Capital Group boosting Asia presence via partnerships

Capital Group, the Los Angeles-based money management heavyweight, is counting on strategic partnerships focused on multiasset-class investing to help transform the firm's thin presence in the Asia-Pacific region into something more muscular.

As of Sept. 30, less than 1% of Capital's US$1.38 trillion in assets under management was managed on behalf of Asia-Pacific clients. Other large firms, including Pacific Investment Management Co., Goldman Sachs Asset Management, J.P. Morgan Asset Management and Franklin Resources Inc., were managing more than six times that amount.

In an interview in Singapore, Capital executives said that in the past six months their firm has begun to add resources in the region in an effort to raise its profile as well as its AUM.

The private firm's executives and partners are all “committed to building Capital's presence in Asia,” said Andrew Economos, senior vice president, strategic solutions. In May, Mr. Economos left his post as J.P. Morgan Asset Management's Hong Kong-based managing director of asset management and head of sovereign and institutional strategy to lead Capital's efforts in the region.

Capital will pursue business opportunities across all client segments in Asia, but Mr. Economos said its initial focus will be on institutional investors and sovereign wealth funds, which he called “important decision-makers and thought leaders” in the region.

While declining to provide specific targets, Mr. Economos said Capital's qualitative goal of “becoming relevant in Asia” means that over the next five to 10 years, “we're going to have to grow considerably.”

Capital's push in Asia comes at the close of a difficult decade for the firm, which saw a flood of inflows from retail and institutional investors alike — on the back of consistent outperformance — turn to outflows starting in 2004, after performance stumbled. The company's change of fortunes was particularly pronounced on the institutional side, with AUM at Capital Guardian Trust — the group's former U.S. institutional arm — plunging to $43.5 billion at the close of 2012 from $162.1 billion at the end of 2004.

As of Sept. 30, eVestment LLC data showed more than 91% of Capital's $1.38 trillion in AUM in retail mutual funds, followed by 5.3% in separate or segregated accounts and 3.5% in pooled funds.

Mr. Economos said his due diligence earlier this year, when deciding whether to join the firm, showed that Capital had successfully “rebooted” between 2007 and 2010, maintaining the essence of its successful asset management culture even as it shook up some of its fund management teams and brought some new ideas to the table.

Now, he said, some institutional clients who parted company with Capital during the global financial crisis are “coming back to us.” He declined to name them. However, the latest annual review by Japan's ¥130.9 trillion ($1.1 trillion) Government Pension Investment Fund showed the GPIF awarding the firm a more than $2 billion Japanese equity mandate around March 31.

“We want to make sure we have relevance with the KICs, HKMAs, the CICs and the SAFEs of the world,” he said, referring to the $72 billion, Seoul-based Korea Investment Corp., the US$400 billion Hong Kong Monetary Authority and Beijing's $653 billion China Investment Corp. and $568 billion State Administration of Foreign Exchange.

Capital will focus “on a few strategic partnerships where we think we can add a lot of value,” he said. The firm could announce some key relationships “fairly soon.”

The multiasset-class space, which Mr. Economos called a long-standing focus of Capital's, will be the foundation of those strategic partnerships, and a key to the firm's business plans in the region.

Fully half of Capital's 14 strategies with track records of 40 years or more are multiasset-class offerings, he said. That experience, together with the firm's bottom-up, value-driven approach, will allow Capital to bring something different to a multiasset space that's become increasingly crowded in recent years, said Mr. Economos.

The Capital system is itself a differentiator, he says: Every strategy has four to seven fund managers overseeing separate chunks of the portfolio, along with a research sleeve where the firm's analysts can put money to work alongside the fund management team; a “portfolio leader” who makes sure there are no unwanted overweights; “and a separate and independent risk management team that can overrule all of them,” he said.

That bottom-up approach appears to be “resonating” with potential clients, who often look to strategic partners for the best ideas that their internal management teams can leverage, said Mr. Economos. Among institutional investors and big sovereign funds in the region, “we're getting the meetings and we're getting the follow-ups” at the chief investment officer and the CEO levels, he said.

A “rethink” of late among some of the region's big institutional investors with regard to “how important alts are in overall asset allocation” may be contributing to Capital's success in getting those meetings, he said.

While asset owners are being asked to consider an ever-more-complicated array of investment strategies, “the decision really does boil down to stocks, bonds and cash — always,” said Mr. Economos. “If you had gotten stocks vs. bonds right the last 25 or 30 years, it would have dwarfed any other impact that any of these other asset classes would have had.”

Capital isn't feeling any pressure to follow other trillion-dollar money managers in offering an ever-broader array of alternative strategies alongside long-only strategies. “We think that the past and the future for the industry is multiasset, outcome-oriented solutions” tailored to the needs of clients, said Mr. Economos.

In the near future, Capital will be announcing the hiring of a client-facing multiasset-class investment specialist for Asia, a relatively senior position, said Mr. Economos.

Following his Dec. 9 interview with Pensions & Investments, Mr. Economos couldn't be reached directly for examples of Capital strategies illustrating the firm's multiasset-class capabilities. Katherine D'Arcy, a Hong Kong-based external spokeswoman for the firm, cited Capital's emerging markets total opportunity strategy as a success in meeting client objectives by delivering equity-like returns with only half of equity market volatility.

eVestment data show the $5.6 billion strategy besting its MSCI Emerging Markets index benchmark by an annualized three basis points over the five years through Sept. 30, but trailing by an annualized 112 basis points for the three years.

Ms. D'Arcy said Capital “will be introducing some new multiasset strategies to investors” in the region during the coming year.

Mr. Economos said Capital's money management operations are well established. Since opening a first office in Japan in 1983, the firm's lineup in the region today amounts to 250 employees, including 60 investment professionals, in Tokyo, Hong Kong, Singapore, Mumbai, Beijing and Sydney. With the continued buildup of relationship managers, marketing and service support, “we expect to have a full commitment to Asia within the next 18 to 24 months, he said.

Another area of focus for Capital in the region will be retirement planning, where the firm is looking to make an impact with products such as target-date funds.