and commercial
property in the region.
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Meanwhile Sung says JP Morgan Asset Sung, at JP Morgan, adds: “A key difference
Management was one of the first to manage a between Hong Kong, China and Western
closed-ended real estate fund concentrating on real estate markets is leverage. Banks in ‘We think the residential
Greater China. The fund owns, among other
developments, a Shanghai office development
China want a 30% down payment and it is
even higher for second homes. In China, a lot
market will not deliver
and a serviced apartment in Beijing. of buyers pay cash. good returns for the
Vintages and bubbles
“A lot of home owners have a cushion in
equity if there’s a downturn. In 2008 there
foreseeable future
Both firms were established by the time Asian was a fairly sharp fall in prices, but there was because prices are too
real estate witnessed what Sung calls a vintage
year between 2007 and 2008.
not any panic, no foreclosures and few
distressed sellers.”
high. But we do not
This ended with the financial crisis in 2008. In Sung expects a 5-15% contraction in expect a collapse’
China the crisis saw the government launch a the market.
series of measures designed to stop markets
overheating, which caused a downturn in Limited supply
Chinese real estate, says Au. Price appreciation in commercial real estate
“The Chinese government has since has not been so severe, says Au, and this is
launched other measures designed to pick where Invesco’s main interest lies at present.
markets up and these have helped real estate,” “The [Hong Kong] office market still offers
he says. “In 2009 the market rebounded, quite good opportunities. Vacancy rates are 5-
particularly in residential.” 6%, which is very healthy.
It certainly did. Residential prices increased “Supply is extremely limited in all sectors.
more than 30% in Hong Kong and China, Retail is a positive sector but it is difficult for ASIA REAL ESTATE OUTLOOK
surprising everyone. institutions to tap into because the properties
The volatility is amplified by the fact that are owned by developers.” China: Benefited from government fiscal
Hong Kong’s currency is pegged to the US Au expects to see increased interest in and monetary support policies, but price
dollar. This means that an economy already Japanese residential and commercial real correction could happen in the second half
witnessing growth is importing monetary policy estate, particularly if there is a correction there. of 2010 as government reduces support.
from a country that is struggling to boost its “The initial yield in Tokyo is around 5.5% Retail will be supported by strengthening
economy with growth measures. to 6.5% and this is attractive. Long-term demand. Massive new supply will bottom
Au says: “In Hong Kong we do not have our bond yields in Japan are very low so there is a out the office market, presenting long-
own monetary system and, in essence, it is good spread.” term opportunities.
controlled by the US. The economic Sung says that JP Morgan’s Greater China
fundamentals of Hong Kong are largely fund is invested one-third in the office sector, Japan: Prime office values plummeted by
influenced by growth in China. We are around 40% in residential and the rest is split 40% on average in 2009, making it the
importing Chinese growth, but also US between retail and other sectors. worst performing Asian real estate market.
monetary measures designed to support growth. He says that 90% of JP Morgan’s Greater But stabilising rents and high yield spreads
This leads to volatility.” China real estate focus in Asia is on China. could prove positive.
It has also resulted in cheap lending rates. In Beyond this, the firm runs an Indian real estate
Hong Kong, floating-rate residential mortgages portfolio which is invested 60% in residential Hong Kong: One of the best performing
can be as low as sub-1%, yet Au tries to diffuse with the rest in offices and hotels. An Asian markets worldwide in 2009. Still has strong
any concern about a residential property bubble. infrastructure fund invests in facilities such as long-term fundamentals due to economic
“We think the residential market will not toll roads and a hospital, along with associated recovery, healthy exports and private
deliver good returns for the foreseeable future commodities such as cement. consumption. But residential prices may
because prices are too high,” he says. “But we do JP Morgan’s client base for its real estate have hit a cyclical peak in the near term.
not expect a collapse. A bubble is when prices go investments in Asia are existing clients for Interest rate and monetary policy risks exist.
beyond affordability and when people become portfolios elsewhere, namely US and European
overleveraged. But people here are not pension funds. Singapore: Office hit hard with rents and
overleveraged. The ratio of lending to deposits is “It will be difficult for the Hong Kong market capital values falling due to oversupply.
in fact very low so people are not putting too to become institutionalised because of the Market fundamentals are improving with
much pressure on their balance sheets. limited supply, but it will get there. However, recovering business confidence. Retail
“If US rates go up, then obviously there would there will be more institutional investment in helped by the opening of two integrated
be an adverse impact, and US rates will go up China in future due to the size of the market.” resorts. Modest rental growth in residential.
one day. But we still do not expect the kind of Au notes that in China there has been
collapse like during the Asia Crisis when there a relaxation of regulations concerning Source: Invesco Real Estate Asian House View,
was a 70% drop in prices from 1997 to 2003. investment in real estate by domestic Spring 2010
The odds of that occurring appear low.” insurance companies. fe
23
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STRATEGY
Asian
ambition
Threadneedle has high expectations of the Asian
market. Nick Fitzpatrick talks to William Lowndes,
Asia head, about the firm’s route to market
Threadneedle, the London-based fund the US because of their maturing populations,” appearing in Sicav form rather than Oeic.”
manager, expects to have doubled its Asia-based says Lowndes. The offshore Ucits strategy is a popular
staff by the end of the year following the arrival A major part of the Asian strategy was the means of entering Asia for fund managers,
of William Lowndes to Hong Kong in April to acquisition from Standard Chartered of a though it comes with limitations in certain
expand the operation. Luxembourg-based Sicav fund range called markets where an onshore presence or joint
Lowndes, head of Asian distribution, said World Express last year with assets under venture is necessary to penetrate deeper into
the current staff, split between Hong Kong management of US$2.38bn (€1.94bn). large asset pools like China.
and Singapore, will double from ten to more Lowndes says: “We were always going to enter Lowndes says: “In Japan, for example, we
than 20 by the year end as part of the Asia but were fortunate to enter into the could not sell a Ucits fund to the retail market
expansion drive that has seen Threadneedle relationship with Standard Chartered and because you have to have a local fund domicile
gain a significant – albeit still limited – position acquire a Sicav used in Taiwan and more and some fund management presence. But in
in the Asian market through a relationship generally in Asia.” Taiwan, Hong Kong and Singapore, Sicavs are
with Standard Chartered Bank, the UK-listed Whereas Threadneedle runs UK Oeics in its sold on the open market. There are local
bank with a substantial Asian and emerging broader organisation, the Sicav structure will regulations and service requirements but
market presence. facilitate Threadneedle’s product development nevertheless the market allows you to sell non-
Like many fund managers, Threadneedle sees in the local market. Luxembourg Ucits- domiciled funds.”
Asia as an opportunity that cannot be ignored. compliant funds, structured as Sicavs, are highly Lowndes says Threadneedle will not establish
“There is a fundamental growth in savings regarded in Asia. a big domestic operation in Japan in the near
and investment products in Asia and you Lowndes says: “It is easier to develop products future but is entering into relationships and
cannot generate an economic scenario that within a Luxembourg Sicav structure than in partnerships, such as with broker Nomura, and
would see similar growth rates in Europe and UK Oeics. Almost all our new funds are with Tokio Marine, which promotes
24
24-25 threadneedleASPTSnf:Layout 1 28/5/10 14:07 Page 25
“The key strength of Navigant’s contribution

was that they understood everything we needed
‘Our approach to Asia is to do,” says Lowndes. “Sicav structures are very
different to Oeics. For a start, the fund boards in
to not try to do everything a Sicav are much more formal.
everywhere and to put “There were five funds that were gated or
suspended. The platform was mainly a multi-
people on the ground in manager platform. Quite a lot of funds were
all markets. We look more sub-optimal in size so we had to restrict and
rebuild the franchise around the suspended and
for strategic relationships gated funds and rationalise the sub advisers.”
in particular markets’ Jim Connor, of Navigant’s investment
management business in London, says: “We
have knowledge of Luxembourg and of the
“They are strong in Taiwan, Hong Kong and operating requirements of running a Sicav. In
Korea which are all markets that we are M&A-type engagements such as this, our role
interested in. It gives us an opportunity to grow centres on pre-deal due diligence and post-
with their business and we can also help them to deal benefits.”
meet their needs.” Lowndes adds: “When we came to look at
Korea is opening up its funds industry, says Sicav integration, it was clear it would not be a
Lowndes. Ucits are permitted through feeder small job. It would touch almost all of our
structures, although there are some local organisation. It was no different to integrating a
requirements. mid-scale asset manager in many respects, but
He says Singapore and Hong Kong are there were less people involved, so we had to
main markets for the early stages of supplement our internal expertise.”
Threadneedle’s Asian ambitions, as well as
Japan, Korea and Taiwan. Corporate pensions
But what about mainland China? Threadneedle will target Asian institutions as
“There are offshore opportunities in China well as individuals through platforms and banks,
through the QDII project, but that would again with the tool of Ucits funds.
require a local presence. However, an offshore “We will market Ucits III funds as much to
house can have a relationship with a QDII potential institutional clients as we would to the
provider and remain offshore,” says Lowndes. retail segment.”
He adds: “We are looking at both routes.” But he notes that institutional markets are as
Does this mean that a joint venture, the main different across Asia as retail fund systems are.
route to the Chinese market, is possible? “There is not a substantial corporate
Threadneedle’s global equities expertise in the “We are looking at the joint venture model but pension market in many markets in Asia.
institutional market. However, options remain we haven’t decided that we are definitely doing There are sovereign wealth funds or some
open, he says, about the future business model. it. The Asian business is still at a fairly early forms of government-controlled funds, but
Threadneedle is also looking for distribution stage. Also, there are signs that the Chinese there is not a big depth of corporate
agreements around the region. regulatory landscape is changing, with insurance pensions, except in Japan.
“There is substantial investment by local and companies starting to open up and this may “The good thing is that the pools of available
international banks in providing fund selection bring more opportunties.” institutional assets are relatively concentrated,
advice and discretionary advice for their clients. He continues: “Our approach to Asia is to not which means you can have a relatively efficient
We’ve seen a fundamental investment in the try to do everything everywhere and to put institutional distribution model operating across
skills and the quality of their infrastructure by people on the ground in all markets. We look the region rather than market by market.”
distributors in Asia, both insurance companies more for strategic relationships with distributors Efficiencies are also a major appeal of the
and banks.” and key deals in particular markets.” Sicav/Ucits model, for Lowndes.
The purchase of the Standard Chartered The key deal so far, that with Standard Lowndes says that Threadneedle is to launch a
Bank’s Sicav also comes with a distribution Chartered, offered Threadneedle a platform of US equities fund with hedge fund characteristics
agreement for Asia, which Lowndes sees as 35 funds. But this was not a straightforward under Ucits III rules through the Sicav.
being invaluable. integration and it gave a team of consultants, The firm is also preparing a commodity
“The Standard Chartered agreement was a formerly at the management consultancy of fund that will gain index exposure through
winner for us. The bank had weathered 2008 Morse in London, a major role under their new swaps. Exposure will be to hard and soft
very well and was exposed to emerging markets. employer, Navigant Consulting. commodities and the fund is differentiated by
The opportunity to work with them to distribute For Threadneedle, used to dealing in Oeics, not investing in commodity-based equities
funds was tremendously important. the consultants brought Sicav expertise. like competing products. fe
25
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EXECUTIVE PANEL
‘Asset managers should put

