15th Anniversary Special Edition
Please find below table of contents of our 15th Anniversary Special Edition
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Pension funds in transition
Fifteen years ago, when Asia Asset Management was launched, Asia’s pension and fund markets were very different in shape and form compared to the regime today. Many pension funds in the region had yet to embark on their cross-border investment activities. For some, their charters had to be amended, and for others, the rules concerning offshore investing had yet to be formulated. No less, a number of sovereign wealth funds and pension reserve funds had yet to make their debut too, taking shape five years later as in the case of the Beijing-based National Council for Social Security Fund or China Investment Corporation in 2007. Australia’s Future Fund was also launched that year; after much debate and delay, Hong Kong’s Mandatory Provident Fund scheme saw the light of day in December 2000.
NPS heads into new era
It has been nearly a year now that Dr. Jun Kwang-Woo has been at the helm of the National Pension Service (NPS), the world’s fourth largest pension fund, as its chairman and chief executive officer. Dr. Jun was previously the chairman of the Financial Services Commission between 2008 and 2009, steering the financial services industry through the global financial crisis. Korean financial institutions, by and large, coped well during the financial downturn, a testimony to their resilience. The lessons of the last financial crisis in 1997 and 1998, in particular, have been well learnt.
Man Group eyes new opportunities in Asia
The Man Group is positioning itself to capture the growth opportunities in Asia. Since arriving in Asia 15 years ago when it opened a distribution office in Hong Kong in 1995, its business has been growing steadily in the region. The Asian business now contributes a significant part of the company’s global assets under management of about US$63 billion (as at October 14, 2010). Local structuring, sales and marketing, and compliance teams around the region allow Man to meet the regulatory requirements of the various jurisdictions and to customise the group’s global product range successfully for individual local markets.
Diversification is key
The quant approach to investing suffered certain criticism when in August 2007, a number of well- established funds suffered dramatic losses. Since the beginning of the global financial crisis, liquidity risk has become a major concern, causing disruptions that have spread from stocks to other credit derivatives and asset classes. Post-crisis however, there is much greater awareness of liquidity risk and the need to avoid less liquid stock, which in the past drove so much profitability.
SPARX might fly
The origins of SPARX Group Co Ltd date back to 1989 when company founder Shuhei Abe set up one of Japan’s first independent asset management boutiques specialising in Japanese equities, SPARX Asset Management Co Ltd. Since then, the firm has grown exponentially as it evolved into a diversified asset management company that now covers the whole breadth and width of Asia-Pacific markets. Asia Asset Management spoke to Mr. Abe to find out how he did it.
Mirae Asset's focus on global emerging markets
Not many took much notice when a young manager left one of the major Korean securities companies in 1997 and launched his own company, but before much time passed most people in Korea and even around the region came to know the manager’s name, Park Hyeon Joo, and his company’s name, Mirae Asset. Founded by Chairman Park in 1997, Mirae Asset has grown to be one of largest fund management companies in Korea and in the region as well. When he launched Mirae Asset in late 1997 at the height of the Asian crisis which had a devastating impact upon Korean banks and non-banking financials, not many would have been surprised perhaps if Mr. Park’s new company had failed.
Schroders veteran builds local manufacturing
In a market in which staff turnover is seen as high, higher than say the markets in Hong Kong and Singapore, it is remarkable that KS Jeon, the chief executive officer of Schroders in Korea has held down just two jobs in the last 30 years in Seoul. His first was when he joined Korea Investment Trust Company in 1980, then the largest of the three investment management companies where he stayed for 14 years; there, he worked his way up the ladder, spending time in the research, sales and marketing and fund management departments, including a move to London as a research manager for three years from 1987 to 1990.
AXA Investment Managers states its case
Financial institutions with a strong parent matters these days, particularly as institutional investors seek the safety of large groups in the wake of the global financial crisis. Counterparty risks, as never before, are now a prime consideration when one wants to do business. "Investors want to see balance sheet strength and this is an issue that was not seen to be as critical before the global financial meltdown," says Jean-Pierre Leoni, the Head of Asia-Pacific at AXA Investment Managers (AXA IM), the wholly-owned asset management arm of the giant AXA Group.
SOVEREIGN WEALTH FUNDS
New group of investors stamp their authority
Sovereign wealth funds (SWFs) are large pools of state owned or controlled capital invested internationally. The first SWF created was the Kuwait Investment Authority in 1958 designed to invest the surplus foreign exchange reserves of the kingdom to create an income stream to support the population when the oil revenues ran out. Its net assets today are over US$230 billion. Other oil producing countries in the Middle East and elsewhere followed by creating such multi-generational funds as their foreign exchange reserves swelled far beyond their current investment capacity or needs. The largest one is the Abu Dhabi fund with assets in excess of US$450 billion. Singapore was the first Asian country to create overseas investment funds with the establishment of GSIC and Temasek in the 1970s.
