Firms put investment boots on the ground in Asia for 1st time

Money managers with far-flung investment capabilities in Asia say big regional footprints are helping them garner institutional assets amid growing investor demand for more geographically specialized investments.

Executives at firms with investment professionals on the ground in a region that spans Japan, Australia, Hong Kong, Singapore, China, South Korea, Malaysia, Taiwan, India, Thailand, Indonesia, the Philippines and Vietnam point to a pickup in institutional demand for allocations to the region or segments of it, as well as single-country mandates.

Sovereign wealth funds, both at home and abroad, and national pension systems in the region are helping to drive that trend, market veterans say.

As the influence of traditional benchmark indexes has waned, a growing number of big institutional investors have sought emerging markets exposure beyond what those benchmarks call for, or have opted to hire best-in-class managers for Asia, noted Abhi Shroff, a managing director in Singapore with Greenwich Associates.

Information released by China's State Administration of Foreign Exchange regarding quotas awarded to qualified foreign institutional investors for investments in local Chinese securities provide one barometer of that trend. In January, the SAFE extended a $500 million QFII quota to the Abu Dhabi Investment Authority, its third in four years, and a $700 million quota to the Kuwait Investment Authority, its second over the past year. The previous quota for each sovereign wealth fund had been $300 million.

Schroder Investment Management Ltd., Franklin Templeton Investments (Asia) Ltd., Invesco Ltd., Manulife Asset Management, BlackRock Inc., Nikko Asset Management, Aberdeen Asset Management and Eastspring Investments are among those fielding broad Asian investment capabilities to pursue institutional as well as retail business opportunities in Asia.

Having investment teams in nine markets in Asia has helped Schroder Investment Management meet rising institutional demand for regional and subregional allocations — for example, to north Asia or emerging Asia — as well as single-country allocations to markets such as China, said Lester Gray, Schroders' Singapore-based chairman, Asia Pacific.

Andrew Lo, senior managing director with Invesco and Hong Kong-based head of Asia-Pacific operations, cited similar trends: The ability of Invesco's local investment teams to handle country-specific institutional separate accounts, with customized benchmarks, as well as balanced, multiasset-class strategies, has helped the firm pick up “healthy institutional books of business” in markets such as Hong Kong and China, he said.

Meanwhile, the continued evolution of pension systems in countries such as Taiwan and South Korea is spawning institutional opportunities in those markets for firms such as Schroders that have local teams capable of offering single-country strategies there, Mr. Gray said.

Whether extensive investment operations in Asia can provide a competitive advantage for broader regional or emerging markets strategies is a more contentious question.

Garry Hawker, a Singapore-based principal with Mercer and head of consulting for Asia, the Middle East and Africa, said broad-based investment operations don't, in and of themselves, boost a money manager's standing with Mercer consultants.

But some money management executives insist broad investment capabilities can provide an edge.

Manulife Asset Management's 10 investment operations in the region give the firm an information advantage in markets that remain relatively inefficient, said Michael Dommermuth, president and head of Asia for Manulife.

Having local investment professionals operating in the majority of markets in the region is a “very, very key advantage,” paying dividends for Schroders' single-country, regional and global strategies alike, Mr. Gray said.

Mark Brugner, a consultant and head of manager research for Asia at Towers Watson Hong Kong, said while the argument that having investors on the ground can add value in less efficient markets has merit, those advantages must be weighed against the communication challenges widely dispersed operations face when compared to a team working together in a single location.

Every money manager in Asia has the region's 30 to 40 biggest sovereign wealth funds and national pension funds on its radar screen, but it takes local manufacturing to serve Asia's much larger number of domestically oriented institutional pools, including insurers and charities, said Blair Pickerell, the head of Asia with Nikko Asset Management Hong Kong Ltd.

Still, proponents of extensive investment capabilities throughout Asia concede it's not the only path to success in garnering institutional assets. Some firms with one or two concentrated investment teams in Asia or just sales and client service professionals have been successful in gaining business from large Asian asset owners.

Newport Beach, Calif.-based Pacific Investment Management Co. and Boston-based Wellington Management Co. — with investment hubs only in Singapore and Hong — have remained top asset gatherers in Asia, ex-Japan, and Australia, with $47 billion and $25 billion in client assets respectively, according to Marietta, Ga.-based data provider eVestment LLC.

Other firms offering more specialized strategies have pulled in billions with only sales and client service teams in the region. Among them, emerging markets debt and high-yield bond boutique Stone Harbor Investment Partners reported $5.9 billion of assets under management from clients domiciled in Asia, ex-Japan, and Australia, while global bond manager Loomis Sayles & Co. listed $7.3 billion as of Dec. 31, 2012, according to eVestmentAlliance.

Money managers say a firm's focus — its strategy and the client segments it's looking to serve — will determine whether a large footprint in Asia makes sense.

With its multiproduct, multichannel strategy, “it's hard for me to imagine a firm like BlackRock could be successful without an on-the-ground presence” in key markets in the region, noted Mark McCombe, senior managing director and chairman, Asia Pacific, for BlackRock.

BlackRock has manufacturing capabilities in Hong Kong, Singapore, Australia, Japan, India and Taiwan.

Nikko's Mr. Pickerell said the number of money managers chasing Asia's top 30 or 40 institutional investors continues to grow dramatically. The number of firms, meanwhile, with extensive investment operations throughout Asia, capable of making more geographically targeted investments, has remained fairly stable at 10 to 12 competitors, he said.

Investment bankers cite Nikko as a leading potential shopper for asset management properties in the region, following a pair of acquisitions two years ago that gave the firm a presence in Hong Kong, Malaysia, Australia and New Zealand, while adding retail capabilities in Singapore to an existing institutional business there.

In an interview, Mr. Pickerell mentioned Taiwan, South Korea and Indonesia as “key markets” in Asia that Nikko has yet to enter.

In September, Invesco announced it would acquire a 49% stake in Mumbai-based Religare Asset Management for its eighth investment outpost in Asia, following Japan, Australia, Hong Kong, Singapore, Taiwan, South Korea and China.

Eastspring Investments — the Asian asset management arm of insurance company Prudential PLC — has been able to build on its parent's infrastructure to post investment teams in less crowded markets such as Vietnam and Indonesia, noted Guy Strapp, CEO of Eastspring Investments (Singapore) Ltd. That local presence will prove useful as Eastspring expands its institutional lineup into areas such as mezzanine debt and private equity, he said. n