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Feeder fund assets in Philippines up 57%

Manila-based Security Bank has launched an Apac-focused fund managed by Mitsubishi UFJ AM, underscoring the growth of feeder fund arrangements.
Feeder fund assets in Philippines up 57%

The SB Asia-Pacific Equity Feeder Fund is the domestic wrapper for the MUFG Asia Pacific ex-Japan Equity Stable Growth Fund, managed by Mitsubishi UFJ Asset Management.

The fund is aimed at Security Bank’s wealth management and retail clients, according to a statement from the bank.

The Mitsubishi fund is managed by a Singapore-based investment team. Commenting on the fund’s strategy, co-manager Ernest Sutanto said in the statement: “We assess companies with above average earnings growth and below average earnings volatility to consistently earn attractive long-term returns.”

He added that he sees more upside in Asia-Pacific in the coming months, backed by strong corporate earnings expected to grow at 12% in next year.

Security Bank and The Bank of Tokyo-Mitsubishi UFJ, the parent of Mitsubishi UFJ AM, formed a strategic partnership in 2016. The Japanese bank at the time took a 20% stake in the Philippine bank, making it its second largest shareholder.

“Through our partnership with Mitsubishi UFJ Financial Group, we are opening more opportunities for our clients to venture outside the Philippine market,” Alfonso Salcedo, Security Bank’s president and CEO, said in the statement.

Another Asia-focused vehicle, the ATRAM Asia Equity Opportunity Feeder Fund, which is the local wrapper for the JP Morgan Asia Equity Dividend Fund, was launched in 2016, according to the Trust Officers Associations of the Philippines.

Surge in feeder fund assets

In the Philippines, feeder fund arrangements, in which a local asset manager puts a foreign fund in a local wrapper and sells it to domestic investors, are relatively new. First launched in 2013, there are only 17 feeder funds in the country’s unit investment trust fund (UITF) market. Most of them are focused on global markets, emerging markets, the US and Europe.

However, the demand for feeder funds has been growing. Assets in such products were up 57.5% to $235m in 2017 from $145m in 2016, according to data from the Trust Officers Associations of the Philippines (TOAP).

Yet they still represent a small part of the roughly 100 UITFs, which together have gathered $14.05bn in assets at the end of 2017.

The Philippines’ mutual fund industry is complicated because it has two financial regulators. Collective investment schemes (mutual funds) managed by banks are called UITFs, which are regulated by the country’s central bank, the Bangko Sentral ng Pilipinas.

Mutual funds that are managed by investment companies are regulated by the Securities and Exchange Commission.

In December, Philippine investment companies were given permission to sell feeder funds, a move that is likely to increase feeder funds assets. Previously, only banks were permitted to sell them.

The recent development is a huge step in developing the country’s fund industry, as local players have been anticipating the regulatory change since 2016, Valerie Pama, Manila-based president at Sun Life Asset Management in the Philippines, said previously.

The three-year performance of the MUFG – Asia-Pacific ex-Japan Equity Stable Growth Fund versus its benchmark


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