Government stimulus package provides foundation for next economic growth phase
"Beijing's fiscal stimulus package, launched in 2009, will see 4 trillion yuan being pumped into China's economy over two years, with the central government contributing roughly 30% of the fund," says Dr. Ludan Liu, director and deputy head of fixed income department for ChinaAMC, the largest fund house in China with a 10.18% market share as of June this year.
Challenging market an opportunity for active managers to shine
The year so far has been a challenging one for the asset management industry, as better-than-expected global growth has been counterbalanced by continued investor caution and markets that are at times unpredictable. After a significant run-up since March 2009, equity markets have been held in a range for most of 2010, making the selection of individual stocks an important driver of fund performance.
From Silk Roads to Stock Markets
Perhaps not since the Tang Dynasty (618 - 907) has the world at large been so interested in or connected to China. Then, there was the Silk Road, which connected East to West through an unprecedented trade route. Now, a decade after China’s accession to the World Trade Organisation, a similar global thread of commerce binds China to most parts of the world. Initially, Chinese export resurgence was based on labour cost advantages. Now, China is increasingly delving into more sophisticated manufacturing techniques and developing global brands. China also has a seemingly unending appetite for basic minerals, materials and certain food products, which makes it a great destination for producers of such items.
The next 15 years - China in 2025
There is some dispute about whether it was Nils Bohr, the famous physicist who split the atom, or the equally famous but malapropism-prone New York Yankees manager Yogi Berra who first said ‘it’s risky to make predictions, especially about the future’. Whoever said it first, it is a fact, and they might also have added a caution about how these difficulties are amplified in times of dynamic change and turbulence that we are presently experiencing. If we have entered the Pacific century, as the writer has believed since he first stepped on the continent over 40 years ago, then the Asian renaissance is due to the region continuing barrelling along while changing the lives and expectations of the three billion people living there and affecting world geopolitics, possibly profoundly, at the same time. But the ride is unlikely to be completely smooth; rapid industrialisation is usually an upward passage interspersed with sometimes violent corrections as societies are forced to adjust to new realities.
BlackRock committed to local markets throughout region
In the world of investment management, they don’t come any bigger than BlackRock, the global firm that was transformed following the US$13.5 billion acquisition of Barclays Global Investors (BGI) last year. With approximately US$3.15 trillion of global assets under management, BlackRock leaves its nearest rivals trailing in its wake. Put another way, the amount of assets under its management is approximately the same as the GDP of the 5th largest economy.
HEDGE FUNDS IN ASIA
Growth in Asia-Pacific region due to European/US over-regulation?
Given the impending changes in the regulatory framework governing the operation of hedge funds in the USA, the UK and Europe, due to recent changes in the regulatory framework such as the Dodds-Frank law in the USA and the new EU wide financial regulatory authorities that are being launched in Brussels; it is certainly possible that these new laws and regulations may result in hedge funds relocating their operations to Asia-Pacific locations where the regulatory framework is established and not expected to change. The principal gainers in the process of what may amount to a large number of funds that may move to end their operations in their current jurisdictions and re-establish operations in the region are most likely to be Singapore and Hong Kong. According to an industry publication, Hedgeweek, “In what is possibly the first sign of reaction to the Dodds-Frank bill, Goldman Sachs’ Asia-based Principal Strategies traders, a ten-man plus team managed by Global Head of Principal Strategies Morgan Sze, are gearing up to leave the firm at the end of the year to start their own hedge fund.” The enhanced scrutiny of hedge funds by regulators in the US, UK and Europe is likely to accelerate the movement of funds from their existing bases to Asia and the pace is expected to quicken over the next several years.
ALTERNATIVES IN AUSTRALIA
Funds disappointed with 'defensive' alternative assets
Australian superannuation funds’ move into alternative assets may have hit a speed-bump, with allocations falling in 2010 for the first year in eight, but the imperative that drives the move - the desire for returns uncorrelated to those of the major asset classes - remains strong.
Managers must maintain competitive edge to ensure a piece of the action
During the worst of the global financial crisis (GFC) - the 2008-09 financial year - the Australian superannuation system was the envy of the investment world.
HONG KONG CEO ROUNDTABLE
China's prominence within emerging markets not being fully recognised
To mark its 15th Anniversary, Asia Asset Management brought four Hong Kong CEOs from the asset management arena together for a roundtable session at the Foreign Correspondent’s Club on September 15 to discuss and debate the past, present and future of the industry.
SINGAPORE CEO ROUNDTABLE
Southeast Asian markets back in the frame
The Singapore leg of Asia Asset Management’s CEO roundtable series proved to be a lively and sometimes heated affair. Five CEOs from the asset management industry stationed in The Lion City attended a two-hour lunch session at the well-appointed Tower Club where some dynamic deliberation and dialogue ensued.