clients’ interests first’
Top asset management executives discuss lessons learnt from the crisis and the
need to foster a longer-term investment mentality across the Asian region
PARTICIPANTS Stewart Edgar, BNP Paribas: We have

indeed seen clients become more selective in this
Todd Ruppert, president and CEO, T. regard. There has been a much greater focus by
Rowe Price Global Investment Services the end customer on the financial strength and
Massimo Tosato, executive vice- quality of the fund management firms they are
chairman, Schroders prepared to trust with their investments. This
Stewart Edgar, CEO, Asia Pacific, BNP relates to both the ability to withstand shocks
Paribas Investment Partners connected to the general financial crisis and the
Sundeep Sikka, CEO, Reliance Capital commitment to provide and support robust
Asset Management solutions over the long term.
While the most important criterion for Asian
private banks and institutions in selecting fund
Funds Europe: Should Asian private banks management partners remains a thorough
and institutions be more selective about the understanding of the manager’s investment
robustness and integrity of their potential process and results, great consideration must also
fund management partners after the be placed on the manager’s ability to create and
financial crisis? What criteria should they support appropriate products over the long term.
use when buying funds? Furthermore, managers must also be capable
of demonstrating a sound compliance and risk
Todd Ruppert, T. Rowe Price: Distributors Todd Ruppert, T. Rowe Price control system.
should always remain fastidious in their fund
selection process, irrespective of the economic Sundeep Sikka, Reliance Capital: The
climate, and selection should always be based financial crisis had valuable lessons for all
upon a multitude of factors. Attributes such as ‘Reputation of the stakeholders in the financial industry including
organisational, financial and professional investors and advisors of investments. Starting
stability, tenure of investment professionals,
management, size of the from the time of the crisis, continuing to the
durability of the investment process, robustness fund house itself, size of present and perhaps for a very long time into the
and independence of fundamental research, future, the major criteria that were or are being
quality of risk controls, consistency, etc, are very
the individual funds used when buying funds are the ability to pay
important to scrutinise in the selection process. and the risk- funds at a short notice – liquidity – and the
Beyond this, distributors should evaluate the integrity of the fund management firms to
quality of client service, the clarity of
management procedures honour the commitment of meeting such
communications and the degree of at the firm assume a lot redemptions beyond just the legal constituents
transparency. Above all, distributors should of the fund. Therefore, reputation of the
determine if the asset manager consistently
more significance than management, size of the fund house itself, size
exudes trust and unwavering integrity. Asset just performance’ of the individual funds and the risk-
managers are supposed to be fiduciaries, they management procedures at the firm assume a
are guardians of a trust and should always put lot more significance than just performance.
clients’ interests first. One lesson the financial
crisis taught us is that not all organisations – differences in the due diligence standards Funds Europe: What are the after effects of
distributors included – acted with unwavering followed in Asia versus Europe or the US. We the financial crisis on the structure of the
integrity. Perhaps more focus on this will ensue have noticed much improved depth in the due distribution business in Asia? Are new
post crisis. diligence of our global intermediary clients channels likely to rise up and challenge
over the last 18 months, and we welcome this private and retail banks? Also, are local
Massimo Tosato, Schroders: I do not because depth of understanding improves the fund managers likely to compete better with
believe that there are any fundamental longevity of the relationship. European and North American managers?
26
Ruppert: Thus far, not much. Banks continue Aside from a few notable global players based
Massimo Tosato,
to dominate distribution in most, but not all, Schroders in Asia, there is little sign yet of a significant rise
Asian markets. New channels, such as in the competitive positioning of local managers
investment advisors, as well as online and versus their European and US counterparts. To
other technology-enabled approaches, are be attractive long-term partners, investment
likely to gain traction in some countries as managers need to provide a wide range of
financial literacy and fund investing further solutions through the constant innovation of
develop. This will have an impact, at the their global skills and expertise base. This
margin, on distribution dynamics. established skill base provides a strong
So far, having a strong distribution network competitive advantage which will favour the
has been key to accessing end investors in large European and US players over time. Local
and diverse markets. In China and Japan, for managers, while learning fast, are generally
example, banks play a dominant role in strong in their home market, but lack, for the
distribution, whereas in India and Australia moment, the depth of international exposure
the independent financial advisor network is required. As a result, local private banks and
omnipresent. The elimination of front-end institutions are still eager to partner with
sales charges by the Indian regulator last European and US mutual fund managers and
August is having an impact on the structure of to leverage their capabilities.
distribution. However, structure aside, end-
investors must have trust and confidence in the Sikka: Large institutions are not automatically
products in which they invest, regardless of considered the Houses of Wisdom anymore
what distribution channel serves them. and are increasingly facing the question of
As retail investors become more financially credibility. Those who can win the trust of their
aware, they should demand more information,
‘It is in the asset customers by showcasing their consistent track
more transparency and lower fees. They may management industry’s record and by providing differentiated, value-
not be as eager to blindly purchase the latest added services are likely to be successful.
hot, trendy thematic product. It is in the asset
best interests to Consequently, the composition of the structure
management industry’s best interests to encourage financial of the distribution business is changing, from
encourage financial literacy and assist with its being largely institution dominated to a good
promotion. If investors are able to make
literacy and assist with combination of large banks, boutique firms and
investment decisions appropriate for their its promotion’ independent financial advisors.
particular circumstances, this will lead to more Fund managers based onshore having a better
satisfied and long-term clients. understanding of the on-the-ground realities
Local Asian asset managers will increasingly and local nuances are likely to be more
compete with European and North American competent than their counterparts operating
managers, both in Asia and the West. Indeed, Private banks are growing fast again and are offshore.
Asian investment managers are already becoming of greater importance in the sale of
appearing on ranking tables in the West as third-party funds. The biggest challenge is going Funds Europe: How are Asian fund flows
they expand into Europe and the US. Of to be the transition to a fee-based sales model changing? And are they changing
course, domestic products will remain a from a commission-driven one. appropriately to benefit from emerging
significant portion of Asian investors’ asset With the notable exception of Mirae, the market growth and the threat of inflation?
allocations, and many Asian managers have Asian competitors are still mainly local-to-local
strong local and regional investment in each market, and we have not yet seen the Ruppert: As local Asian fund industries further
capabilities. Many have aspirations to become emergence of a broad-based regional develop, we expect to witness more global
true global competitors in multiple asset champion. diversification, as well as less infatuation with
classes; no doubt, some will succeed. hyped, thematic products with a short-term
Edgar: The main effect of the crisis on the bias. That said there will always exist a strong
Tosato: Although the financial crisis has put distribution business in Asia is that regulators bias for domestic and Asian regional investing,
most pressure on the consumer banks have become more cautious, largely due to just as there are similar domestic and regional
especially in terms of them making losses incurred by retail clients from structured biases in European countries and the US.
adjustments to their client profiling as well as products that were missold (such as Lehman However, the local/regional biases are probably
sales practises, they are and will remain the minibonds). A side effect of this has been a stronger in Asia, given issues such as regulatory
dominant sales channel in the region. Having relative switch in some countries from funds to restrictions on foreign investing in some
said that, insurance companies are insurance-linked products, where the regulatory countries and the historically strong returns of
aggressively retooling their agency force in situation has seen less change. Asian emerging markets.
providing more financial products than just It is unlikely, however, that we will see new Of course, if asset allocation products, similar
insurance, while investment-linked products channels challenging private and retail banks to the lifecycle funds in the US or the balanced
are continuing their growth within the who have the size and expertise to remain products in Europe, gain traction, we may see a
insurance offering. dominant in this area. shift away from the short-term flows into hot-
27
EXECUTIVE PANEL
themed products we currently witness. If this is term approach to investing for Asian investors.
the case, then Asian investors will gain We believe it is in a client’s and, admittedly,
diversification benefits and a more long-term also in an asset manager’s, best interest if they
focus. However, we shouldn’t expect solutions to invest for the long term rather than chase the
completely mimic what has worked in North latest hot product.
America or Europe. Fund providers will need to However, the pervasive incentive structures
adapt solutions to meet the needs and misalign the interests of distributors and
expectations of a growing Asian investor class. investors. A shift to fee-based advice is
beginning to play out in some markets, which
Tosato: Over the first 18 months, Asia has should be beneficial long term.
remained subdued with respect to American That said, it is putative that Asian investors
and European investors. The major changes are notoriously biased towards short-term
that have taken place in Asia fund flows are a investing. Therefore it is important that wealth
shift from a very dominant market share for advisors understand this but act properly as
equity funds to a large share for fixed income fiduciaries, ensuring that the client’s best long-
funds. Also, we have seen structured products term interests are at the core of any decisions.
virtually disappear from the mass retail market, Enhanced financial literacy should be on
the exception being private banks who continue their agendas and the focus needs to shift
to provide these to their clients. Asian and towards core strategic educational campaigns,
emerging markets securities tend to dominate which can enable relationships that are more
demand and are seen as domestic asset classes. Sundeep Sikka,
productive over time. Short-term trading will
