“In the beginning, it was all about management fees, ease of service and convenience. Today it is much more about investment performance as the job market has picked up, says Dr Konyn.
He adds that fund managers are also feeling top-down pressure from the MPF-registered schemes themselves which do not want to run the risk of having a proprietary manager losing market share on account of poor performance. As a result, they are adopting a manager of managers or open architecture approach which allows them to bring in third-party providers to sit alongside their in-house managers.
He says: “We are seeing some of the larger MPF schemes look outside for possible changes to their manager line-ups.”
Allianz Global Investors in Hong Kong manages HK$8bn (€860m) of MPF assets, 65 per cent of which are run in a balanced fund which has a 70 per cent exposure to equities and a 30 per cent exposure to cash and global fixed income, largely sovereign issues.
Within the equity component, the largest allocation is to the Hong Kong stock market. There is also some diversification into the wider Asia-Pacific region and into the US and European equity markets.
Allianz Global Investors offers its own master trust in the MPF market as Dr Konyn believes it is critical for the firm to gain the brand recognition for participation. The overall aim, he says, is to take advantage of the MPF’s evolution towards multi-manager platforms.
He explains: “We will move away from proprietary products to expand our multi-manager approach. We are already well represented on multi-manager platforms run by Standard Chartered Bank, Axa and Bank of East Asia. Axa base their manager choice on specialist capability and we are the Hong Kong specialist for them. By contrast, the Bank Consortium have taken a cross-section of managers and we are running the full range of lifestyle options, mingled with other styles to deliver a blended performance.
“Most recently we were the first external manager to be added to the AIA-JF platform.”
Open architecture
The development of an open architecture approach to fund provision is failing as yet to interest some other investment houses in managing money for the MPF.
 Philip Yeung, Investec Asia | Philip Yeung, managing director of Investec Asset Management Asia, believes that the dominance of HSBC, Hang Seng and Fidelity, which together control 63 per cent of the $17bn MPF business, is serving to crowd smaller players out of the market. |
He says: “Once the MPF business is in, it is very sticky.” He contends that it is difficult to market funds on a multi-manager platform which does not belong to you.
So he prefers to concentrate on consolidating Investec’s position in the retail market before formulating a plan to attack the institutional arena. Retail funds account for $1.5bn of assets under management, mainly in Asia equities and fixed income.
Along with the Hong Kong market, Investec is active in Taiwan where it has a sales and marketing team busily promoting 15 authorised retail funds.
He says Investec is able to capitalise on investor demand in Taiwan for international assets by offering its offshore funds in the market. The firm, he adds, enjoys a competitive advantage over local asset managers who have yet to launch international investment funds. The first step for domestic managers would be the launch of Asian funds.
Investec has also started winning sub-advisory mandates from local investment houses in Taiwan, including a recent contract to run a series of fixed income briefs, ranging from cash plus to high yield bond mandates.
Mr Yeung observes that banks dominate retail fund distribution in Hong Kong, mainland China, Singapore and Taiwan. This presents opportunities for Investec to get its products onto funds of funds platforms both in Hong Kong and Taiwan, a welcome sales outlet for a firm which does not enjoy high brand recognition in the region.
The fund house already manages a little institutional money – a modest $100m of assets for public institutions in Hong Kong, including the Monetary Authority, Hospital Authority and Jockey Club.
With institutional investors tending to build their investment portfolios around a 40-50 per cent passive core of Hong Kong equities, it is the higher fee-paying active mandates that Investec is aiming for.
He says: “We are positioning ourselves as a specialist, alpha-generating manager. No one can guarantee that institutional money will stick with you forever, but we see that institutional money stays a bit longer than retail money. This gives you more time to get the performance right.”
Investec also plans to enter the Chinese mutual funds markets through a joint venture initiative at some point in the future.
He believes that smaller players in the Chinese mutual funds market which do not have a lot of money under management will seek foreign buyers. This then will be an opportunity for Investec to enter the market without the regulatory application “hassle” and at a reasonable price.
Foreign players
He adds that some of the bigger local fund managers might not be confident of competing effectively with a joint venture operation. They might seek a foreign player to join their company at hopefully a suitable price.
“We are optimistic but we have to move very cautiously because you have to find a partner which shares the same ideas about the Chinese fund management industry,” he says.
BNP Paribas Asset Management cites Korea as a key market and is seeking to tap into the distribution capability offered by its joint venture operation there - Shinhan BNP Paribas Investment Trust Management Company – to sell both local and foreign currency investment products.
A prime target is Korea’s National Pension Corporation which started outsourcing the management of assets two years ago, says Lawrence Lo, managing director of BNP Paribas Asset Management Asia in Hong Kong. The firm manages assets worth $8.4bn for Korean investors, of which $1.3bn is institutional money
BNP Paribas is also planning to launch local currency products in Taiwan where it has a sales office but is now keen to boost its $684m of managed assets through the formation of a joint venture company. The firm manages institutional assets of $6.5bn in the Asia-Pacific region, with Singapore and Hong Kong accounting for over two-thirds of this total. BNP Paribas runs money for over 10 government institutions and central banks in the region in mostly global fixed income mandates and to a lesser extent, mortgage-backed securities.
The company is also capitalising on growing demand for structured products, according to Samuel Plagnard, head of structured investments in Hong Kong.
The firm runs €2-3bn of assets in structured products for Asian investors. These assets are managed in three different products – actively managed open guaranteed funds, closed-ended funds and exchange-traded funds (ETFs) which have been developed through a joint venture with Axa Investment Managers.
The closed-ended fund is the most popular accounting for 90 per cent of BNP Paribas’s assets under management in structured products in Asia.
He comments: “Over the last year, capital protection products have produced poor performance. So now investors are looking at products with a certain degree of capital exposure. They are prepared to risk part of the capital in return for a guarantee of better performance.”
Another new trend is that local investors want to invest in local assets. For instance, in Japan investors want to buy the Nikkei and Korean investors the Kospi.
“There is a localisation of investment strategy, whereas in the past, it was based more on global equities. The past performance of guaranteed products based on global equity was poor and people now want to invest in a stock market that is more familiar,” says Mr Plagnard.
Closed-end funds
Institutional investors are more interested in closed-ended funds based on commodities, or a structured product based on a basket of hedge funds or mutual funds, not necessarily with capital protection.
If institutions have their own strategy of allocation between different asset classes, he promotes ETFs as a cheaper asset class providing a good representation of the market without requiring too much time to be spent on research.
“ETFs are a cheap way of investing in niche markets including real estate and commodities.”
Institutions buying structured products include pension funds in Taiwan and Korea, in addition to insurance companies and large corporates. Japan and Korea are the most lucrative markets for structured products.
Mr Plagnard says that before buying the derivative exposure, he will talk to a number of investment banks in a bid to obtain the best price. He says it is worth shopping around because one can find price differences of the magnitude of 30 to 40 basis points in five year derivatives products.
Whereas in Europe, Mr Plagnard says it is normal for an asset manager to shop around for the most competitively priced derivatives, in Asia it is not usual to use such an open architecture approach.
