Asian managers hope for European investors

Industry Interviews

European investor demand for Asia-focused equity and fixed income strategies may not translate into inflows for Asia-based managers.

More Asia-based fund managers are expected to launch products in Europe, according to Xavier Parain, Paris-based CEO at third-party management firm Fundrock.

“[Asia bond products have been in demand in Europe] because we have low interest rates, so a lot of insurance companies and pension funds are looking for more yield,” Parain explained.

The firm, which helps asset managers establish Luxembourg and Ireland fund structures, recently opened its first Asia-based office in Singapore due to anticipated demand from regional managers eyeing Europe, according to Parain.

Current clients, he said, include Chinese managers China Asset Management, Harvest Global Investments, China Post Global and GF International.

“They want to have access to European investors that have a strong appetite for Asian strategies,” Parain said.

Similarly, another third-party asset management company, Lemanik Asset Management, launched its first Asia office in Hong Kong last year. The firm said it is seeing more Chinese asset managers bringing China-focused equity funds to Europe.

Few successes

Among the different Asia-focused products, China A-share funds were mostly in demand during the past year with around €3bn ($3.39bn) in net inflows, according to data from Morningstar Direct. Various fixed income strategies were also popular, including Asia high yield and Asia local currency funds.

Top 10 Asia fund categories in Europe by fund flows

Name

Apr 2018-Apr 2019 (€ m)

China Equity – A Shares

3,090

CHF Bond

2,874

China Equity

1,823

Asia-Pacific ex-Japan Equity

1,696

CHF Moderate Allocation

1,235

Asia High Yield Bond

1,188

Asia Bond – Local Currency

986

Asia Bond

700

CHF Bond – Short Term

629

Greater China Equity

578

Source: Morningstar Direct. Data includes ETF assets and excludes money-market and fund of funds data.

 

But demand for Asia-focused products does not mean inflows for Asia-based managers. The Ucits market alone is already very competitive with at least $4trn in assets, with global players already offering Asia-focused strategies.

So far, Asia-based managers that have entered Europe have had few success stories.

For example, China Asset Management established its Luxembourg Ucits range of products in 2010 to sell in Europe, but these products only had around $454.9m or just 0.9% of its total AUM as of October last year, according to a Northern Trust report.

Value Partners, which has around five Ucits funds in Europe, has only sourced $367m, accounting for just 2% of its $18.3bn global AUM, according to data from Morningstar. CSOP Asset Management manages $6.7bn in assets, but only $9m of that is from Europe.

Only a few Asia-based managers have breached the $1bn AUM mark in Europe, which include Mirae Asset ($1.89bn), Nikko Asset Management ($2.26bn) and Nomura Asset Management ($9.2bn), Morningstar data shows.

Distribution and branding are a primary hurdle for asset managers entering Europe, according to Value Partners and Bea Union Investment.

“Setting up a fund in Europe is the easy part, but distributing the fund and finding investors is most important,” Fundrock’s Parain said.

The distribution landscape in Europe can also be difficult, especially since 73% of the market is institutional, according to the Northern Trust article.

In addition, retail distribution across Europe may vary widely from one market to another.

Source: Northern Trust

Niche products?

Despite the difficulties in the European landscape, Parain believes that managers in Asia could offer more specialised products that are currently not provided by global peers.

For example, Asian managers could offer small- and mid-cap strategies to European investors.

“If you are locally based, you have more knowledge on what is happening in these companies,” he said.

Those with alternative capabilities may also find opportunities in the European market.

“There is some appetite for illiquid assets like real estate, which is where Asian managers have expertise,” he said.

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