June 2018

SPONSORED FEATURE: Casting a wider net

Leo_ChenWith automation rates close to 100% in some regional markets, Calastone is turning its attention to new products such as big data analytics, and expansion in Malaysia and elsewhere, says Leo Chen, head of Asia. Addressing the Calastone Connect Forum in Hong Kong in June, Leo Chen shared an anecdote from his early days at the company. After a colleague gave a long technical explanation in a hard-to-understand Scottish accent, Chen, who is Australian, realised he would have to summarise the main points for the Taiwanese audience. Using what he described as his “primary school Mandarin”, he said: “Our computers don’t turn off and if they do, we have other computers.” The anecdote, which prompted a laugh from the conference delegates, was meant to indicate how far Calastone – and Chen’s language skills – had come. From these inauspicious beginnings, Calastone has grown to a strong position in the Taiwanese market. Chen says automation rates there are close to 100%, with only a small number of banks yet to come onboard. In Hong Kong, automation rates have risen too. The two largest entities there, HSBC and Hang Seng, have now automated their fund systems. Indeed, over the past five years, Chen says that Calastone has onboarded 77 distributors in Asia, which is on average one a month. The increasing take-up of automation has allowed the firm to cast its net wider. On the one hand, Chen’s team aims to bring new products to the Asian market; on the other, the firm is looking outside the main funds hubs to emerging markets in south-east Asia to spur the next stage of its growth. In development
Chen says Calastone is thinking beyond its core offering, which is to provide efficient order placement and fund messaging. “We’re offering monthly reconciliation statements,” he says. “Previously these were all in a manual format and now they are electronic. Distributors can do the matching that’s required. We’re working on dividends and transfers and we’re looking at automating more MPF [Mandatory Provident Fund] products in Hong Kong. The MPF is unlike the UK or Australia pensions system because it’s smaller, but it’s a part of the market that’s important.” The firm is also working on what it calls a distributed market infrastructure, a system that will apply blockchain technology to the Calastone network. The system offers the usual benefits associated with blockchain – secure, efficient, distributed ledgers, which all participants can access – without some of the wilder elements associated with cryptocurrencies such as Bitcoin. (Unlike Bitcoin, Calastone’s distributed market infrastructure will be permission-based; in other words, a closed blockchain.) Chen believes the distributed market infrastructure has the power to unlock new possibilities for fund product developers. “If we take a step back, what has the industry been doing all these years? Trying to create products and cram them into a transfer agency system that is at least 20 years old. And what happens is they’ve had to put in manual processes to do that. A lot of these processes are so troublesome they hinder the product itself.” Big data
Another offering in development will apply tools associated with “big data” to give asset managers and distributors up-to-date information about market demand. Because there are so many intermediaries involved in the distribution of funds, asset managers often do not understand their full distribution chain. Similarly, asset managers do not learn precise data about industry-wide distribution trends until months after the event, because that data must first be gathered, processed and broadcast by a data provider, trade association or regulator. The upshot is that fund sales teams make decisions based on out-of-date information. Calastone’s offering hopes to overcome this problem by using analytics tools to draw out trend data from the Calastone network. The idea is to give up-to-date, industry-wide information on asset classes and product trends. Because of privacy issues, the data will be anonymised and aggregated at the fund level. “Fixed income funds are the big thing in Asia at the moment,” says Chen. “A fund company can see that its own fixed income fund is doing better than an equity fund, for example. But what if your fixed income fund is not getting flows as big as the other fund managers? You need to know what’s going wrong. But, if you only find out the data three months after it’s happened, your competitors will already be ahead of you.” Coming to KL
As well as launching new products, Chen is overseeing Calastone’s expansion into new markets. The firm will soon launch in Malaysia, which Chen hopes will be the first of several south-east Asian countries to come within the Calastone orbit. Although Malaysia is a domestic funds market – unlike nearby Singapore, for instance, which is a cross-border hub – Chen says Calastone can play a helpful role to its existing clients that might want to launch local funds there. Other countries in the region hold similar opportunities, though each country also has its own specific characteristics, which will make rapid expansion in the region difficult. Chen admits that the fragmented nature of the Asian markets is a challenge. Outside the cosmopolitan territories of Hong Kong, Taiwan and Singapore, Asia does not have an infrastructure to support cross-border funds in quantity. However, he thinks the region will develop into a more interconnected ecosystem over time. “I seriously believe there will be regionalisation and globalisation,” he says. “The first step is insular. Policy-makers say, ‘We want to protect our locals.’ The second step is that foreign managers can come to the country. After that, the politicians say, how about we start letting citizens buy Singaporean funds and, after that, Ucits? As the regulator believes people are learning more, the country opens up more. “It takes patience. If we look at MRF [the mutual recognition of funds scheme linking Hong Kong and mainland China], that was about five years in the making. “If that took five years, then how are two countries such as Australia and Thailand, for instance, going to do mutual recognition? There are a lot more things to work through.” He adds: “The point is, we’re growing and the region is going in the right direction.” ©2018 funds global asia

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