The financial crisis that swept through Asia in the summer of 1997 gave the region's investment management industry its first test of fire.
The regionwide collapse in securities prices and currencies caused the total assets under management among the RCP Asian Top 100 Managers to fall to barely $172 billion last Sept. 30, from $183 billion a year earlier. (All figures are U.S. dollars.)
The contraction took place despite the inclusion of three new countries -- South Korea, Indonesia and the Philippines -- and 50 new managers in the database from which the Top 100 is compiled. Although these additional countries were among the worst-affected by the collapse in Asia's stock markets, they include some substantial asset management businesses; indeed, the new No. 1 in Asia, by size of assets managed, is a South Korean firm with a purely domestic focus.
The inclusion of these domestic giants has tended to disguise the full extent of the damage caused by the crisis. However, if the three new countries were excluded and the analysis confined only to the five countries covered in the earlier survey, the total assets fell 23.4%, to $140 billion from $183 billion.
While the Asian asset management industry's immediate outlook remains clouded by the region's continuing disfavor among international investors, the longer-term prospects seem firmly underpinned by the continuing growth of Asia's domestic pools of savings. A further plank in this growth platform is the pressure on the region's governments -- pressure that has been greatly increased by the 1997 crisis -- to liberalize domestic capital markets and open up national savings to a broader range of investment choices.
In 1997, RCP & Partners estimates, although small by European or North American standards, the assets of Asia's retirement schemes, excluding Japan, stood at $149 billion. Some caution is merited, however, because it includes an unquantifiable element of double counting. This results from the fact that the assets shown include some portion of many regional retirement schemes.
The statistical shortcomings aside, the growth of the region's retirement schemes seems assured by the driving combination of demographics, economic growth and public policy. The result is growth in retirement scheme assets that ranges from an annual 10% in Malaysia to as much as 25% in South Korea. The net outcome is likely to be total regional assets in retirement schemes of more than $200 billion by 2000. As this is being accompanied by an increasingly widespread regional move toward external, professional management of these assets, the underlying health of the Asian investment management industry seems assured.
These are the main findings of an annual survey conducted among 229 investment management houses in eight Asian countries, excluding Japan, since last autumn by RCP & Partners of Geneva and Hong Kong. RCP specializes in the rating of investment management firms. The survey was conducted in cooperation with KPMG Peat Marwick, Watson Wyatt Worldwide, The WM Co., AIG Investment Corp. (Asia) Ltd., and Asset Korea Ltd.
Hong Kong is still the investment management hub of the region with 36 of the Top 100 having important bases there. But it is gradually losing its share of the regional cake. This was brought to the fore in February when Singapore announced the further liberalization of its investment management industry and, in particular, an increase in the portion of government assets that are to be managed by outside advisers.
Of the countries in both years' Top 100, Singapore and Malaysia showed the only gains in the number of managers listed. Taiwan suffered the most dramatic drop, falling to two managers from 15 among the Top 100. The total number of managers in Taiwan responding to the survey fell to 19 from 23. Assets under management fell to a greater degree, to $2.4 billion from $4.4 billion.
The two Taiwanese managers appearing in the Top 100 represent only 20% of all Taiwanese assets under management. This is an anomaly, as the Top 100 firms tend to represent the majority of assets under management for each of their respective countries. Singapore has the next lowest percentage of assets under management represented by its Top 100 firms, with such firms controlling 45% of the country's reported total assets. Thailand also fell in representation in the Top 100, to five managers from 10.
Meanwhile, not only did Korea have the largest manager in terms of assets, at just more than $25 billion, it also supplanted Singapore as the leading country for assets under management in the Top 100. These assets were concentrated in the hands of only eight firms, with the top manager, Daehan Investment Trust Co. Ltd., controlling more than 94% of the country's total.
Among the Top 100 firms surveyed, more than two-thirds have their regional investment decision-making centers in either Hong Kong or Singapore, sometimes both. This may well reflect the fact that, if its $68.6 billion Central Provident Fund is taken into account, Singapore soon will be nipping at Hong Kong's heels in terms of its total pool of assets available for independent management.
