J.P. Morgan Asset Management's business serving that “tripod” of asset owners in emerging markets has grown “significantly over the last 10 years” to more than $90 billion, said Michael O'Brien, London-based managing director and CEO for Europe, the Middle East and Africa in JPMAM's global investment management business, as well as co-head of the firm's global investment management solutions.
All managers are “very focused” on those large, important clients, agreed Mark Talbot, Hong Kong-based managing director, Asia Pacific ex-Japan, with Fidelity Worldwide Investment.
And those bulge-bracket investors should remain at the center of managers' radar screens, even if the economic turmoil of the past year clouds their outlook for now.
Sovereign wealth funds have offered big opportunities for managers in the past five years, but the falloff in oil prices and pinched government finances this year might slow their asset growth for the time being, said Paul Price, London-based managing director and global head of distribution for Morgan Stanley Investment Management.
Central banks, however, should continue to offer opportunities, amid a “sea change” in recent years in their willingness to pursue illiquidity premiums to enhance yield, Mr. Price said.
Still, money management executives said other client segments — including high-net-worth investors and family offices, as well as private pension funds and retirement savings vehicles — could ultimately become equally or more important.
With competition for those sovereign capital pools so fierce, and the fee pressures so great, it's tough for firms to make that segment “the be-all-and-end-all” of their emerging markets businesses, PGI's Mr. McCaughan said.
“One of the areas we're thinking will be important to us going forward is Asian private wealth,” as money transitions from the “original entrepreneurial generation” to a next generation more inclined to think about diversification and global investing, Mr. McCaughan said.
Fidelity's Mr. Talbot said private pension and retirement savings — an underdeveloped part of Asia's financial landscape — will inevitably blossom. “In some shape or form, it kind of has to,” he said.
And it could happen relatively quickly, some predict. Within 10 to 15 years, the size of Asia's mass-affluent middle class could be eight times that of North America's, with twice as much wealth and 400 million to 500 million people heading to retirement, said Manulife's Mr. Sotorp. In terms of demand for more sophisticated investment strategies, combining insurance, retirement and death benefits, that market will be “coming up the demand curve very rapidly,” he said.
If the big sovereign wealth funds are the obvious “low-hanging fruit” in emerging markets, then the not-yet-ripe, private retirement fruit at the top of the tree could be the tastiest but require a lot of creativity and flexibility to pursue, Casey Quirk's Mr. Celeghin said.
If a manager needs clients in emerging markets to invest in the manager's commingled funds or through a separate account mandate, and the manager can't deviate from that model, the longer-term, “high-octane” opportunities might prove elusive, he said.
Mr. Celeghin pointed to Sydney-based AMP Capital's recent acquisition of a 20% stake in China Life Pension Co. Ltd., the largest manager of China's small but fast-growing corporate “enterprise annuities” retirement plans, and Principal Financial Group's tie-up of more than 15 years with Brazil's largest bank, Banco do Brasil, as examples of the type of flexible thinking required of managers to take advantage of the inevitable growth of private savings in emerging markets.
Mr. McCaughan said his firm's joint venture with Banco do Brasil, which the two sides extended in 2010 for another two decades, manages more than $40 billion in pension assets, while more recent acquisitions of pension management firms in Chile and Mexico have increased parent Principal Financial's assets sourced from Latin American clients to more than $100 billion.
Meanwhile, both Fidelity's Mr. Talbot and Mr. McCaughan said their firms believe China's enterprise annuities market offers interesting long-term possibilities.
Mr. Talbot, however, said his firm isn't looking to do a joint venture.
Mr. McCaughan, noting that there's “a special art in managing a joint venture partnership successfully,” said Principal is working with potential partners there but would be aiming for a much larger stake in any venture to ensure Principal has sufficient “management influence” to add value to the business.