Principal, the institutional asset management arm of Principal Financial Group, has joint ventures through its parent group in China and Malaysia, two of the most disappointing emerging markets. However, at some point sentiment is likely to turn more positive and the firm believes the ventures position it well.
In Malaysia, a joint venture with CIMB, CIMB-Principal Asset Management, has $2bn in assets under management. Despite the political and economic turmoil in Malaysia that is scaring off investment, McCaughan remains hopeful.
“In Malaysia, we are looking after people’s savings. In a slowing economy, we see the savings rate going up. So [our venture] is looking good in the [present setting],” McCaughan said.
McCaughan also noted that investment opportunities are springing up in ASEAN as manufacturing in search of cheap labour migrates from China to countries such as Indonesia, Vietnam and Bangladesh.
Another venture is with one of China’s largest state-owned banks, China Construction Bank. Based in Beijing, the tie-up has $16.3bn in assets under management, according to the firm.
CCB, which also acts as a domestic fund distributor in China, in the long run could support PGI’s fund distribution in the mainland.
Seeking retail investors
In February, Principal’s parent company announced structural changes that combined Principal Funds and Principal Trust, formerly under the retirement and investor services segment, with PGI.
The firm now aims to offer its products in the US retail market, McCaughan said.
“We did a reorganisation this year. Until February, the retail mutual fund group in the US did not report to Principal Global Investors, but it now does. [With this reorganisation], we now have $350bn under management. This integration of the fund group in the US means that we have moved from being sub-advisor to being operator of those funds.”
Principal’s developed market funds have done relatively well over a three-year period, according to FE data.
Source: FE. Perfromance for trailing three years.
However, its emerging markets product by comparison has not performed well, impacted by negative investor sentiment and slowing economic growth, particularly in China, the fund’s top geographic allocation.
Source: FE. Performance for trailing three-years vs fund’s benchmark.