Inflation as a theme for investment products is Reliance Capital not disappear any time soon, but selected
only slowly becoming of greater importance. strategies, markets and distribution channels
The US dollar is still considered the preferred are slowly becoming more promising.
international diversified currency of excellence. Overall, fund providers have to use a
‘Fund providers have to fundamentally different strategy in Asia
Edgar: Asian fund flows have not really use a fundamentally compared to other regions of the world,
changed much. Asian investors have always recognising that currently Asian investors have
had a home bias, which is prevalent in most different strategy in a tendency to focus on the short-term goals
regions. Because of their home bias, they Asia compared to other rather than a long glide path to retirement.
naturally have emerging market exposure and
they have been among the first investors to regions of the world, Tosato: Private banks and wealth advisors
return to emerging markets. recognising that unfortunately have not shown a fundamental
Neither has there been a major change in difference in behavioural patterns as far as the
positioning in response to the threat of inflation, currently Asian investors buying and selling of mutual funds goes.
although Asian investors typically have a greater have a tendency to focus Hence, speculation, rather than saving,
exposure to equities than their European and continues to be the mantra in Asia across the
American counterparts. Equities have on the short-term goals board.
historically had a relatively high correlation with rather than a long glide There is a strong component of the fashion
inflation so this helps to protect their portfolios business: What is the new story of the year?
from the effects of inflation. path to retirement’ With institutions there is a far greater emphasis
on strategic asset allocation using funds rather
Sikka: Fund flow data suggest that allocation than segregated mandates or specialist
of funds is shifting from developed markets to increased investments in mutual funds, products for small- to medium-sized
emerging markets. Global benchmarks are insurance and secondary market exposures in investments up to $100m.
being revised in a manner where the weighting order to beat the threat of inflation and gain
of emerging market assets is increasing. This, in from the growth of emerging markets. Edgar: The situation is the same for private
turn, is resulting in incremental capital inflows banking clients in Asia. In general their
to emerging market assets, especially equities. Funds Europe: Asian retail investors, portfolios have a higher turnover than those in
Going forward, given that incremental global particularly in China, are known to trade other regions. However, Asian private banks,
GDP growth will come from emerging markets, funds. What is the situation with private together with the asset management industry,
especially emerging Asia, we see this benevolent bank wealth advisors? And do funds have a are trying to promote longer-term strategies,
and positive trend of increased allocation role in a buy-and-hold strategy for Asian and mutual funds in general are seen as an
towards emerging Asian markets to continue. institutions? excellent tool to achieve this. Still, percentages
Allocation from domestic investors is also invested in mutual funds at private banks in the
shifting from the traditional investment Ruppert: Wealth advisors can certainly play region are low on average, so asset managers
products to asset classes such as equities through an important role in developing a more long- have a lot of scope for growth.
28
Sikka: Retail investors generally are more important that the asset management industry
sentimental about their investments than the recognises and prepares for this. Only this way
overall market and tend to trade more can the industry meet the investment needs of
frequently than what may be required. Even in these future clients.
India, although as a fund house we keep
advocating the benefits of staying invested for a Tosato: A lot more needs to be done in terms
longer period of time, investors tend to churn of education and understanding of financial
their portfolios quite regularly. We have even planning in Asia. A short-term outlook
devised a unique product to explicitly dominates over long-term saving. With savings
encourage long-term investments. rates in Asia at very high levels indeed, mutual
I am confident, as markets mature, that funds still have a very low penetration rate.
investors will start realising the difficulty of During the financial crisis the small gains in
timing the market, the impact of cost on the penetration rates of funds have largely been
eventual returns of the fund and increasingly given up due to investors selling out. To
move towards staying invested for the longer enhance a true savings mentality through funds,
term. The same will be the case with private we need a longer-term outlook, an improved
bank wealth advisors. pension fund (DC) market and a change in
product offerings.
Funds Europe: Is Asian social and economic As the average wealth of Asia continues to
policy sufficiently supportive of a long-term grow, the population starts to age, then the
savings industry? Stewart Edgar, creation of a long-term savings market for
BNP Paribas
retirement and post retirement becomes
Ruppert: Long-term focused markets have essential. The introduction of tax facilitations
been created by linking investing to retirement in exchange for longer-term commitments
in places like the US where defined contribution and of lifestyle funds with dynamic asset
introduced the average investor to mutual funds,
‘I am confident, as allocation strategies would be major drivers
and in Australia where the successful markets mature, that for the development of the third pillar in
Superannuation plans include a 9% personal savings.
compulsory contribution.
investors will start
We do hope to see a shift towards a more long- realising the difficulty Edgar: In general, Asian government policy is
term focus within the savings industry in Asia, very supportive in developing a long-term
but it is different factors that are likely to
of timing the market, the savings industry. Examples such as the MPF in
motivate this shift compared to the US and impact of cost on the Hong Kong to the Enterprise Annuity system in
other more mature markets. Countries like the PRC show an admirable focus on long-term
India and China already have very high
eventual returns of the funded vehicles for the general population.
personal savings rates, unlike many Western fund and increasingly Furthermore, the sovereign wealth funds in the
countries where tax incentives are used to region are some of the most sophisticated and
motivate savings rates. However, it is a savings,
move towards staying closely watched investors in the world.
and not yet an investing culture that currently invested for the
exists in Asia. This is evidenced by the Sikka: Taking a leaf from the crisis that
household penetration of mutual funds, which
longer term’ occurred in many Western countries, Asian
is only around 5% in many Asian countries governments acknowledge the need to
similar to the rates seen in the US in the 1980s. encourage and channel household savings for
After several decades of fund industry the longer term. There are explicit tax
development, 43% of households in the US benefits offered as an incentive to inculcate
now invest in funds. the entire population of the EU today). This is long-term savings.
Unfortunately, Asia is lacking a strong regional coupled with the demographic pressures of an There may also be implicit benefits, or should
industry association to advocate regulation and ageing population in many Asian countries I say imperative threats, of long-term savings
policy that can help to support long-term such as Japan and China. Therefore, helping the cause of meeting healthcare
savings, compared with Efama in Europe and individual retirement savings will be necessary requirements and retirement benefits in the
ICI in the US, who are both cohesive and due to the lack of sufficient first and second absence of a developed social security system.
instrumental voices that support this theme. pillar pension plans. The long-term government-backed returns are
Encouragingly, the factor that may have a While high-net-worth investors have been the also fairly attractive to help the cause. Returns
significant impact on Asia’s fund industry is initial focus of the investment industry growth from what are deemed long-term investment
the expected dramatic growth of the middle across Asia so far, the swelling of the middle asset classes such as equities are also attractive
class. India’s middle class is expected to rise to class population is likely to bring the new fund enough to bring about a culture of saving for
over 500 million people by 2025, (more than investors of the future into Asia. We believe it is the longer term. fe
29
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SPONSORED PROFILE
Wise mover
T. Rowe Price’s approach to entering the competitive Asian
market has been measured and considered. The results are
now paying off, Todd Ruppert tells Funds Europe
As the shift of power moves from East to West, There are certain Asian countries and/or
penetrating the Asian markets is becoming distribution channels that T. Rowe Price has
more important for asset managers looking to ‘It’s extremely important specifically decided not to enter. Ruppert
grow their business. Everyone wants a piece of gives the Singapore and Hong Kong retail
the Asian pie, but not everyone can get it.
to continually evaluate. markets as examples: “In a relative sense,
Todd Ruppert, president and chief executive There may be they are both small and most certainly are
of T. Rowe Price Global Investment Services very crowded with entrenched competitors.
Limited, says T. Rowe Price has been diligent
developments that We don’t see justifiable rationale for
and judicious in its expansion into Asian necessitate further due entering them – at least in the current
markets and is increasingly better positioned context. We do, however, work with
for the developments expected within this part
diligence and a possible institutional investors.” He doesn’t rule out
of the world. resulting change the possibility that this situation may change
The firm’s Asian distribution footprint has going forward. “It’s extremely important to
been growing since the firm’s joint venture
of focus’ continually evaluate. There may be
with Sumitomo Mitsui Banking Corporation developments that necessitate further
and Daiwa Securities in 1999. That successful due diligence and a possible resulting change
joint venture, Daiwa SB Investments, is the of focus.”
most longstanding asset management joint
venture in Japan. T. Rowe Price serves as the Flemming Madsen
non-Japanese sub-adviser for products

distributed through SMBC, Daiwa Securities
and others. In 2004, T. Rowe Price
commenced its activities in Australia and New
Zealand where it works with both institutional
investors and intermediaries. In 2006, T. Rowe
Price was among the first managers hired by
China’s National Social Security Fund, and in
2007 was appointed global investment advisor
for China’s largest asset manager, China Asset
Management. This year, T. Rowe Price
completed its US$142.4m (€116.2m)
acquisition of a 26% stake in India’s oldest and
fourth largest asset manager, UTI Asset
Management. It also partnered with Marbo
Asset Management Group in Taiwan for its
initial launch in the Taiwanese market. Marbo
serves as T. Rowe Price’s master agent.
This push into Asia demonstrates the firm’s
disciplined approach to growth and that it
has done its homework: “We’ve always been
very thoughtful and disciplined in our
expansion strategy. There is a high level of
conviction behind every move we make. To
date, I’d say our decisions have proven to be
rather sagacious.”
30
30-31 sponsoredprofASPTSnf:Layout 1 28/5/10 14:10 Page 31
But, for the moment, T. Rowe Price is