The 10 top managers of the survey manage more than $108 billion, more than half of the total assets under management in the eight countries covered.
No. 2 ranked AIG Investment Corp. moved up the ladder to second place from third place in the new survey. Jardine Fleming Investment Management Ltd., Hong Kong, the leader in assets under management for the previous survey's Top 100, slipped to third place in the most recent survey. Schroder Investment Management Group, Singapore and Hong Kong, moved to fourth place from seventh place. HSBC Asset Management, the fund management unit of HSBC Holdings PLC, just hung on position among the top five, fending off Citibank Global Asset Management Group (Singapore and Hong Kong). Baring Asset Management and Fidelity were both knocked out of the top five in the most recent survey, with a 10th place finish for Baring, and Fidelity not reporting.
Taking a broader view of the Top 100, some new names have come to light among the top 25. These include two Philippine groups that manage close to $4 billion: The Bank of the Philippine Islands Inc. and Far East Bank & Trust Co. The other new entries into the top 25 include Lloyd George Management of Hong Kong, with $2 billion under management; and Skandia Asia Ltd., also based in Hong Kong, with $1.4 billion.
Concentration of assets
The top 25% of the managers handled 84% of all assets; the last 25% managed just 1%. This compares with the previous year's results, when the top 25 managers handled 75% of all assets; the last 25 handled just more than 2%.
To further emphasize the concentration of assets, the top five managers managed close to $80 billion, half of all assets for the Top 100. For the 1997 report, the top five managed approximately $60 billion, or one-third of the total.
The median for assets managed by the RCP Asian Top 100 was $397 million; 37 of the 100 manage $200 million or less.
The RCP survey shows the largest proportion of managers surveyed invested in Malaysia (65%) and Hong Kong (59%).
The next four most popular countries all rang in with more than 58% of managers investing there. They were: Indonesia, Thailand, Singapore and Taiwan. Last year's survey showed the managers' favorite market as Taiwan (80%) and Malaysia (68%). Vietnam still has very few takers, with only two managers invested there, because of its lack of an organized stock exchange. Macau, soon to be Hong Kong's sister Special Administrative Region, has attracted the attention of only one manager. As a general rule -- which confirms the continuing regionalization process -- more than 60% of managers invested in Southeast Asian countries and Taiwan, with Korea and Australasia attracting less than 50%. The Indian subcontinent, including India, Pakistan and Sri Lanka, attracts coverage from more than 40% of managers.
As for the rest of the world, assets held by the managers surveyed remain quite modest, even in the United States, despite its bull market in the past three years. Less than 7% of managers are invested there. This reflects the fact very few Asian firms maintain any resources for the management of assets outside the region's markets.
The rapid expansion of the Asian industry has given birth to several new services, such as fund tracking and investment performance measurement. Asian managers are becoming more familiar with measurement procedures and methods used broadly in Europe and North America.
Approximately half of the managers surveyed used outside professionals to measure their performance. In the previous survey, the figure was less than 25%. This increase reflects the more stringent demands placed on the managers by institutional investors. In this small universe, Frank Russell Co. and Watson Wyatt shared the lead with an approximately 34% share of the market, followed by William M. Mercer, at 20%.
Again, the North American dominance appeared when managers were queried about how they report their performance, with 30% indicating their performance figures comply with the Performance Presentation Standards drawn up by the Association for Investment Management and Research of Charlottesville, Va. An additional 15% said they plan to adopt the AIMR standards by the end of this year.
But the real battle is between fund trackers, and that is only beginning. Micropal, now owned by Standard & Poor's Corp., rapidly took the lead in the Asian funds market in the early '90s. While Micropal still leads, its 47% market share is down slightly from 53% in the 1997 survey, followed by Lipper Analytical with 30% (almost even with last year's figure). The other fund trackers include Fund Research, Morningstar Inc. and FT Statistics, along with alternative asset management specialists such as TASS, London, and Hedge Fund Research Inc., Chicago, which collectively share just more than 1% of the surveyed managers.