In an interview with Fund Selector Asia, Lennie Lim, managing director and regional head of Asia, discussed LM’s expansion plans and investment themes in the region.
Growing private wealth
India, Malaysia, and Thailand are on Lim’s radar because he believes they have a substantial amount of private wealth. Asia’s various fund passporting frameworks are also supporting the entry into some of these markets by laying the groundwork for cross-border funds, he added.
“I think they are slowly opening up to offshore investments and that’s where we can come in and distribute our affiliates’ products,” Lim said, though he added that the move into these markets will be gradual.
Legg Mason distributes its products through private banks, retail banks, insurance companies and independent financial advisors.
Some of these partners are global, but the firm has also developed relationships with Asian players like DBS, UOB, China Trust in Taiwan as well as local banks in China.
“Very often, we expand in accordance with what out distributors are doing,” Lim said.
“Many of our clients have a strong partnership with us and are selling our products in Asian countries. When they enter into a new market, they would like to have Legg Mason products in that market as well.”
Interest rate worry
Given the current environment, Legg Mason sees strong demand for products like unconstrained bond funds and equity income schemes.
Unconstrained bond funds are allowed to deviate from traditional benchmarks and invest across fixed income markets. Taking dynamic calls on the bonds can reduce downside volatility, something especially important when interest rates are poised to rise, Lim explained.
“Clients are worried about rising interest rates and see that impacting on certain asset classes. So we have launched products like unconstrained bond funds, which do not stay too close to the benchmark and are tactical in nature,” Lim said.
Equity income products are also seeing strong demand largely due to interest rate expectations.
“Economies are generally doing well, which bodes well for equity investments. But this also may lead to a higher interest rate environment and clients want that income element.”
Global high yield instruments are also in demand, with clients in China, Taiwan, Singapore and Hong Kong showing interest, he added.
While there is strong demand for US equity products, ranging from all-cap, large-cap, mid-cap, to small-cap oriented vehicles, Asian client exposure is relatively small.
“There is definitely a demand for US equities from Asian clients, but I wish they had a greater portion as a percentage of their total portfolio. Asian investors tend to have a stronger bias toward local or Asian markets,” Lim said.
Post-acquisition products
In China, Lim said Legg Mason has done well with Qualified Domestic Institutional Investor (QDII) instruments, capturing more than 10% of the market shelf.
A recent acquistion has brought the firm more Asia vehicles. On October 1, Legg Mason announced that it completed the acquisition of Scotland-based Martin Currie, an international equity specialist with $10.1bn in assets under management.
“We have plans to distribute Asia- and China-oriented funds. After regulatory approvals, we will be working with Martin Currie, which has pretty strong products in those markets.”
A sampling of Martin Currie Asia products in market:
Concerns over passporting
Fund passporting is expected to offer investors a greater product choice and fund houses increased opportunities because they can enter new markets.
But Lim is concerned over certain requirements that impact on providers of UCITS funds, which are are the predominate type of fund distributed in Asia.
For example, the ASEAN fund passporting framework, launched last August, has a prerequisite condition that a fund house must have locally-domiciled products in order to participate.
He believes the framework should look at including UCITS funds in the sceme so that fund houses can leverage economies of scale.
“A number of firms like us provide UCITS funds across the markets, and the European fund range is much larger than the Asian fund range. So how do you build scale on Asian-domiciled funds [to participate in the passport scheme]?
“It will mean increased operational, regulatory and compliance work and that adds up to higher costs.”