Todd Ruppert
content with its Asian presence and Ruppert
believes the firm can take advantage of the
progress in the markets it participates in. “As
retail and institutional markets develop
and/or expand, investors increasingly allocate
assets outside their home markets. We’re well
positioned to benefit from this development
and can leverage off what we have already
built in these regions, rather than blindly
focusing on incremental geographical
expansion for growth.” he says. “In India we
also benefit from the growth of retail
investments in Indian securities by virtue of
our equity ownership.
Strategic planning
“We’re not about growing for growth’s sake.
When considering a new opportunity, we look
at multiple factors and the impact of
expansion on the entire organisation. Just as
we’re thoughtful about what companies we
invest in for our valued clients, we apply the
same philosophy when considering entering
new countries and/or distribution channels,”
says Ruppert.
This sensible, prudent approach appears to
be paying off as T. Rowe Price is garnering
success with both retail and institutional
investors in its Asian markets of choice. footprint required to be successful in the retail
The decision to move into Taiwan, Ruppert market long term, combined with the
explains, was made when a number of factors ‘We actually began idiosyncrasies of retail distribution and the
changed, turning the country into a more embryonic nature of the institutional market,
attractive opportunity for T. Rowe Price. “We
evaluating the it made absolutely zero economic sense for us
actually began evaluating the Taiwanese Taiwanese market back to enter India on our own. Without the
market back in 2004, but it wasn't appealing opportunity to work with a well-established,
for us until now,” he says.
in 2004, but it wasn't highly regarded, capable, trustworthy, market
Flemming Madsen, director and head of the appealing for us leading firm, we would not enter the market.”
Asia Pacific region for T. Rowe Price Global Ruppert says the relationship with UTI is
Investment Services, says: “The 2004/2005
until now’ developing very well and is fulfilling its goal of
bond fund scandal was a serious setback for being mutually beneficial. “UTI is gaining
the Taiwanese mutual fund market plus and a rapidly developing middle class. Also, market share and continually improving.
demand for global portfolios was weak. But the savings rate is running at 35-40% so the We're learning from them, providing them a
over the last couple of years the market has macro considerations line up very well for lot of input, and the personal relationships are
stabilised and investors have been allocating the continued fast expansion of the mutual exceptional. I’m pleased to say we have had
more towards global markets and therefore fund market.” none of the serious growing pains usually
there is a much better fit with what we at T. associated with joint ventures,” he says. He
Rowe Price can offer them. The same is true Mutually beneficial relationship attributes this to the effort put into the
for the large government pension funds in Ruppert explains why the firm decided to buy research before the firm embarked on the
Taiwan, where large international into a well-established company like UTI, agreement. “T. Rowe Price is extremely
outsourcing programs are moving forward.” rather than to build from scratch alone. fastidious. We do our homework – lots of
The equity investment in UTI Asset “By our very nature, T. Rowe Price is not an homework. We worked with UTI for over a
Management is T. Rowe Price’s other most acquisitive firm, we have grown organically. year, getting to know the people and how we
significant recent move into Asia. That said, we acknowledge the fact that in would interact. Likewise, UTI did their
Madsen says: “The Indian economy is certain situations it’s economically prudent to homework. This was not a shotgun marriage;
attractive and the demographics are quite consider working with a partner,” he explains, it was very well thought through well before
favourable with a relatively young population “In India, given the wide distribution we made the investment.” fe
31
32-39 roundtableASPTSnf:Layout 1 28/5/10 16:29 Page 32
ROUNDTABLE
Tactical discussion
Global asset servicers based in Asia discuss what shaped the present Asian funds
industry and what they can do to build a stronger framework for the future
protection in Asia went from somewhere in at the forefront of discussions – questions

PARTICIPANTS
the mid-tier of considerations to being the around how you value illiquid instruments
Nick Fitzpatrick: editor, Funds Europe number one priority, much like it has done in and over the counters, for example.
Andre Durand: managing director, the rest of the world. This has prompted some
SGSS Hong Kong concerns. But I think we’re coming to the end Andre Durand, SGSS: It depends
Lawrence Bailey: senior vice president of the phase when everything was a focused which investors we are talking about. For
and Asia-Pacific business executive, discussion about the maximum amount of retail investors, things would not have
JPMorgan Worldwide Securities Services protection that you could possibly get. There changed much, but institutional investors
Ritesh Singh: head of the regulatory was an 18-month window when it was all really need transparency and independent
and industry affairs for Asia-Pacific fund about security and asset segregation. Clients valuations, as Ritesh says. Asset servicing
services, HSBC Securities Services wanted to know exactly how to segregate and includes all the independent valuation on
Scott McLaren: head of Asia Pacific how to protect all assets, at all costs. Now the OTC products, for instance, and there is a
sales and distribution, RBC Dexia dust has just started to settle and we’re coming need for this here in Asia, like anywhere else.
Barnaby Nelson: head of business to the point where these concerns are still
development Asia, BNP Paribas important, but risk, quality of service and Nelson: It comes down to two things, really.
Securities Services everything else is starting to come back up to One is feeling in control, and then the other
Michael Chan: CEO, Asia Pacific, create a more level playing field. is demonstrating that control. On the one
BNY Mellon Asset Servicing hand you’ve got control over the
Chris Ryan: senior advisor for investor Lawrence Bailey, JPMorgan: Now fundamental processes, the plumbing if you
services, Citi Global Transaction Services that Asian investors are getting more like, including valuations, account
interested in alternative investments for both structuring, line of responsibility, etc. On the
diversification and greater yield, they are other hand demonstrating that control is
Funds Europe: Events like the Madoff asking many questions around the probably just the same as anywhere else in
crisis brought an increased focus on responsibilities of the custodian. Things like the world; the scrutiny from the Mas
protection. To what extent are Asian private equity funds, derivatives, and other [Monetary Authority of Singapore] or SFC
investors concerned about investor alternative asset classes changed the [Securities and Futures Commission], for
protection and how do asset servicers play landscape in Asia, even before Madoff. example. Investment committees have to
a role in this? How does regulation show that they are really managing their risks
support investors? Ritesh Singh, HSBC: The events accurately. This comes down to all types of
over the last 18 months have definitely reporting, compliance offerings, etc.
Michael Chan, BNY Mellon: Fo r resulted in a significantly increased focus on
global custodians operating in Asia, the investor protection. Following events such as Scott McLaren, RBC Dexia: The
Madoff crisis did not have much impact, if Madoff, demands on due diligence on asset question talked about Asian investors
any. However, the regulators are just clarifying servicers by investors have gone up themselves being concerned about investor
this with new regulation. You can certainly see significantly with greater focus on protection and I would say retail investors are
more details included about the need for transparency, disclosure, compliance not really concerned. It’s only when things go
qualified custodians, while investment monitoring, etc. Even basic activities, such as wrong that people go back and read the fine
managers are not being allowed to hold client safekeeping and segregation of assets, which print. In a market where there’s opportunity
assets, etc. But there was nothing missing, it were earlier a given, are now being closely to make money, the retail investor still doesn’t
was more of a clarification of roles and monitored. This means that service providers care much about investor protection.
responsibilities. like HSBC are constantly under scrutiny from However, there are a number of areas where
the investors. Independence of valuations is the regulators are taking up the issue,
Barnaby Nelson, BNP Paribas: another topic that investors have been especially in Hong Kong. There’s more
Following the Madoff incident, broad asset focusing on a lot more. Valuations have been scrutiny on product approvals, so as a result,
32
Andre Durand, SGSS Chris Ryan, Citi Ritesh Singh, HSBC Barnaby Nelson, BNP Michael Chan, BNY Laurence Bailey, JP Scott McLaren, RBC
Paribas Mellon Morgan Dexia
in the last year, a lot less products were industry dodged a bullet when it came to hedge funds got through this crisis. One of
approved for sale. For example, we have one structured products. In the early 2000s, most the major consultants here has said that
client who’s been waiting nearly 18 months structured products sold in Hong Kong and somewhere between 50% and 75% of all
for a product approval. Singapore were sold inside funds, in which hedge funds disappeared over the last two
In areas like MPF there is a lot of concern case the region would have been impacted. years. I don’t know whether that’s an asset-
around product disclosures, which are being Now they’ve been sold directly from the weighted percentage or whether it’s just a
referred to as health warnings. Even naming issuer, through an intermediary to the nominal percentage, but either way, you saw
conventions are changing. A year ago, customer, and we’ve all seen what’s happened completely different reactions from the hedge
certain products with the tag ‘guaranteed’ there. The other big issue relates to funds. Some provided liquidity where they
weren’t always fully guaranteed. From a fund alternative investments, particularly how could, others resorted to closures and side
manager perspective, the Mas recently came pockets and all sorts of other strategies to try
out with a directive on the alternative side, and avoid having to pay the money out and
proposing regulation for the fund managers. to continue collecting fees. That activity
They are now looking for capital
‘In areas like MPF there looked rather chaotic. If you talk to private
requirements and licensing of hedge fund is a lot of concern bankers, they will tell you that there has to be
managers to protect the investor. So what more regulation around this kind of activity
the regulators are doing to protect the
around product because various investors were treated
investor is significant. disclosures, which are differently. We also had asset accumulators
here in Hong Kong and other forms of assets
Chris Ryan, Citi: We’ve actually had some
being referred to as that we currently don’t hold in funds. Given
shockwaves of our own in Asia, which had health warnings’ things like Ucits III, some of those assets
nothing to do with Madoff. This part of the could be held in funds in the future and we
have to be aware of the impact this will have
going forward. The argument runs a lot
deeper than who has control of the assets. It’s
about the role our part of the industry plays
in the governance as well as the behaviour of
those managing the assets.
Bailey: The redemptions being halted and

the recall, or lack thereof, of assets in
securities lending reverberated around the
globe and clients were trying to work out
their options and whether the flexibility and
liquidity of their investments, as well as the
security of their assets, were as they
understood them to be. It brought up the
whole question of segregated accounts and
made people realise that in some cases, they
can’t recall assets. After all, when asset values
and returns are going up it’s great, but when
things are going down and you can’t get out
it’s a big issue, both on the retail and on the
wholesale side.
33
ROUNDTABLE
Chan: I agree with Scott, if there’s money

