Posted inIndustry views

OMGI: China distribution too big to ignore

The aggressively expanding firm has a strategy to build distribution relationships in the mainland, said Warren Tonkinson, managing director, of Old Mutual Global Investors.

Fund distribution in China is done through the major banks, insurance companies and asset management firms, which requires building relationships, said UK-based Tonkinson, who spoke to FSA on a recent trip to Asia.

“China distribution is an extremely attractive proposition,” he said. “We have a strategy in place to build relationships with key distributors across China [which includes] understanding the regulatory framework you need to have in place to support those relationships. But it’s still very early days for us.

“The next step in China is to formalise the informal discussions we’re having at the moment. We are in the early stages and are a relatively small asset management group versus our peers, so we must be targeted. We plan to get sales people here who can build those relationships and are encouraged by conversations we’ve had so far.”

The timing is right because onshore investors are increasingly looking to diversify their holdings with offshore assets. According to a Boston Consulting Group study, Chinese HNWI offshore allocation is expected to hit $2trn by 2020.

Asia build out

The firm now gets most fund flows outside its home base, Tonkinson said. In 2012, 90% of OMGI’s fund flows were in the UK market. In the first half of 2016, about 75% of fund flows were from outside the UK, he said.

“At the same time, the UK business has grown, but the international business has grown quicker.”

The Hong Kong office is the firm’s only one outside the UK that has investment capability. It now has 16 people, up from six in 2013.

Investment capability has come through a number of key hires. For example last year Joshua Crabb was hired from Blackrock to run Asian equities. More recently, in May the firm hired former Blackrock manager Rob Weatherston to run its Japanese equity fund out of Hong Kong.

Sales, client servicing and risk management capability has also been added in Hong Kong.

“We’ve made investments over last three years and will continue with same over next three as well.”

Last month in Singapore the firm added a sales and client servicing person due to the firm’s products gaining distribution through private banks, Tonkinson said. Over the next three years additional staff will be added in Singapore.

Despite the investment capability in Hong Kong, the firm has no plans to launch a locally-domiciled fund. Tonkinson said the plan is to continue bringing its Dublin-registered UCITS funds into Asia.

This year, the Global Equity Income Fund was authorised for sale in Hong Kong and the firm’s European Best Ideas Fund was authorised for sale in Taiwan through master agent Capital Gateway.

The firm declined to provide a breakdown of AUM in Asia. However, last year Tonkinson told FSA that OMGI manages $500m in assets in Asia, the bulk of that in Taiwan.

Jumpy sentiment

In his talks with clients in Asia, Tonkinson said the overriding theme is that macro news is dominating investment sentiment, something that is true in other regions as well.

“The general macro uncertainty is making investors more reticent to come into market. However, the demand for income is strong across region. There is continued strong demand for liquid alternative products, absolute return-type products, both in Asia and the rest of the world.”

The firm plans to enhance its liquid alts proposition and any new hire could be based in Asia, he said.

“The UK and Asia are very clearly our investment centers. When new talent is brought in, they will be based in one of those locations.”

Staying put after Brexit

Tonkinson said that OMGI has no plans to move office out of the UK due to Brexit.

“We are not considering moving. But we are still assessing the impact of Brexit and it is too early to know what impact it will have on UK or European business.

OMGI has mainly Dublin registered funds which remain eligible for sale to investors across Europe.

“All recent launches have been in a Dublin structure, not a UK structure,” he said, adding that although some peer firms in the UK may not have Dublin or Luxembourg fund ranges, there is no panic.

“I haven’t got any sense of a massive exodus out of the UK into Europe due to Brexit.”

Part of the Mark Allen Group.