Despite the advent of fund passporting schemes, feeder funds remain strong. Among the major Southeast Asian markets (excluding Singapore), foreign asset managers selling funds in Malaysia, Thailand and the Philippines typically enter through feeder funds, which are offshore funds wrapped in the name of a local manager.
The AUM for feeder funds in Thailand and Malaysia had double-digit annual growth in 2016, the latest figures available, according to Cerulli.
Top 10 master fund managers (AUM in $m)
Source: Cerulli Associates
Offering feeder funds in Thailand has always been the most viable channel for foreign asset managers rather than establishing an on-the-ground presence, according to Quah Chin Chin, Singapore-based associate director at Cerulli.
“It is interesting because foreign managers are seen as a competitor if they have an on-the-ground presence. That’s why the likes of Aberdeen and CIMB Principal have not really done so well in Thailand,” Quah told FSA.
In addition, foreign managers can partner with multiple local fund managers to sell their funds under the master-feeder route in Southeast Asia except in Malaysia, Quah said.
For example, the reason why Pimco saw a surge of assets in Thailand was because it was able to work with more than one local partner.
“That is why the Pimco GIS Income Fund became one of the best sellers, and there are many other examples.”
TMB Asset Management’s Global Income Fund, which is a feeder fund that invests into the Pimco GIS Income Fund, became one of the best-selling newly-launched products in Asia-Pacific last year, with $2.02bn in net sales, according to data from Broadridge Financial.
Last year, local managers in Thailand were interested in wrapping foreign multi-asset strategies and equity strategies focusing on emerging markets, China and Japan, Quah said, citing a survey the firm conducted in 2017.
In Malaysia, asset growth for feeder funds in 2016 was $1.8bn, up 20% from the previous year.
Tan Kian Hong, Singapore-based senior analyst, said local managers managing local assets tend to outperform their benchmarks. However, they rely on foreign managers for offshore investment expertise. Around 40% of local fund managers are seeking tie ups with foreign managers to launch feeder funds, according to Tan.
Local managers in Malaysia last year said that they are keen on launching feeder funds with equity strategies focused on global or developed markets, emerging markets or sectors, according to Tan.
Commenting on regulatory developments, Tan said that Malaysia’s recent focus was the development of its ETF market.
Malaysia’s Securities Commission launched initiatives last year to develop a more vibrant ETF market, which include recommending the lower minimum capital requirement for ETF issuers and the broadening of ETF distribution channels by permitting financial institutions, online platforms and financial planners to offer ETFs to clients via stock brokerage firms.
However, the country’s ETF industry is still at the beginning stage and therefore foreign managers specialising in ETFs may not see many opportunities in the market.
“The demand for ETFs is not quite there yet,” Quah said.