to be made, the investors are not too
concerned. We talked about Hong Kong and
Singapore where they probably have the
most stringent and detailed regulations by
far. But in these same countries, a couple of
large banks in Hong Kong and a large
insurance company in Singapore partially
reimbursed their investors by buying back
minibond products. So, the concern is there,
but the investors also have this paternalistic
view of the regulators, thinking that they’re
going to be covered either way. Of course
you can strongly appreciate that every
country is a little different.
Nelson: The acid test is going to be the

coming year, because it’s starting all over
again. You’re already starting to see more
structured products coming out with
different names. They are different structures
this time, but the big question everyone is
asking today is whether the mistakes will be
repeated. We don’t have a crystal ball, but I Funds Europe: Under Ucits, the
believe the market has learnt a lesson. safekeeping rules in Europe are stricter
‘The big question is than the safekeeping laws in some
Funds Europe: How were wealth whether the mistakes individual countries in Asia. Ucits funds
management platforms affected by the are already very popular here, but have
fall of structured products? will be repeated. We they benefited further as a product type
don’t have a crystal ball, purely on the back of the operational
Singh: The minibond issue put a lot of aspects of safekeeping?
pressure on the regulators to act. This but I believe the market
resulted in a series of measures being taken has learnt a lesson’ McLaren: The three primary
to tighten the sales and distribution process. countries in Asia – Singapore, Hong Kong
This also led to, as Scott mentioned, a and Taiwan – all have a fairly evolved
significant slowdown in product approvals, acceptance procedure of Ucits funds,
especially those that are not vanilla in irrespective of the European domicile. Hong
nature. The demand for sophisticated Kong is probably the most advanced. About
products tapered off anyway in this kind of thing if you wanted to buy a fund, so it’s 70% of Hong Kong’s SFC-authorised funds
an environment. actually bad for the industry. are Luxembourg-domiciled and 20% are
Irish funds. Ucits is the main cross-border
Ryan: Recently, they’ve been focusing on McLaren: Suitability is all about vehicle that has had success because it has
suitability for these sorts of investments, but I understanding the risk profile. Education, been around since 1988 in Luxembourg and
still don’t think that there is any consistency particularly for Asian investors, is a long way the approvals procedure is a fairly well-
across Asia, in terms of how this issue is off from where it is in a more developed trodden path. I don’t think the man on the
going to be dealt with. It’s not easy, and market, like the US. I recently heard one street in Hong Kong buying a product from a
anything you do to suitability runs the risk of view that education should be entrusted to fund manager has really any idea what
creating other problems. In essence, the the sales channels, because they’re the ones domicile of fund he’s buying at the end of
industry could dramatically increase the cost closest to the investors. There is a fairly the day.
of selling. For example, you could go to a obvious conflict of interest there – handing
bank to buy a structured product and it somebody a 30-page document on all the Nelson: People tend to believe that products
would take 45 minutes to an hour to go reasons why they shouldn’t buy a product that have been in existence for a longer period
through all the risk management and then trying to get them to buy it. So of time are usually a safer vehicle. Although it
documentation. It wouldn’t matter whether education is the long-term solution to this, definitely carries significant benefits in terms
you’re investing ten thousand or ten million; but there’s currently no independent entity of transparency and due diligence, it’s not a
you would still have to go through the same or industry body that is taking up this role in proven link today and yet people tend to make

process. And you would have to do the same the market. that association.
34
Ryan: It’s like a watermark for the are not looking to introduce any kind of have to work harder as a group, to try and
product but people don’t even remember unknown risks into the market. Inevitably, keep that innovation going and to talk about
what the watermark stands for. It’s kind of there is concern that tightened market safety the practical side of things.
safe because it’s been around for a long time, may hold up innovation. This, of course, is
but there are concerns in terms of the new something worth further discussions. Singh: The regulatory response we have
regulations, the complexity and some of the seen over the last 18 months has not been
reporting issues at a local level too. Some Bailey: As an industry we come into our unexpected given the environment. Most
ripples were felt in places like Taiwan, which own where we are seen as a group that markets in the region have implemented
is one of the biggest, if not the biggest, doesn’t have the biases of a fund manager or some kind of investor protection measures,
market in Asia for Ucits funds. One thinks an investment bank when questioning new whether it is Hong Kong, Singapore, Korea,
that the natural progression of expanding the regulation. We come from a more practical India, China, Taiwan or Indonesia. You have
coverage of Ucits is going to be beneficial to and pragmatic viewpoint. When Australia others, like Thailand and Malaysia, looking
both the fund managers and to the investors. issued the ban on short selling, it was about at new measures as well. While having a tight
On one hand, it creates more complexity in to halt all trading in Australia because it regulatory framework is obviously critical,
terms of the documentation and the hadn’t been thought through from a practical the question to also ask is at what cost? For
reporting. On the other hand, a lot of the and execution prospective. It was the the past few years, regulators have also been
things that Ucits III allows means the funds custodian association, along with the fund trying to push down costs for investors. We
can’t be registered because they are in conflict manager association, who said, ‘We can draw a parallel here with Europe where
with the local regulations. The fund understand what you’re trying to do, but if there is a lot more hectic activity with the
management industry in Asia needs to ask you actually implement it this way, nobody AIFMD [Alternative Investment Fund
itself, ‘how useful is Ucits?’ The further you can sell a single security.’ So this is where we Managers Directive]. There was a study
go, the less useful Ucits is going to be because done by Europe Economics which estimated
the local regulations haven’t caught up, and that the one-time compliance cost for the
probably won’t catch up for quite some time. entire non-Ucits sector could go up to
For example, you can’t sell private equity ‘The further you go, the around €22bn and transaction costs go up by
funds to retail investors in Taiwan and you 10-15% to be able to comply with the new
can’t sell funds with high levels of derivatives less useful Ucits is going to measures that are being proposed under the
either. be because the local AIFMD. Therefore the challenge is to
balance investor protection with the
McLaren: Chris has always been an regulations haven’t caught attendant cost because all these measures we
advocate of setting up a Ucits-type vehicle up, and probably won’t are talking about will bring about
equivalent in Asia, a sort of ‘Luxembourg of incremental cost, which could ultimately hit
the East’. catch up for some time’ investors as well, though we are yet to see as
to who bears this cost.
Bailey: There is also the downstream
challenge for Ucits. When investing in some
of the markets, you may think you have
protection, which you will have at the point of
entry into a fund, but can the sub-custodians
and the other agents support these
requirements? Even if it’s something that
technically you’re allowed to invest in, as you
get into more emerging markets and you can’t
have any restrictions on the liabilities for the
sub-custodians, this can become more of a
challenge. For example, in Russia you have to
guarantee the subs and brokers in a very
different way to how you would in other
countries normally. So there are downsides;
Ucits is not Nirvana, there are issues on both
sides.
Nelson: Globally, there is always a dilemma

between the regulators and investment
management. For regulators, it is a zero sum
game; they’re aiming for a 100% success
rate. They’ve got to protect everything and
35
ROUNDTABLE
The other aspect is the balance between seven years in Asia, what was once the fund understanding the products more difficult
product innovation and risk management. market is now spread between direct and more expensive, and simplicity. I’m not
That is another area where product securities, structured products, life insurance suggesting we should exclusively go back to
approvals have become slower and you have products, funds, IPOs and a number of very simple products but there is a lingering
to ask, how much should you curb innovation investment vehicles. The fund sales in Hong question of whether people buy more funds
to manage risk? At the end of the day, you Kong, according to the Hong Kong if they’re offered very simple products that
also need to look at the development of the Investment Funds Association, came in at they understand? I don’t know. But if the
industry and how we move forward with new HK$15bn [€1.57bn] net sales for 2009. This industry wants to drive up fund volumes,
products, though such products might not sounds like a reasonable number, but there then maybe creating more complex products
necessarily be for the masses. The same are 50 managers here. In other words, that is not the way to go. Increasing costs and
Europe Economics study also estimates that total of HK$15bn is divided by 50 – reducing volumes will produce a negative
reduced innovation in the AIFM sector could somebody’s clearly losing money. spiral. A more complex product takes longer
result in a drop of 0.1% to 0.2% in annual The challenge that lies within this conflict to sell and costs more to sell, so the
EU GDP growth rates though this will is between innovation, which makes distributor would obviously demand a higher
naturally bring about reduced volatility, fee. In turn, this creates pressure all the way
especially during recession. Therefore, we do back down to the end of the chain, which is
need to balance it out. where we stand. You have to think about
‘You need to consider these things rather than advocating
Funds Europe: Your peers in Europe what is the pace of innovation for innovation’s sake. You need to
are under a tremendous amount of cost consider what is the pace of innovation,
pressure and I’m sure it’s no different innovation, whether the whether the market can absorb it and
here. Since it’s very difficult to put up market can absorb it and whether it’s counterproductive to the
fees, is your only option to simply get more economics of the industry. China and India
business from your clients to make it pay? whether it’s have both resisted making funds overly
counterproductive to the complex because they know it will make
Ryan: It’s a good point. We talked about people buy less in the long run and that
innovation, but the fact is that over the last economics of the industry’ they’ll have more difficulty selling those
funds. We can sometimes get caught up in an
intellectual argument about having very
sophisticated funds with lots of derivatives
and exotic alternative assets. This is fine if
the education of the investors is ready to
accept it, but all the education in the world is
not going to change things quickly, it will
take time.
Bailey: The whole of the financial services

industry sent their best and brightest to
China to talk about all the great things they
could do to support investing overseas, while
investors really just wanted to put their toe in
the water. We have to, as an industry, work
out that you need to take baby steps when
you first go into something new. You don’t
buy a Ferrari the first time you buy a car. The
Chinese will move into and buy complex
products quicker than other countries have,
and that’s the sort of trend that we have to
watch for.
McLaren: From an incentive

perspective, you’re not paying any more or
any less depending on what product it is,
unless it’s successful. So the vested interest is
that they [fund managers] raise assets, and
there are all sorts of ways of doing that.
Chris made a good point that there has to be
36
an equilibrium point of how many products

can actually be for sale in a given market.
Hong Kong currently stands at around 2,000
SFC-authorised funds. In India, you have the
top five fund managers in the market that
have already reached scale, but new
managers are still going in.
Funds Europe: Asset service providers

