West, who recently took charge of his new role, toldFund Selector Asia about the firm’s expansion plans in the region.
“An area where we have been investing and will continue to invest is in third party distribution. We want to be far more established and build our third party distribution business,” West said.
He cited findings of a recent McKinsey report on wealth management, which forecast that high net worth individuals would comprise 50% of the investor base in Asia by 2017.
“This is one of the largest, fastest growing opportunities outside of sovereign funds and one of the ways to access this [HNW segment] is through the private banks.”
The asset management firm also intends to add resources on the distribution side.
“We are looking to employ more senior people. We will be adding resources across functions, but especially on the distribution side. This would be consistent with our strategy of becoming more established within the third-party distribution channel.”
Principal is seeing significant demand for income products and the trend is expected to continue in an overall low interest rate environment, he said.
“You will continue to see many investors moving toward outcome-focused absolute return type of products.”
To address the demand, the firm has plans to launch an income-oriented product, though he did not provide details.
Another fund, an emerging market debt product that is registered in Singapore and selling in Europe, will be launched in Hong Kong. He described it as a long-short strategy, absolute return fund that is about one-year old.
“At this point, it is not registered with the Hong Kong Securities and Futures Commission. We will also need to have an A-share class for that market.”
The firm received the RMB Qualified Foreign Institutional Investor license in Hong Kong in November last year and has plans to offer China A-share as well as onshore fixed income products.
“We are still waiting for notification on our quota application. Our intention is to launch a China A-share fund on our UCITS platform. This will be introduced into various regions. We are also interested in offering on-shore bond strategies – we find compelling opportunities in that bond market.”
Asset class trends
West believes US and European equities should continue to fare well, though returns are not expected be in high double-digits.
“Stocks with good earnings growth and ability to increase dividends over time would be in demand. Small to mid-cap strategies would also be in demand,” he added.
Apart from equities, global unconstrained bond strategies have the potential to fare well in the current volatile and uncertain macro environment.
“On the fixed income side, actively managed asset allocation strategies that change allocation over the entire debt capital structure will see more inflows. These strategies may have a high yield core, but they also have the ability to move out of that into defensive exposures such as cash or investment grade.”
On high yield products, West’s views are contrary to some analysts who forecast a decline in demand.
“We have already seen good demand and reasonable sales for high yield so far this year. [Inflow] tends to be more in short-term duration strategies. I think you will still see good flows into high yield products.”