Money management executives said both markets have the mouth-watering potential of rapidly swelling middle classes combined with high savings rates.
"There's a huge savings market in India and it is one of the fastest growing economies in the world," said Sukumar Rajah, director and CIO of Franklin Templeton Asset Management (India) Pvt. Ltd., Alwarpet, Chennai. "Surging demand for investment products has made India a sweet spot for our money management," he said.
Franklin Templeton now has 500 to 600 employees handling roughly $4 billion throughout India. The firm made its most significant move in the marketplace in 2002, when it acquired a 100% stake in Chennai-based Pioneer ITI AMC Ltd. of India for roughly $50 million.
To date, Franklin Templeton is the only foreign investment management firm to take complete ownership of an Indian fund company, a move that Mr. Rajah said will allow Franklin Templeton to benefit as the market grows and more firms enter the country.
While China appears poised for more dramatic growth, several executives seemed to feel that India offers foreign-affiliated ventures greater scope for near-term profits.
Standard Life Investments' Mr. Aird said his firm's tie-up with India's Housing Developing Finance Corp. — which boasts a "huge constituency, great branch network and sterling reputation" — has been "a great success … By year two, we were profitable."
One factor that helped the venture, HDFC Asset Management Co. Ltd., was what proved to be a prescient call that Indian investors would become more interested in equity funds. HDFC acquired the local operations of Zurich Insurance Co. in 2003, boosting the equity portion of its assets under management from 4% at the time of the acquisition to 55% today, he said.
India is "already an interesting and significant place to do business, and it's going to be a great deal more interesting and significant" in the future, Mr. Aird said.
China has equally huge potential, but Standard Life Investments, despite a lot of interest, "hasn't been able to identify the right deal at this point in time," said Mr. Aird. China's bank-dominated distribution system, and the "IPO mentality" that sees the bulk of mutual fund sales come during the initial month of a new fund launch, is part of the problem. As many as 30% of Chinese mutual funds have 50% less assets now than they did at the end of their offer periods, he noted.
Market watchers say that situation could change as regulators continue working to hammer out key building blocks of the capital markets in those countries.
China, for example, is putting the finishing touches on a qualified domestic institutional investor system that would allow domestic institutions to park a portion of their funds offshore.
China laid the framework for a voluntary corporate pension system in 2004, and over the next few years the fruits of those efforts could yield significant opportunities for money managers, said Phil Shirley, director of Mercer Human Resource Consulting in Hong Kong.
India is also moving ahead, but market-watchers aren't ready to make bold predictions just yet. A 401(k)-type system will be important one day, but it will be "the icing on the cake" for Fidelity's plans of growing its asset management business, Ms. Suyash said.
Money managers are "looking at the region at different levels depending on what the focus is in their home markets," said Robert Haber, managing director of Asia ex-Japan with Barclays Global Investors, San Francisco.
Several institutional and fixed-income heavyweights among U.S. money managers said they continue to size up China and India from vantage points such as Hong Kong.
GSAM's Mr. Duhamel and Doug Hodge, the Tokyo-based managing director and head of Asian operations for Pacific Investment Management Co., said big institutional pools of money, such as central banks and financial institutions with offshore treasury offices, represent the low-hanging fruit of the Chinese and Indian markets.
Mr. Hodge said with fixed-income markets in China and India not yet at the stage where PIMCO can put its competitive advantages to good use, it's probably too early for the bond giant to set up shop there.
Peter Fisher, chairman of BlackRock Asia, struck a similar tone.
While BlackRock's global bond and emerging market teams trade in Asian sovereign and corporate bond markets, the firm has not yet developed a product focused exclusively on the region. "We'd like to find a way to bring both our structured credit and our bond trading capabilities to these markets," explains Mr. Fisher. "On the bond side, we'll be looking for the right moment as the markets' depth and liquidity develop further."
For now, BlackRock's Asian operations are predominantly for sales and clients service, as the company manages roughly $30 billion in Asian assets — $7.2 billion for Asian-Pacific clients and $23.1 billion for Japanese clients — from its New York offices.