have a thought-leadership role to play for
their fund management clients. What, in
the panel’s view, are the key regulatory
themes affecting fund managers in the
Asia region, whether to do with market
infrastructure or social/economic policy,
and will these facilitate fund
management?
Singh: We have been discussing the

investor protection issue and that’s really
been the theme to look at in the region over
the last 18 months. A lot of the changes we
have seen across markets have focused on
this subject. Regulators have generally
adopted a wait-and-see approach with
regard to further liberalisation – focusing kicking around on the risk side for the last
more on the issues that have emanated from two years.
the crisis. Some initiatives have been put on ‘The Mas discussion is a
hold while others, such as the Korean very useful turning point Bailey: I wouldn’t want to be a regulator
Capital Market Consolidation Act, have not right now because they are trying to solve so
really taken off yet. This was expected to be for the rest of Asia, many different things. They have the investor
the next big bang in the Korean market after because what Mas ends protection aspect, and then they have to keep
the banking reforms, with a focus on up with what is happening in other countries
encouraging innovation and flexibility, but it up implementing will be and how that will affect their domestic
didn’t really have the desired impact because watched by regulators investors. For example, if the US does
of the market environment, and it still hasn’t something that’s going to affect Koreans
really picked up. They have also been keen to around the region’ wanting to invest in US products, they also
develop the onshore hedge fund industry need to consider what they want to do for
following the Capital Market Consolidation their own domestic industry, like introducing
Act, which has been delayed and some taxes on offshore funds in Korea. It’s very
action has commenced only recently. We probably the first time, post-crisis, that any of difficult for them to explain each aspect of
have seen some relaxations on cross-border the regulators have taken a step back and the changes that they’re trying to make and
investment and cross-listings, which have considered what they want to do going the reasons behind their decisions.
resulted in increased flows. Otherwise it’s forward. They are almost starting with a
been relatively muted. blank sheet of paper and building it up from Ryan: You can see the potential for more
scratch. The timing of this is consistent with Korea-style regulation. In Taiwan, for
Chan: Having lived in Seoul for about a markets opening up, for example you have example, over the last twelve months,
year and a half I have seen all those different more QDII funds and the Korean market is offshore funds represented over 50% of the
regulations in play. But when it’s too opening up. The Mas discussion is a very whole asset management industry for the first
complex, it just confuses the investors and the useful turning point for the rest of Asia too, time. Ten years ago, this was at around the
regulators. In the case of Korea, for example, because what Mas ends up implementing is 30-33% mark and it was fairly consistent for
the regulators there are realising that going to be watched by regulators around the a long period of time. Now, because of low
protection is greatly needed but if too region. Other regulators may not nominal returns on local bonds, which have
extreme, it can be too difficult to implement. immediately match it but it will inevitably be been at 2% or below for six or seven years,
some kind of benchmark for the region. It’s money is swinging into these offshore bond
Nelson: You mentioned the Mas discussion going to drive a lot of the regulators to funds. Just looking at the number, it would be
that’s been going on recently. This is answer a lot of the issues that have been natural to question how an Asian country
37
ROUNDTABLE
can have more than 50% of its fund assets

offshore. The government must be thinking,
‘How do we slow this down?’ But the
momentum is not really stopping. The
overall fund industry in Taiwan has only
been growing by about 5% for the last six
years and investment returns have only been
growing by about 5%, which is not that high.
McLaren: They [Taiwan

regulators] do lift the foot off the pedal on
fund approvals from time to time, so when
they start to see that it’s reaching a point
that’s accelerating too fast, they slow it down.
Ryan: You’re right. In Taiwan authorities

do lift the pedal in terms of new fund
approvals, but they’re not overly sensitive to
the issue around the bond funds.
Chan: The bond fund crisis in Taiwan ten

years ago scared people away with the
valuation problems they had. But to Chris’s
point, in Taiwan it seems that new funds are want onshore fund managers and onshore
being launched every month, but actually it’s physical presence? It’s not a new dilemma.
the same money coming back in. Every time ‘The Taiwanese Australia effectively quashed offshore funds
they launch a fund, even though it’s open- and set up their own industry and now it’s
ended per se, people buy them for two or
regulator could forbid one of the broadest and most comprehensive
three years. When the fund gets to be a small front-end load fees that fund management industries in the world.
size it closes and another one opens up.
There is a lot of churning going on.
are paid to distributors. Singh: That is the challenge the industry
If they do this, there needs to take up; to look at what incentives
Durand: That could be the solution for the are required to build an onshore industry. For
Taiwanese regulator actually: they could
would be nobody to sell example, why are Korean asset managers
forbid front-end load fees that are paid to these funds anymore’ registering Ucits in Luxembourg to sell back
distributors. If they do this, there would be in the regional markets such as Hong Kong?
nobody to sell these funds anymore. This seems to be one of the few ways, and
possibly the easiest way, for them to get a
Singh: True, but that is not necessarily the only weapon that they had in their license to sell funds to Hong Kong investors.
successful. We have seen India do that just armoury that worked. Something needs to be done to address this.
last year, where they put a ban on front-end
load fees with servicing fees directly being McLaren: There are ways around Ryan: Australia is a good example. Back
negotiated with investors based on the service this as well. Looking at markets where you in the early 1980s, every overseas asset that
rendered. All this did was push the can’t directly register offshore funds, for any Australian superannuation pension fund
distributors to more lucrative products which example. Many fund managers set up a type member was invested in was managed in
got them higher commissions. It resulted in a of feeder structure, and the money ultimately Australia. Before this time, there were no
sharp drop in flows into the fund market. So goes offshore anyway. overseas managers in Australia. Then it went
I am not sure that is the solution to the completely the other way. By around 1995
problem. Maybe in the longer term it could Singh: That is what is happening in Korea there were maybe one or two local managers
pan out well for the industry, but that’s yet to after the tax benefit was abolished at the end left and the money went totally to overseas
be seen. of last year. We are seeing increased managers. Today you’ve got 150
momentum on setting up funds feeding into international managers selling their
Ryan: Tax was the thing that Korea used Luxembourg Ucits funds post expiry of the international products. But there’s also a
with the offshore funds. If you look back at tax incentive. price to pay for what Australia’s been
2007, all of a sudden offshore funds went through; Australian investors are incredibly
from nothing to about 20% of the industry, Bailey: It depends on the regulators’ conservative with their overseas exposure –
and they had to slow things down. Tax was motivation and overall objectives; do they it’s global equities, Aussie equities or nothing.
38
McLaren: That’s because up until whole. Along with such emerging markets, challenging to manage such portfolios
recently there has been about 15 to 20 years the maturity of the Hong Kong and efficiently. It will most likely be a very
of very strong performance in Australian Singapore pension markets can also provide a gradual, phased approach towards opening
equities, so they didn’t need to go anywhere real opportunity for further growth of the up, because it is retirement money
else. If you look at the Taiwan example, there fund management business in the region. and regulators are quite wary of risk in
was probably a need to look outside of the the portfolio.
home markets for diversification. Bailey: Hong Kong and Singapore have
very different dynamics to the majority of the Ryan: They’re also very aware of what
Ryan: It’s a self-reinforcing situation – if other Asian countries, due to their relatively happened historically. They have the
you don’t have money flowing into the small populations, and so they have to invest advantage of being able to study history.
domestic economy then the returns won’t be outside their domestic markets to get diversity Looking at Japan as the example of the first
there, and vice versa. of investment choice. There is a trend for Asian country that really emerged in modern
more onshore investment vehicles being times; in 1968, the yen was 400 to the US
Funds Europe: I was speaking to a launched that have international exposure, dollar, and the Nikkei went through 1,000 for
fund manger who said that when their which will mean a demand for onshore the first time. Oddly enough, the Dow Jones
clients want to take higher risk they tend administration services. also went through 1,000 in the same year.
to go not into complicated products, but Today, both the Dow Jones and the Nikkei
more into higher volatility funds. But is Singh: Given that this is retirement are around the same, 10,000 to 11,000, that’s
there, nevertheless, an appetite for money, regulators are that much more pure coincidence but the currency is very
complexity? cautious in some of these emerging markets. different, it’s trading at 80-90 yen per dollar.
For example in India, they have very tight Compare the Japanese investor taking
Ryan: In the wealth distribution markets investment restrictions including very limited Japanese yen and investing it in the US
in places like Hong Kong and Singapore, exposure to equities. This makes it market, which went up by about the same as
there are very few people with a lot of the Nikkei, to the American investor taking
money, so that’s the private banking market. their US dollars in 1968, 42 years ago, and
So from the private market there is an doing the same thing. The results are
appetite for complex products, but not in the
‘One area where you completely different because you’re on the
retail segment. The most complex products could see an appetite for wrong side of the currency trade.
in this market were these structured products. So when India and China are looking at this
structured products is if piece of historical data they realise that the
McLaren: One area where you these products sit under Japanese investor made money, but they only
could see an appetite for structured products made a quarter of what the American
is if these products sit under some form of
some form of theme investor made. They’re aware of this and it’s
theme – when there is a trend towards a that’s popular’ a very important currency dynamic. Over the
theme that’s popular. Hong Kong has had a longer term, they expect their currencies to
series of themes over the years that have
been very popular and there could be some
form of structuring to be done under that.
But how would any investor understand what
a sophisticated derivative product actually
does for their portfolio, in terms of risk
aversion or risk loving, and where does it sit?
I wouldn't be able to tell you. I could tell you
where cash, which is supposed to be low risk,
sits and that equities sit up the other end, but
a structured product? No idea.
Singh: If you are looking at products,