Fund industry eyes new opportunities
Looking back on the development of the Korean asset management market over the past 20 years, it has certainly demonstrated impressive gains in assets under management in terms of public funds, as it rose from the equivalent of just over 23 trillion won (about US$30 billion at that time) to over 250 trillion won by the end of 2009. During the past 20 years the industry has dealt with the Asia financial crisis, which resulted in the collapse of the major Korean asset managers (including the ‘big three’ of that period: Korea Investment Trust, Daehan Investment Trust and Hyundai Investment Trust) in 1999 in the wake of the collapse of the Daewoo Group, but it has also seen recovery and impressive growth and the entry of new managers, both foreign (such as Franklin Templeton and Fidelity) and domestic, such as Mirae Asset and Samsung Asset Management. While showing a reaction to the economic circumstances of the country itself, the assets under management of the Korean fund management industry have generally shown great resilience and steady growth, albeit with retrenchment at times but always a solid recovery as the Korean economy went from bust back to boom or at least stability.
GULF COOPERATION COUNCIL
The Arab Gulf's winding road to financial stardom
Emerging economies benefit from ‘leapfrogging’ technologies in developing certain economic sectors. Any visitor to the Gulf is witness to this phenomenon. Physical infrastructure is brand new. For example, roads, airports and telecommunications facilities are all world class.
Blessed are the pessimists
I am not sure what science’s latest line on the suicidal habits of lemmings might be, but their legendary propensity for diving off cliffs seems to be shared by a lot of investors.
EXCHANGE TRADED FUNDS
Plenty room for growth in Asia-Pacific
Hong Kong introduced the concept of exchange traded funds (ETFs) to the Asia-Pacific region back in August 1998 when its government acquired a substantial portfolio of Hong Kong shares during a market operation. The government then established Exchange Fund Investment Limited (EFIL) in October 1998 to advise on the disposal of this portfolio in an orderly manner.
The long arm of the law
As the items above illustrate clearly, pension funds, asset managers and institutional investors alike cannot but take note of the all too “visible hand” of the state in their business. Most of today’s investment professionals have only operated in a market environment of almost free flow of capital and the retreating role of government in business. Most of them would have hardly any experience of the pre-Reagan-Thatcher era of the hold of governments on exchange rates and migration of capital beyond national borders. But the Great Recession of 2008-09 in the wake of the international banking crisis and the resulting legislative measures have shown that the role of the state has not diminished that much.
Mutual funds look to re-invent business models
About half a century has passed since Unit Trust of India floated India’s maiden mutual fund scheme, and it is 17 years since India’s first private mutual fund, Kothari Pioneer MF got registration. After so many years of existence, India’s mutual fund industry still believes it has only scratched the surface of the Indian market. The share of capital markets in household financial savings is barely 3%, of which mutual funds is a subset. The Indian mutual fund industry is undergoing a metamorphosis, which industry participants believe, will make it bigger, stronger and grow in a sustainable fashion in the 21st century.
Different routes to the top of the tree
In 1995 Goldman Sachs analysts made a survey of the asset management industry. It concluded that the industry would be dominated by about 20 companies alongside boutiques, and that to be numbered among the big boys funds would need US$150 bn or so of AUM. Broadly speaking, the Goldman vision has proved correct, though the numbers have risen. During the ensuing 15 years we have seen the rise of exchange traded funds (ETFs), the convulsions in 2008 as overextended banks got taken over by competitors, and the rise of multi-billion pound alternatives firms. Well-known names have disappeared into the maw of a competitor. Sometimes they have reappeared in mangled form or as a letter, but more often they have gone for ever. Others have remained standing through thick and thin. Think Schroders, Wellington, Vanguard or Fidelity.
Integrating three approaches to risk management
The global financial crisis has shifted the attention of all investors to risk. A survey of the practices of European pension funds done by EDHEC-Risk Institute<1> highlights three great challenges – gaining additional access to performance through optimal diversification, improving the hedge of the stream of liabilities, and respecting the minimum funding ratio constraint by insuring downside risk away. In the following paragraphs, we discuss diversification, hedging, and insurance, risk management approaches corresponding to each of these three challenges.
Fed: The Great QE Debate of 2010
The US Federal Reserve, unlike central banks with single inflation mandates, was tasked by Congress, through the Federal Reserve Act of 1913, with the “dual mandate” of targeting both full employment and stable prices.
ASIAN FUND TRENDS
Index-based funds may not be all they’ve been cracked up to be
When it comes to investing other people’s money, two words, used for more than a century in financial markets, sum up the process and problems. The words are "mutual" more commonly used in the US and “trust” more commonly used in the UK. It is all about pooling the money of many people for “mutual” benefit and then “trusting” someone to take care of it.
The Asian mutual fund story
By any basis of measurement, the growth of offshore mutual funds in Asia has been outstanding over the last 15 years or so. Statistics alone show that both the number of funds and the aggregate value of investment in them have increased massively since 1995. This article aims to provide some of the background behind this phenomenal growth, and also aims to give some pointers to what might happen in the future.
TIMELINE OF EVENTS
Pension and fund management markets: How they have progressed