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PGI targets Asia wholesale segment

The firm aims to get its funds on the shelves of key private bank distributors for the wholesale segment, and it has made key senior hires this year to drive efforts.

West, who is also global head of the firm’s international offices, estimated Principal has roughly $170bn in assets in Asia compared to $600bn globally (the majority of that in the US).

PGI aims to become a key player in the funds business in Hong Kong and Singapore, but West acknowledged that the competitive landscape is crowded in the wholesale segment.

“Where we’re new on the block is in wholesaling to intermediaries in Asia.”

Suresh Singh, head of fund distribution for Asia, who recently joined the firm from iShares, added that one of his tasks is to increase brand awareness and let people know what the firm does. PGI has a multi-boutique model with specialist managers running different strategies that include hybrids, high yield and real estate.

“The difficulty is many of the private banks and distributors would want a holistic relationship across many layers — they have their preferred partners.”

He believes the firm’s specialised funds should have a place on the shelf. As one example, he cited high risk contingent convertible (coco) bonds.

“In the search for yield, investors are buying cocos directly because the bonds are paying a higher coupon,” Singh said. “We have a boutique focused on nothing but that. We can offer a portfolio approach that has better downside protection and still gives comparable yield that an investor would get from buying direct.”

In addition to Singh, PGI made two other senior hires for its Singapore office this year. Celestine Khoo, a former director of the Monetary Authority of Singapore, was recruited as managing director and head of Southeast Asia and Monica Tang, ex-BNY Mellon Asia-Pacific, was appointed director of fund distribution for Southeast Asia.

In 2017, Principal’s investment and distribution headcount will grow in the region, though it won’t be a huge number, West said. 

Bank JV growth

West believes two asset management joint ventures in Asia –  one with China Construction Bank and one with Malaysian banking group CIMB — will payoff for Principal as the partrnerships evolve and internationalise. “We’ll see organic growth and build a presence.”

The CIMB venture gives Principal an onshore presence in the growing wealth management markets of Thailand, Malaysia and Indonesia, Singh added. The JV has several funds available for sale in Singapore, according to FE Analytics.

In China, the CCB-Principal joint venture (which is under the Principal International division) has a mutual funds and separate accounts business for mainland clients. Through the Mutual Recognition of Funds scheme, CCB Principal has two China funds for sale in Hong Kong, the Dual Income Bond and the Selected Growth Mixed Asset, both launched in June this year, FE data shows.

West said he’s pleased with the JV’s results. “We have in excess of $100bn through the JV in China — mutual funds and separate accounts,” he said, adding that fourth quarter numbers, out early next year, will underscore the firm’s growth in China.

“But so far it’s been really a domestic success in terms of assets raised.”

Capital control impact

Offshore investment is limited due to capital controls. China’s QDII program, which provides quota for qualified mainland clients to invest offshore, was suspended earlier this year.

“The government has a number of initiatives to prevent capital outflows and those initiatives mean little opportunity with the CCB relationship as the bank complies with the directives. We are seeing very little money come out of China due to capital controls put in place.”

However, he believes measures could be eased in the second half of 2017 and QDII quota issuance could become available again. Principal this year reached agreement with CCB to join the bank’s pension business, and when QDII quota issuance resumes, West believes the joint venture is well-placed to provide offshore products to mainland clients.

“CCB-Principal does have aspirations to sell its investment capabilities in equities and fixed income to international investors and we’re working with them to understand how international markets operate and give guidance on how to be successful.”

Part of the Mark Allen Group.