from a regulatory perspective, pensions is an
area in which we are seeing a lot more
activity. Korea, Taiwan and India are
demographically diverse and large markets,
where the pension sector is opening up.
Regulators are moving towards greater
involvement of private and foreign fund
managers in some of these markets which
provides an opportunity for the industry as a
39
ROUNDTABLE
rise and so you’ve got a very strong headwind Singh: Yes, we have seen reports that managers are now thinking about coming
for investing outside these emerging markets. indicate some are already considering out this way.
What they’re looking for are assets that are moving offices to jurisdictions such as Hong
more correlated to emerging markets, like Kong and Singapore while some are Nelson: For a majority of the more
commodities, and other emerging markets, considering Switzerland. established managers, who have been in Asia
Africa and places like that. for some time, the product mix they’re
McLaren: I wouldn’t underestimate offering is changing radically: from just
Singh: While Asia has been relatively the tax aspects of that either. recycling European products into Asia, to a
muted in terms of regulatory activity and much more local approach, tailored to local
more focused on investor protection, events in Chan: It’s fair to say that a lot of the investors and markets. I remember chatting
the EU are being watched closely. Obviously bigger global managers are already out here. with a couple of the major asset managers,
the most controversial of these is the AIFM We’re all servicing them one way or another, who have been on the ground offering local
directive and its possible impact on Asian so I don't think any regulation is going to products for a long time, and they underlined
managers. The third country marketing push them out more but maybe the smaller the strong barriers to entry in the local
restrictions could impact Asian managers and markets – which have the effect of keeping
on the flip side, fund managers are looking to new entrants out. While you can turn up in
move or are already moving towards Hong Kong and start working the market
domiciles like Hong Kong and Singapore ‘For established managers, quite quickly, in the rest of Asia it’s very
because of what’s in the proposals. From an the product mix is hard to just pitch up and launch local funds
asset servicer’s perspective, the most worrying for local distribution.
aspect is obviously the Clause 17 relating to changing radically: from
depositary liability. The longer-term impact just recycling European Funds Europe: In the Australian
of such measures on Asia remains to be seen. model, was it the pensions market that
products into Asia, to a really created the asset management
Funds Europe: Is there any evidence much more tailored, industry and is this the model the Asian
for European managers looking to base region is hoping to follow?
themselves in Asia? local approach’
Ryan: There are three dynamics going on
in Australia. Firstly tax is very high
compared to the rest of the Asia/Pacific
region. Second, prior to 1985 there was no
universal pension, it varied from company to
company and a lot of it was defined benefit.
It wasn’t until 1985 that the industry fund
movement came to prominence. Regarding
the tax aspect; in the beginning the
compulsion was low but the tax advantages
were very high. Effectively, the government
was paying half your contributions, so why
wouldn’t you do it? Even before 1985,
Australian authorities changed the taxation
rules to make it very attractive to foster those
kinds of savings. At the same time, you had
the entry of foreign companies to the
Australian market and the 1983 change to a
Labour government. The floating of the
Australian dollar made a big difference and
approximately 30 foreign banks came into
Australia and brought their asset
management units and securities companies
with them. That really got off to a very rapid
and high-momentum start during the early to
mid-80s.
Bailey: Australia needed those incentives

to get people to save because the Australian
psyche was ‘buy your own your home, live
40
the dream’. Asia’s population however has a often missed out is an appreciation of still nascent in Asia: people don’t yet trust it
higher savings rate, so it’ll be interesting operational risk which also gets transferred enough. We mustn’t overlook the cultural
when the pension fund industry develops to the provider. considerations as well of outsourcing: as we
across Asia. need to make sure that people understand the
Funds Europe: Do local managers true benefits, rather than being seen as
Funds Europe: To what extent is have the necessary expertise in-house or admitting that there is someone that can do it
outsourcing accepted and recognised by has this crisis driven them to look outside better than them.
institutional investors? Is third-party of their business? A good example is Chinese asset managers
asset servicing for these clients still only a who are just entirely focused on growing
nascent industry? Singh: When local managers have quickly and for them outsourcing is brilliant
offshore investments, which they cannot because there’s no legacy. It’s global best
Durand: I’m not sure that Asia is really handle internally, with a local platform, practice and it’s just a very quick path to
different from the rest of the world when it those are automatically outsourced. growth. I would say those guys are probably
comes to outsourcing. The investors need However, this is not always the case for local exceptional.
transparency and what we, as an asset- investments, especially in the more emerging
servicing provider, can offer is that markets, since they very often have the Ryan: The Chinese fund managers are not
transparency. We can give independence and platforms and infrastructure internally. How very interested in high levels of fixed cost and
help the asset managers go to their investors robust and how scalable these internal subsequently don’t want to increase the risk
and their clients and say, ‘look, we are not a structures are is a question to be asked. But coming to Hong Kong. In other words,
black box, we have people who are experts in the perception that it could be more establishing a Hong Kong pressence that
their fields and they can give you expensive going outside is what becomes the might go wrong with 100 people is a big
information’. Basically it’s like having an decision point very often, avoiding other decision for them. Also, I know from my
auditor: you want to show that there are considerations of outsourcing benefits. The previous role in the fund management
people looking into your products, having an other related issue is in terms of who bears business that over the last two years, people
insight into them. In general it will allow you the cost; in most markets the fund bears the have figured out the ramping up and ramping
to tell your investors that your product is safe, cost but there are some markets where the down in certain markets. In Korea, Japan and
that you are not a fraudster. manager bears the cost – like in Taiwan and Hong Kong, it’s extremely expensive to ramp
India. If they are bearing the cost and up and ramp down, so if you do a lot of
Funds Europe: To what extent will outsourcing it will drive this up further, it business one year and you haven’t got much
local pension funds, where they exist in does not bode well for the case of the next year, the transition cost is very high
this region at least, outsource their back outsourcing. However, we are seeing and people have been here long enough to
and middle office operational increased momentum towards outsourcing, understand that. So now we’re seeing some big
requirements and how much of your especially with start-ups who are more fund managers who used to do it in-house
services will they require? Also, will inclined towards outsourcing rather than beginning to outsource.
Chinese fund managers coming to Hong setting up infrastructure. This trend is
Kong use your services? also being reinforced by regulatory and McLaren: It’s also market
investor pressures. dependent. In Taiwan a fund manager is
Singh: Outsourcing in Asia is still allowed to launch something like four or five
relatively nascent and evolving; unlike in Nelson: Outsourcing is a pretty broad funds a year. Similar to what happens in
Europe and the US where it’s a lot more church. For example, outsourcing custody China, during the first couple of weeks you
mature. We are seeing different stages of compared with outsourcing your middle need to employ an extra 20 or 30 people to
evolution across markets, for example Hong office is a very different discussion. In Europe process all your transactions. Then, when that
Kong and Singapore are a bit further ahead, and the United States the key drivers for demand drops off you either have to get rid of
while India and Malaysia have picked up outsourcing are around risk management them or redeploy them. Apart from HSBC
over the last four or five years. A country like and controlled transparency. In Asia, the and one other, there isn’t any outsourcing in
Taiwan is still in the early stages of fundamental reason why people outsource Taiwan and there hasn’t been that collectivity
outsourcing. If you look at the local has more to do with the managers either of the variance in demand for resources. So it’s
managers, one of their key considerations is going international or being on an aggressive very market specific.
cost. The general perception is that growth path. This is mainly because it is I agree that outsourcing is nascent in Asia and
outsourcing will reduce cost, but this is not more expensive to outsource than to handle you get fund managers at either end of the
necessarily the case in the region. Many these operations in-house. At the end of the continuum; some of them will just stay very
managers have in-house operations and day, the more you outsource the easier it is to lean and say ‘we don’t want that fixed cost, you
manage with very low cost structures. When just bolt on new mandates, new portfolios. do it because we know you do it everywhere in
they go to a third-party provider, they find Volumes can shoot through the roof during the world’, but at the other end of the spectrum
out that it works out to be more expensive good times in Asia, and managers need to there’s this element of trust. It’s not unheard of
than what they’re doing in-house, so think about whether they can handle that that as an internal back office is reluctantly
why should they outsource? What is very internally. The whole outsourcing trend is handing over some of their fund accounting,
41
ROUNDTABLE
they’ll continue to shadow it for the next year or Singh: The other issue that also plays a part Bailey: Local managers are the biggest
two years or five years, to make sure you don’t in the decision making process is flexibility. challenge. It’s harder to do the middle office
make any mistakes. All things considered, like Whenever a fund manager who has been of a Korean domestic fund manager
full internal costs, system investments and managing the back office in-house for a number anywhere other than Korea, so there isn’t a
global best practice, in 90% of the cases the of years suddenly has to outsource, there is a lot of scale there. A lot of the global fund
outsourcing solution is a better one, if a well- perception of loss of flexibility and control on managers want to go to Korea or Taiwan
established global player is selected. the operations, whether it is to do with or Malaysia.
deadlines, procedures, etc. A mindset change is
Durand: Asset managers that have their back required for the managers who carry a huge Nelson: Regarding the loss of control and
and/or middle office in-house may think that amount of legacy of an in-house operation and loss of agility, we benefit from being very
outsourcing is more expensive, but that's really need to adapt to a new environment. This is innovative and fast moving in a lot of
if they don’t look at all the costs involved. especially true for the local managers. It is the markets that we’re in. Then you’ve
Sooner or later, they won’t have the choice, obviously a lot easier for a start-up where you got the juxtaposition of that with the
they will have to outsource, even if, at first, it start with a clean slate. internal culture.
appears more expensive. Not because of
regulatory pressures but because of pressure Funds Europe: How should fund
from investors. managers choose a fund domicile and
If you are a pension fund, you want to trust ‘If the fund is doing all fund centre for their asset servicing
the fund you are invested in; if the fund is his middle office in needs? To what extent are funds required
doing all his middle office in house, if he is to be serviced in the same country as their
pricing his OTC, how can you trust that? You house, if he is pricing legal domicile? And would an offshore
can’t. What if there is a small fund with three his OTC, how can you strategy, like Luxembourg, for a fund
people in the middle office: what happens if manager building a pan-Asian business
one resigns and one is on holiday? You need trust that? You can’t’ be favourable?
solutions and you need a structure. In the end,
the advantage of outsourcing will be clear to McLaren: We look at the world
them as well. with a significant presence in Europe and
obviously domiciles like Dublin and
Luxembourg are very important. Looking at
Asia, the distribution of those products is
very important for countries like Hong Kong,
Singapore, Taiwan and others, but there’s
one offshore domicile that’s often not
overlooked but maybe underlooked, which is
Cayman. Hong Kong and Japan have a very
long association with Cayman and as such,
Cayman offers the ability to service outside
of the jurisdiction. While Luxembourg and
Dublin have various rules and regulations,
Dublin has a minimum activity requirement.
Luxembourg has a central administration
requirement that not all functions, or maybe
no functions, can be done outside without
derogation. This is why, for Asia, Cayman
has been successful.
Across this industry a lot of specialised
Cayman lawyers are operating in the market,
all of the audit firms and the majority of
asset servicing funds can service a Cayman
fund from here with maybe nothing more
than a brass plate in Cayman or a trustee
licence. If you were building a business in
Asia and starting from zero, you would have
to consider taking the Ucits route. It’s not
necessarily always the answer but it’s
probably the most established for selling back
into major markets. Looking at other Asian
42
domiciles, the onshore funds industry in servicing can be done as well, if not better, in
Singapore seems actually to be shrinking in global centres of excellence, as long as there
favour of the offshore products. So global ‘We’re in the throes of is some control and review in the local
fund managers say, ‘why should I have a Ucits IV, which does a domicile. It is becoming more and more
product in every single market and have to decoupled with the domicile of the fund.
set up either a feeder structure or a domestic couple of things. It
home grown fund, when all it is is my global creates the ability to do Durand: There’s also the fact that the Ucits
equities portfolio, why can’t I just set it up funds are strong in Singapore, Hong Kong
once in one dominant location and sell it in cross-border mergers and Taiwan, but the two major markets,
as many countries as I can around the within Europe, but it which are Japan and China, don’t know these
world?’ That’s certainly the argument for funds at all. So using these Ucits funds to
scale and cost that we see evolving in favour could also drive business come to Asia is a good start but if you stop
of Ucits. away from Cayman’ there, your business is limited.
Bailey: This kind of consideration is also McLaren: We’re in the throes of

