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Asia AMs: regional capabilities are key to global success

Developing regional investment capabilities is the key for Asian fund managers to compete globally, according to CEOs of fund management firms who spoke during Fund Forum Asia in Hong Kong last month.
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Having on-the-ground capabilities with people understanding the culture and dynamics of the local markets in the region is a huge advantage, said Jung Ho Rhee, president and CEO of Korea’s Mirae Asset Global Investments. It helps the firm compete not just against Asian but also American and European fund managers, he added.

The advantage will only grow as the market size of Asian and emerging markets is expected to surpass that of developed markets, according to Rhee.

In the past 12 years, Mirae Asset has built on-the-ground capabilities in seven countries in Asia. “Now, we provide regional capabilities, as well as single country capabilities, such as India, Korea and China,” he said.

Regional products can achieve more scalability if managers are able to combine their capabilities in the different markets in which they operate, he added.

Echoing Rhee, King Au, CEO of Hong Kong’s Value Partners, said the firm wanted to broaden its product capabilities as Asia is becoming more relevant as an asset class. 

“That’s why we recently launched a global emerging markets fixed income product (in February, according to the firm’s 2016 annual report) and we’ll be rolling out a global emerging markets equity [product],” he said. 

Value Partners also stated in the report that it has strengthened its Singapore-based investment team and established an office in the UK to extend its coverage of global emerging markets.

“Some of the global emerging market products that are run from outside of Asia have a tendency to be underweight the region,” he said.

“They don’t understand China, they don’t understand India, they don’t understand the region as a whole. And yet, the region accounts for 60% of the benchmark. That’s one reason why we believe we have an opportunity and the catalyst to grow our product range,” he said.

Au acknowledged that Value Partners is not well-known outside of Hong Kong or China. But with the possibility of Asia to be included in global benchmarks, institutional investors will be forced to look at China and Asia more seriously going forward, which he sees as an opportunity.

Ramping up small scale regional capabilities

Not all fund managers may have a presence offshore and many prefer to focus on their home markets at the moment.

For example, none of Thailand’s asset management firms would have an offshore presence, according to Chavinda Hanratanakool, Krung Thai Asset Management’s Bangkok-based CEO.

“We are focusing on our local market, and that’s because our markets are still growing,” she said.

However, although the firm is focusing in Thailand’s local market, it still offers global products through funds-of-funds or feeder funds for those who would want to have offshore investments.

In addition, the firm is slowly ramping up its regional capabilities by first focusing on its investment and research capabilities for Cambodia, Laos, Myanmar and Vietnam (CLMV), she said.

The firm just launched its Krung Thai CLMVT Equity Fund in February, which invests in Thai stocks, Vietnam stocks, and Cambodia, Laos and Myanmar companies that are listed in other stock markets, such as the Singapore or Hong Kong Exchange.

“We want to go for the [CLMV region] first,” she said, adding that the firm wants to make sure it could handle small-scale regions first before expanding their investment scope.

“China and India are potential [areas of] growth for us that we want to invest in, but for direct investments, we are still far away from that,” she added.

Leveraging home-country capabilities

For some asset managers, having a niche strategy is key when tapping the global markets.

For example, India-focused Kotak Mahindra Asset Management has expanded globally by establishing offices in London, Dubai and the US, but kept its niche play in managing India-focused funds, according to Ruchit Puri, the firm’s Singapore-based CEO.

Puri said that the firm saw a huge opportunity in selling India-focused funds globally. 

“[Whether it is] India-dedicated funds, China-dedicated funds or Japan-dedicated funds, you can still survive with your niche globally,” he said.

Distribution woes

Distribution, however, remains to be a challenge, according to the panelists.

“Based on our experience in the last 10 years, the global market is much more fragmented than we expected,” Mirae Asset’s Rhee said.

For example, in Europe alone, it is difficult for a product to be distributed in the UK, even if a fund manager is from France or Germany, Rhee said. The same goes for UK-based managers seeking to distribute their products in other European countries, he added.

Global distributors also have high standards for products they add to their shelves and each market would have different investor preferences, he added.

Rhee finds that partnering with a local fund manager through white labelling would be a good strategy for entering a local market.

Echoing Rhee, Value Partners’ Au said that the firm favours forming strategic partnerships abroad, citing the firm’s relationship with a boutique manager in India, which Au did not name, as an example.

“We want to grow that relationship and we want that partner to establish our presence in India, hopefully, in the near future,” he said.

Both Mirae Asset and Value Partners have on-the-ground presence abroad. Mirae Asset has offices in Hong Kong, Taiwan, India, Australia, China, Vietnam, Brazil, Canada, Colombia, US and the UK, while Value Partners has offices in Shanghai, Beijing, Taiwan, Singapore and the UK.

Know the local market

Knowing the local market’s investor preference and risk appetite is also key when expanding abroad, according to Krung Thai’s Hanratanakool.

”We’ve been approached by a lot of foreign fund houses to distribute their products in Thailand,” she said. “But when you sell your product in Thailand, you have to be aware of the risk appetite of the Thai investor.”

Krung Thai funds, which include their locally manufactured funds and feeder funds, are distributed through its parent Krung Thai Bank, one of the biggest banks in the country with more than 1,000 branches.

“When we put your product on our shelf, it means that we have to make sure that we can sell your product,” Hanratanakool said, adding that at the moment, Thai investors like India- and Japanese-focused funds.

Part of the Mark Allen Group.