Success is largely determined by whether asset managers get their funds on to private banksâ exclusive lists of recommended products. Stefanie Eschenbacher talks to Andrew Hendry of M&G Investments about servicing the super-rich.
Andrew Hendry, who took up the newly created role of managing director, Asia, three years ago, says Asia tends to lag behind the rest of the world when it comes to investment trends.
“At the end of last year, we found a little bit more traction for European equity value, a topic we are excited about,” Hendry comments of his conversations with private banks.
Hendry says he had been trying for some time to get this strategy in front of clients in Asia, but had had little success.
“Nobody wanted to touch it,” he says. “European equity value already had an incredible run last year, but it takes a while here to recognise this.”
Only towards the end of last year did Hendry and his team manage to get their clients in Asia excited about it.
“We are now having a few discussions about European strategic value as well as European small caps, which sits within the value style.”
M&G Investments is actively pushing two strategies in Asia; but when servicing the super-rich, a single fund that makes it on to private banks’ lists of recommended funds can determine success. Those lists feature between 20 and 30 funds that are recommended to clients globally, presenting an immense opportunity for asset managers.
In recent years, these lists have become shorter. Mutual fund research and consultancy firm Strategic Insight has even warned that highly concentrated sales rapidly inflate the assets of a few funds, causing capacity issues and concentration risks. The operational due diligence applied by private banks has become increasingly rigorous in the years after the financial crisis, though.
“In the late 1990s, operational due diligence and risk management were not a big deal in terms of private banks’ selections of asset manager,” Hendry says. “The focus was on investment performance.”
M&G Investments does have an advantage, being a large player in Europe that is owned by Prudential. Hendry says it is less at risk of capacity issues.
“Large private banks may put hundreds of millions of dollars into these funds so they need to be large enough,” Hendry says.
“That is a hurdle that boutique asset managers with small funds face, even if they have absolute stellar performance.”
Client advisors all over the world will have to be able to service clients in the right language with the right documents, too.
Strategic Insight says that international managers with broad product lines and long track records have in general benefited when it comes to cross-border fund flows in Asia.
There is the challenge of getting on to one of those lists, but Hendry says even asset managers that get on to it, if, by luck, they get the opportunity, they can end up not getting one dollar.
“We like working with banks that have a big focus on their client advisors because we do not talk to end-clients,” Hendry says, adding that it is up to the client advisors to communicate the value of investing in those kinds of products.
M&G Investments is a relative newcomer to Asia and much of Hendry’s work has been about building client relationships first.
M&G Investments has a history of 80 years and boasts assets under management of over $413 billion as of the end of March, but established its Singapore presence only three years ago. Its Hong Kong presence was set up in the following year.
Moving into Asia was initially about servicing existing clients. “We have strong private banking relationships in Europe and wanted to service their offices in Singapore and Hong Kong,” Hendry says.
“It is important to our clients in Europe that we have followed them to Asia.”
The core client base consists those serviced by family offices, multi-family offices and private banks. There has been some concern about the future of private banking, as regulators started to clamp down on tax avoidance and evasion, but Hendry, who lived in Switzerland for a decade, says this will help improve the quality of products and services.
“Increased transparency within the private banking world is advantageous,” he says, adding that it raises the question of who one chooses to work with.
His team has also started to focus on institutional investors – charities, foundations, endowments, pension funds and sovereign wealth funds. Hendry says there is tremendous potential in Asia, given that the super-rich sit on high levels of cash. On average, portfolios in Singapore hold 50% in cash, and those in Hong Kong hold 30%.
Investors in Singapore and Hong Kong also tend to be younger than elsewhere in the world.
“They should invest in something that is heavily geared towards long-term, broad equity,” Hendry says.
“Instead, they have high exposure to cash, high exposure to plain vanilla fixed income strategies and sudden shots of risky, trend-following investments,” he says.
The first strategy Hendry brought to Asia was the M&G Global Dividend Fund, managed by former Great Britain
semi-professional tennis player Stuart Rhodes.
Last year, the M&G Optimal Income Fund, managed by Richard Woolnough, followed. Hendry says investors in Asia like to be in control of their investments, and a strategy
where the fund manager has a broad mandate for asset allocation does not naturally appeal to them.
However, the product also gained traction. Hendry says the next addition is likely to be the M&G European Strategic Value fund, managed by Richard Halle.
Hendry’s team in Hong Kong also recently received a Type 1 licence from the Securities and Futures Exchanges Commission that allows dealing in securities.
There are no plans to domicile mirror funds in Hong Kong that would be eligible for sale into China, should the much anticipated mutual fund recognition agreement between Hong Kong and China materialise.
Hendry says there is still too much uncertainty over how the scheme will work when it comes to certain aspects, such as taxation and quotas.
“It is not as if the scheme is suddenly going to open up capital flows to and from China,” he says, adding that quota restrictions are likely to apply.
“There are still going to be quotas, either on the qualified domestic institutional investor scheme or the qualified foreign institutional scheme, and, therefore, opportunities are going to be limited.”
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