Strapp, a former bond portfolio manager at JP Morgan Asset Management, said although he considers Eastspring an Asia specialist, he sees the need to increase activity in certain regional markets, particularly China.
Currently China makes less of a contribution to the firm’s profit than India, where Eastspring has a partnership with ICICI.
“We need to grow our China presence,” Strapp told FSA. “To say we’re a successful Asian asset management firm, India and China will both be critical.”
In China, Eastspring has a joint venture with Citic, which is licenced to do institutional mutual fund business.
"Aside from JP Morgan, [the MRF] is just a sideshow of interest for everyone else. The same with the Stock Connect programme."
“The mutual fund business in China is incredibly competitive and [the joint venture] is focusing much more on the institutional market. Banks and financial institutions have a high desire to access bond products, so last year we distributed a lot of bond product in China.”
The firm hasn’t participated in the Mutual Recognition of Funds scheme. To meet the MRF criteria, one requirement is having a substantial Hong Kong presence. But the firm doesn’t have a big base in Hong Kong: 28 people compared to 380 in Singapore.
“Passporting arrangements in Asia have not been productive in terms of facilitating flow. Except for JP Morgan [which has dominated MRF flows], it’s just a sideshow of interest for everyone else. The same with the Stock Connect programme. You can do a bit of investment through it, but you can’t build your whole portfolio on it.
“The real opportunity for China is in opening up. Mainland investors getting access to global products and vice versa. Once China is included in the MSCI global indices, there will be a natural flow [of capital].”
In terms of fund distribution, he said Indonesia has a growing middle class, “but the GDP per capita is still a little low for supporting a mutual fund entrant”.
He is, however, looking closely at the increasing sophistication of the Thailand market. Last month, the firm announced it was partnering with Thailand’s Kasikorn Asset Management (K-Asset) to co-manage an Asia fixed income fund.
“From a distribution perspective, the obvious market were not in is Thailand,” Strapp said. “Thailand has matured significantly. It was previously opportunity for money market products and now it has become more sophisticated. We’ve got a large life business there as well supported through our Singapore office.”
Eastspring’s £118bn in AUM is split into roughly 60% Asian life insurance clients (large institutions) and 40% third-party, which could be a private bank, wealth manager or direct, Strapp said.
He believes the firm has no direct competitors. Global players such as Franklin Templeton and Asian firms such as Nikko and Mirae do compete with Eastspring in some markets, but Strapp said they don’t match his firm’s Asia presence.
“We don’t do battle with any one firm to get onto a bank’s platform.”
According to Strapp, 2016 was a strong year for Eastspring. Pre-tax profit was up 10% year-on-year to £141m ($177m) on a constant exchange rate basis and AUM was up 13% to £118bn.