Target-date funds are becoming part of the conversation about getting Asia's risk-wary investors to shift defined contribution retirement savings from deposit-like instruments into higher-yielding stocks and bonds.
There are few signs yet of those funds gaining traction in Asia, reflecting the absence of the kind of official backing for their use as default options that helped target-date funds take off in the U.S., said Chin Chin Quah, a senior analyst with Cerulli Associates Asia Pte. Ltd., Singapore.
As of June 30, target-date funds in Asia ex-Japan remain tiny, with combined assets of US$2 billion, up from $1.8 billion at the end of 2012, according to data compiled by Cerulli.
But interest is clearly picking up, noted Flemming Madsen, a Baltimore-based director with T. Rowe Price Group Inc., and the company's head of Asia-Pacific investment services. Pension authorities and regulators in markets such as Hong Kong, China and Taiwan have been studying target-date funds this year, he said.
As of June 30, T. Rowe reported $101.4 billion in assets under management for its target-date strategies, or 16.5% of the firm's overall AUM, up from $79 billion, or 14.6% of overall AUM, the year before. At present, all of the firm's target-date assets come from U.S. investors.
According to Cerulli's data, the biggest target-date fund manager in Asia ex-Japan is Shenzhen, China-based Dacheng Fund Management, with US$1.18 billion in assets under management. Singapore-based UOB Group is next, at US$249.2 million, followed by London-based Fidelity Worldwide Investment, with $175.7 million.
Stephen P. Utkus, a principal with the Valley Forge, Pa.-based Vanguard Center for Retirement Research, said the same logic that finds U.S. plan executives using target-date funds to ensure their participants' exposure to higher levels of equity risk when they're younger is drawing the attention now of regulators in Hong Kong and consultants in Singapore.
“Bottom line, target-date funds have this investment and fiduciary appeal, and we expect participants in the Asian retirement systems” — regulators, money managers and consultants — “to continue to discuss their merits,” Mr. Utkus said in an e-mailed response to questions.
Anna Wu Hung Yuk, chairwoman of the Hong Kong Mandatory Provident Fund Schemes Authority, said during a speech in June that target-date funds are one area of interest as the HK$455 billion (US$58.7 billion) MPF explores potential default options to better ensure decent outcomes for the system's participants.