Prudential’s Eastspring on track to garner record inflows

Updated with correction

Eastspring Investments Ltd., Prudential PLC's Asian asset management arm, is on track this year to best the record net inflows of £12.2 billion ($15.6 billion) the firm enjoyed in 2015, helped by Eastspring's newly acquired operations in Thailand and its focus on managing private retirement savings in the rest of the region, said Nic Nicandrou, Hong Kong-based CEO of Prudential Corp. Asia.

Mr. Nicandrou, on a visit to Eastspring's Singapore headquarters to celebrate the 25th anniversary of the money manager's founding, said Eastspring logged $8 billion in net inflows for the first half of 2019, with roughly equal amounts from third-party clients and its parent company's life insurance money.

Eastspring reported $216 billion in assets under management as of June 30.

About $1 billion of the inflows this year came from institutional and retail investors in Thailand where, over the course of the past year, Eastspring has gone from having no presence in Southeast Asia's largest and fastest-growing money management market to having a roughly 8% share via its October 2018 acquisition of a 65% stake in Bangkok-based TMB Asset Management Co. Ltd., Mr. Nicandrou said.

A soon-to-be concluded acquisition of a 50.1% stake in Thanachart Fund Management Co. Ltd., which Eastspring announced in October, will lift the firm's market share in Thailand to 12%, and $20 billion in assets under management, he said.

And Eastspring's acquired footprint in Bangkok is already delivering organic growth, Mr. Nicandrou said. "We are the fastest-growing asset management house in Thailand," with Eastspring's market share climbing to 8.5% from 7.4% at the time of its first acquisition, driven by a sharp boost in the number of distribution relationships with banks and brokerage houses, he said.

But longer term, the firm's prosperity is tied to the growth of demand for individual retirement savings vehicles in the region — or "Pillar 3" private pensions, in the World Bank's retirement safety net taxonomy, the CEO said.

At present, a small minority of the 14 countries Prudential operates in in the region — including Singapore and Hong Kong — have retirement safety nets that can be considered adequate, leaving the rest working to defuse a "demographic time bomb," Mr. Nicandrou said.

Hong Kong recently took a giant leap forward in April in promoting private retirement savings, expanding tax incentives for individual savers dramatically by HK$60,000 ($7,664) a year, he noted. Those incentives for "tax deductible voluntary contributions" to Mandatory Provident Fund-approved schemes come on top of existing tax incentives of HK$18,000.

Prudential/Eastspring jumped on that opportunity, offering a flexible annuity-like product, which accounted for 14% of the firm's new business in Hong Kong in the three months through June 30, he said.

Eastspring launched a similar product in Singapore two months ago, he added.

But the region's biggest private retirement savings opportunity is in China, where Prudential's joint venture with local financial powerhouse CITIC Group — CITIC Prudential Life Insurance Co. Ltd. — was one of only two joint ventures chosen by Chinese regulators to participate in a private pension pilot program, limited to three big metropolitan areas on the mainland.

CITIC Prudential is working with the Chinese government's research arm on a study "about the preconditions that need to be in place for a viable Pillar Three to emerge in China," Mr. Nicandrou said. For now, the lessons that can be gleaned from the experiment point to the need for tax incentives "to be a little more interesting," he said.

The one-year pilot program, meanwhile, has been extended for another year, he said.

Meanwhile, CITIC Prudential Life Insurance is "about to apply for a pensions license to do Pillar Three products in that market," Mr. Nicandrou said.

"China is serious about this (and) in the next five years, the number of companies that would be licensed to provide the Pillar Three offering will increase, and certainly our ambition and our objective is to be amongst those," he said.

Starting in 2020, ownership limits on foreign firms for mainland-based banks, insurers and asset management firms will be lifted but Mr. Nicandrou suggested Prudential and Eastspring are happy with their current partnership with CITIC.

"The challenge that all foreign companies have is how do they access the Chinese market, in whatever sector they want to be in … We have already solved that," he said, citing the alignment of interests between Prudential and CITIC, and the enormous scope the current 50-50 joint venture gives Prudential to build its business on the mainland.

The joint venture life insurance business is now in 90 cities on the mainland, with access to 84% of China's life insurance business, Mr. Nicandrou said. If the joint venture's market share — currently at 3.5% in a major market such as Beijing — were to increase by 10 basis points a year, Prudential's revenues from the joint venture will triple or quadruple over the coming five years, he said.

Mr. Nicandrou demurred when asked whether recent calls by high-profile politicians in the U.S. to limit investment flows to mainland stocks and bonds could add to the competitive challenges facing U.S. money managers and insurers in China. He conceded it could help "being a British firm."

As for the increasingly violent demonstrations in Hong Kong over the past five months or so, Mr. Nicandrou predicted the territory's status as a financial center would prove resilient.

Prudential established a large number of its offices in Asia between 1994 and 1999, a period which included the Asian financial crisis, he noted, adding "we are reaping the rewards of a contrarian approach that was taken by our predecessors, when everyone else was pulling out."