of benefit to the investor, in theory, not just Ucits IV, which does a couple of things. It
the fund manager. creates the ability to do cross-border mergers
within Europe, but it could also drive
Nelson: Ucits funds are not going anywhere business away from Cayman. For example,
for a while. They’re the status quo. The only Malta could be a European domicile; it could
thing that possibly will change this is the be the next Cayman of Europe, but now
advent of Ucits IV. Ucits is still a designer I’m maybe being provocative.
label in Asia, it’s still the route most side, which will help people in Asia to
traditional fund managers will take, actually pick a workflow that suits their Bailey: From the funds perspective, there’s
excluding most hedge funds. Within Europe needs. this whole Asian culture where they like
though, competition is warming up in term onshore funds, or at least their regulators like
of fund domiciles. Jersey is now actively Singh: Traditionally, providers have been them. If they had a choice to have a fund
canvassing in Asia at the moment, so there located in the same domicile and there are with the same investment profile regulated in
are other potential changes in the pecking markets where there are regulatory any of the countries you just mentioned or in
order. The Luxembourg rules are currently restrictions while there are some others, like their home country, they would probably go
quite constraining, given the close oversight Singapore, that offer tax incentives if your for their home country. All the funds are
that must happen from within Luxembourg provider is in the same jurisdiction. However, trying to do is create something that has the
today. We believe that there will be an this is changing quite rapidly and regulators transparency to make the local regulator
increase of competition on the European also appreciate the fact that the basic core happy but so they can still have scale. fe
43
44-IBC Talking HeadsASPTSnf:Layout 1 28/5/10 14:11 Page 44
TALKING HEADS
‘A shift from West to East’

We questioned executives in Asia about their outlook for the industry in the
region. We asked them whether they think more managers will be opening
Asian offices and what regulatory and client-driven trends can affect the
business, both onshore and offshore
BHADRESH P SONI
CEO, ASK INTERNATIONAL
“The question of whether managers will be opening portfolio
operations in Asia is a highly subjective matter and has to be dealt with
in the context of relative size and scale of operations, quantum of
assets under management, diversity of investment themes and
circumstances specific to each investment fund or manager. However,
if you consider the landscape, most high-street names have presence in
either Singapore or Hong Kong and to this extent already have some
footprint in the Asian markets. At the same time, it’s not uncommon to
find managers managing sizeable sums in emerging markets with an
Asia focus, appointing a senior analyst or a manager to the region to
obtain on-the-ground experience and get a feel for the portfolio
companies from time to time. Going forward, as we see a shift
from West to East, this trend can only accelerate as markets such as
India and China provide superior growth and sustainable returns over
the long term.
While we believe a lot of offshore jurisdictions are well regulated and
may continue to attract new managers and assets, there is a sector of
investors that insists on a more stringently regulated onshore
jurisdiction. A couple of fund houses we know have recently moved
their offshore funds activity to onshore jurisdictions in the European Union, seemingly driven both by client objectives and a larger public
perception of them having a better regulated status, among others. But, of course, one cannot generalise. Each situation needs to be examined
within each individual fund house context.”
‘Strong economic growth in Asia has pushed many managers to relocate’
ANTHONIA HUI
CHIEF EXECUTIVE OFFICER
AL WEALTH PARTNERS
“Media and market talks, recent regulatory practices, threats
and tax increases made by EU and USA governments, and
strong economic growth and wealth in Asia have pushed many
managers to relocate to either Switzerland or Asia.
Singapore has established itself as a leading wealth
management centre over the last decade. Most recently it
presented a consultation paper for the industry to comment on
the best practice for the fund management industry. It will
continue its prudent approach and maintain a conducive but
proper operating ground for those that respect and practice
with integrity.”
44
44-IBC Talking HeadsASPTSnf:Layout 1 28/5/10 17:26 Page 45
‘With most Asian countries having strong foreign reserves and the increased need to
diversify investment options, there are growing demands for offshore products’
ROLAND TEO two years ago. Also, increasingly, institutions such as private banks and
DIRECTOR OF BUSINESS DEVELOPMENT funds of funds have transferred the fund manager selection function for
ABSOLUTE ASIA ASSET MANAGEMENT Asia investment to Asia itself, so that they can be closer to the ground.
“In the past year, there was an increase in investment in Asian capital Some firms chose to transfer the team to Singapore, such as Credit
markets. However, the majority of managers are still maintaining Suisse Private Bank, while others merely appointed a local team.
investment teams in their home country, but their Asian analysts travel In Asia, different countries are at different stages in their development
more frequently to Asia to do their research, either to carry out direct of the mutual fund industry. While there are fund registration regimes
investments or to select managers or funds. We see a minority of firms already in place in certain countries such as Singapore, Hong Kong and
establishing research offices in Asia – usually in Shanghai or Singapore Taiwan, it is difficult for offshore products to be sold in most other Asian
or both. For example, the Norwegian sovereign wealth fund is opening countries. Many countries implemented exchange controls after the
its second office in Singapore after opening its first office in Shanghai Asian crisis, partly over concerns that offshore investment might hurt
their currencies. Today, with most Asian countries having strong
foreign reserves and the increased need to diversify investment options
for reserve and pension money, there are growing demands for
offshore products.”
HARSHENDU BINDAL, PRESIDENT,

FRANKLIN TEMPLETON
INVESTMENTS INDIA
“We believe superior risk-adjusted returns
are only possible through a fundamental
and bottom-up approach to investing and
this requires investment professionals being
stationed in various locations across the
globe. This also helps in having a
comprehensive research coverage across
market cap ranges and sectors, instead of
being limited to the large-cap stock
universe (benchmark driven) used by
investors adopting top-down, quantitative,
passive styles.
Also countries like India, which have a large
population, regulatory restrictions and
growing demand for financial services, would
require a strong onshore presence. We have
always believed in a ‘think global act local’
approach, which helps us leverage our global
investment strengths in an appropriate
manner to meet local financial needs.”
45
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EXECUTIVE PANEL • INDIA’S KOTAK • NEWS

Subscribe to Funds Europe

funds europe limited, 2010

Printed in Great Britain by Buxton Press

The views expressed in Funds Europe do not

Gulf fIt’s more tha

global 2010 - MENA

32 Asset Servicing Roundtable

BNY Mellon wins QDII custody mandate

Alfi to open Hong Kong office

Funds back in black, but bonds Appointments

Joachim Faber, AGI

Playing the long game

Rule changes may see pension providers competing for US$15bn

Hong Kong Jokey Club

T. ROWE PRICE ASIA EX-JAPAN STRATEGY

A force to be reckoned with

Looking at the chronology of the global economic and demographic changes,

GLOBAL ECONOMIC AND DEMOGRAPHIC CHANGES

World population Asia 59.5% Asia 59%

Birla Sun Life Asset Management, which has

‘Think Investments. Think Kotak’. So runs

Hong Kong dividends

Responding to the global downturn last year,

Title First Name Surname

funds europe – think about it

With good fundamentals in most Asian

“The key strength of Navigant’s contribution

‘Asset managers should put

PARTICIPANTS Stewart Edgar, BNP Paribas: We have

non-Japanese sub-adviser for products

But, for the moment, T. Rowe Price is

protection in Asia went from somewhere in at the forefront of discussions – questions

Bailey: The redemptions being halted and

Chan: I agree with Scott, if there’s money

Nelson: The acid test is going to be the

Nelson: Globally, there is always a dilemma

Bailey: The whole of the financial services

McLaren: From an incentive

an equilibrium point of how many products

Funds Europe: Asset service providers

Singh: We have been discussing the

can have more than 50% of its fund assets

McLaren: They [Taiwan

Ryan: You’re right. In Taiwan authorities

Chan: The bond fund crisis in Taiwan ten

Singh: If you are looking at products,

Bailey: Australia needed those incentives

Bailey: This kind of consideration is also McLaren: We’re in the throes of

‘A shift from West to East’

‘Strong economic growth in Asia has pushed many managers to relocate’

HARSHENDU BINDAL, PRESIDENT,

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