April 2008

ASIA FOCUS: Still early in the game

Business interest in the Asian region has intensified over the last few years, with a huge expansion in mutual funds and growth in fund platforms. However, this is only the beginning, writes Liz Malein ... river scene The insatiable hunger for a piece of the great Asia pie has been picking up speed over the last few months with many international asset management firms upping their assaults on the region.

Edmond de Rothschild Asset Management, Friends Provident, Legg Mason and Pictet Funds are just a few names that have recently stepped up their Asia strategies.

Jag Alexeyev, senior managing director at Strategic Insight, a New York-based research company, says: “Business interest in the region has mushroomed only in the past two to three years, so it is still early in the game, with the competitive landscape wide open for changes in industry leadership.

So what types of products have made an impact in Asia so far? The most visible trend is the remarkable expansion of mutual funds.

Going global
“Last year, investors in Asia contributed $500bn (£252.4bn) on a net basis to funds. That’s more than double the amount in 2006 when it was $240bn. This amount, excluding money markets, surpassed long-term fund flows in the US and Europe combined,” Alexeyev says.

Once upon a time Asian investors were content to reap returns solely from their own stock markets, but now they are increasingly demanding pan-Asia products, or even global funds.
David Jiang, CEO of Asia Pacific at BNY Mellon Asset Management (BNYM), says: “Asian investors are waking up to new regions and shedding their strong home biases. Investing outside their home region is a trend that will continue.”

Fund platforms are also a new development, according to Francis Leach, director of sales, Asia, at New Star International. Indeed, last month saw New Star hop on board the new Fundsupermart.com online platform in Hong Kong.

While generalisations can be made about what’s popular in Asia, there are considerable variations from one nation to another. Japan is one country that has widely different investment patterns to its developing neighbours, and has recently witnessed an expansion in fund-of-funds.

Alexeyev says that in Japan “more than $100bn has gone to international fund managers over the past two years through local fund-of-funds, sub-advised and co-branded products, and locally domiciled offerings”.

BNYM has benefited from this trend, with its series of ‘best of 9’ products which hold nine asset classes blossoming in Japan.

“It was the second largest fund launch in Japan. The average age of the high net worth investor in Japan is 59 so I think they want a one-stop shop, and ‘best of 9’ fitted that,” notes Jiang.

BNYM is also active in Australia, Korea, and China through a joint venture with Western Securities, and plans to expand into India. The firm started focusing on Asia in 2003 and doubled its business last year. However, he does not believe 2008’s figures will match last
year’s growth.

Jiang would not divulge what proportion of the company’s revenue is derived from Asia, but says that Asia revenue now matches its Europe revenue.

“All fund management companies will suffer this year so we won’t see the type of growth we did last year, but I’m confident we will grow faster than the market.”

New Star, a high-profile fund manager in the UK, is emerging in Asia too. Its sole office on the continent is in Hong Kong, which the firm opened six years ago in 2002. Leach says: “We want to develop our business with the private banks, life platforms and fund supermarkets in Asia.”

The firm is currently concentrating on Singapore and Hong Kong. “We’re not casting our net very wide at the moment. Singapore is to Asia like Miami is to South America – there is a lot of money from wealthy Indonesians’ and Thais’  that is coming into Singapore.”

However, the company is looking at targeting Asian pension funds and Australia next year.
According to Strategic Insight’s research, the main winners in Asia in terms of international financial firms are currently Schroders (gained $15bn net flows in 2007), Prudential, Pictet, Fidelity, Invesco, HSBC, JF/JPMorgan, BlackRock, and Franklin Templeton.

And the largest local asset management firms include Nomura (captured $30bn net flows last year), Daiwa, Nikko, and Kokusai in Japan, Mirae Asset Global Investments in Korea (gained $30bn last year) and China AMC, Bosera, and Harvest in China.

Mirae Asset is certainly on a hot streak. Last October it launched a global equity, property and bond fund called Insight. It collected $1.7bn from Korean investors in its first 10 days.

Success and growth
Now it has its sights set on expanding into new markets and making more of its products available to non-Korean investors.

Robert Horrocks, head of research at Mirae Asset (Hong Kong), says: “We want to cement our position as one of the leading regional investment houses – and the largest (in terms of AUM) outside of Japan.” With success stories like that of the Insight fund, Alexeyev predicts that over the next five years, assets under management in Asia could realistically grow from $1.8 trillion today to possibly $8 trillion.

“This could happen as net flows rise from $500 billion now to around $1 trillion per year five years from now. Outside of China, Korea and Japan are the main segments adding to AUM change but all markets are participating.” ©  funds europe 2008

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