18th Anniversary Special Edition
Please find below table of contents of our 18th Anniversary Special Edition
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A brave new Asia
Eighteen years marks the coming of age for most people, and so for us at Asia Asset Management, it is also an appropriate time to reflect on times past and to take a look at the issues that dominate Asia's maturing asset management and pensions landscape. I founded AAM in 1995 and the first issue of the monthly was launched in December of that year; 18 years on, we at AAM have had the privilege to watch, from a ringside view, the progress that Asia's pensions and fund markets have achieved in that time.
A trip down memory lane
To say the 18 years since Asia Asset Management was founded have been eventful would be extreme British understatement. These years have encompassed the new age of globalisation and extreme financialisation; global markets have been very volatile as they attempt to adjust to a new era when emerging economies truly emerged and the so-called developing world, led by China, took up the baton of global economic leadership in terms of performance, if not quite yet on policy setting. A historic swing of the pendulum from West to East gathered momentum as China alone moved from the world's seventh largest economy to the second largest with the prospect of shortly becoming number one, the timing of which will be in part determined by the rate at which it completes its present economic transformation.
ASIA'S AGEING SOCIETY
The demographic doomsday clock nears midnight
Asia's demographic crunch and ageing population could mark the end to the region's multi-decade story of growth and development. It is the one most evident, most predictable and most unavoidable challenge to Asia's growth momentum. China is already the most disturbing instance of this, with the impact of the one-child policy over decades compounding with the shift to a slower-growth, more consumer-driven economy to increase the effect of an ageing workforce.
Alternatives to enhance retirement preparedness in Greater China
Traditional models of retirement planning in Asia have arguably been rendered obsolete by the rapid greying of regional populations, changing family support systems and the impact of the global financial crisis. While the population of over 65 year olds in the region is set to triple over the next 40 years, historically low interest rates are currently challenging retirement preparedness for many.
Ping An leverages on existing expertise to prosper in Hong Kong
Ping An Asset Management (Hong Kong) (PAAMC HK) aims to be the top Mainland fixed-income asset manager in Hong Kong. The company has enjoyed significant AUM growth in recent years, due in no small part to establishing its external asset management business.
Fine tuning to maximise potential
China Universal Asset Management (China Universal) has made its mark as one of the fastest growing asset management companies in China since its inception in 2004. The Shanghai-based firm is looking to enhance its product lineup and investment capabilities to capitalise on the opening up of the mainland financial market.
Investment Stratgies Designed for a Complex Retirement Landscape
It's a simple, but unsettling reality: many workers are not financially prepared for retirement. Individual investors face the systemic risks of inflation and market volatility, while longer lifespans and behavioural hazards-under-saving and overspending-compound the challenge.
Chinese wisdom has always emphasised the importance of timing in successfully executing complex undertakings. And this was the first thing Dr. Au King Lun, CEO of BOCHK Asset Management Limited mentioned during a recent interview with Asia Asset Management.
Vision to reality
Traditionally, Asian fixed-income managers have had a heavy ceiling imposed on their ambitions, according to Emil Nguy, founding partner and CIO of Hong Kong-based Income Partners. Unlike the norms prevailing in the developed economies, whether that be the US, Europe or Japan, where debt markets are always bigger than their corresponding equity markets, in Asia it is the reverse.
A fundamental approach to smart beta
Smart beta is displaying clear potential to become a mainstream product as major institutional funds globally increasingly show interest in the theme. As providers move to serve the demand, DIAM, the global asset manager headquartered in Tokyo, is carving itself out a niche at the active end of the spectrum, incorporating a greater focus on the active side than most of its competitors in this passive-leaning field.
MANDATORY PROVIDENT FUND SCHEME
Australia's Superannuation Guarantee Charge (SGC) is often highlighted as a compulsory retirement success story. Introduced in 1992, members were empowered through choice in 2006, some 14 years after the establishment of the SGC. Hong Kong's MPF timeline movement to choice is coincidentally similar to that of Australia.
A drop in the ocean
Not one to want to gate-crash a birthday celebration, but Hong Kong's Mandatory Provident Fund system is also 18 this year. The first contributions were in December 2000, which would make it a mere teenager, but in one sense it really started life with its establishing legislation, the Mandatory Provident Funds Schemes Ordinance back in 1995, some 18 years ago. As Asia Asset Management celebrates its 18th birthday, the development of MPF has been an important theme in the magazine's coverage of a wide range of events in the last 18 years.
Asia set to overcome home bias
The assault course to international diversification is fraught with intimidating challenges and treacherous pitfalls for the Asian institutional asset manager. Given the allure of high domestic interest rates in a world of rock bottom borrowing costs or the terror of playing the currency game for institutions raised in the folds of protective domestic monetary policies, it's understandable that managers want to think like Warren Buffet and stick to what they understand best.
How to do business in the age of fragile trust
Over the last 18 years, the investment industry has gone through incredible changes and several periods of turmoil such as the Asian financial crisis in 1997, the Russian financial crisis in 1998, the technology bubble around the turn of the last century, and of course, the 2008 global financial crisis. The world has also seen spectacular corporate failures during this period that were triggered by fraud and other misconduct. Enron's demise in 2001 was a seminal event. In Asia Pacific, Nick Leeson, the rogue trader who brought down Barings Bank in the 1990s while working in Singapore, is still remembered as having created one of the world's biggest financial downfalls. All these events, as well as the regulatory reforms or political decisions that followed, left a recognisable imprint on the financial industry in the Asia Pacific region.
HONG KONG CEO ROUNDTABLE
Asia Asset Management's 18th Anniversary CEO Roundtable proved to be a lively and sometimes heated affair. Five CEOs from Asia's asset management industry attended a two-hour lunch session in Hong Kong's plush American Club where some dynamic deliberation and dialogue ensued.
PENSION IN AUSTRALIA AND NEW ZEALAND
Antipodes lead the way
As befits two fierce sporting rivals who speak very differently, Australia and New Zealand take different approaches to retirement funding. Australia's centrepiece is its A$1.6 trillion (US$1.54 trillion) superannuation system, based on a compulsory employer-funded defined-contribution (DC) superannuation scheme, the Superannuation Guarantee (SG). New Zealand's is a universal, pay-as-you-go public pension called New Zealand Superannuation (NZS), funded from income tax.
ASSET MANAGEMENT IN CHINA
Heading in the right direction
The asset management industry in China has witnessed many ups and downs since the first closed-end mutual product was launched by China Asset Management Co (China AMC) in 1998. With numerous regulatory changes and market reforms, the country has developed as one of the fastest growing asset management hubs across the Asian region boasting more than 80 domestic and joint venture asset managers with total AUM of over 3.7 trillion RMB (US$587.3 billion) as of the end of July 2013.
ASSET MANAGEMENT IN INDIA
Growth a given
With its demographic advantage, high savings culture, well-respected regulator, and many players of repute in asset management and distribution, Indian asset management business prospects look bright. But amidst the current gloom and doom in the country, the industry is also being buffeted by storm clouds of negative facts, figures and sentiment. Why?
TECHNOLOGY FOR ASSET MANAGERS
Operating in the new normal
Asset managers have been under enormous pressure to operate profitably in today's ‘New Normal' environment. In their continued search for sources of alpha, asset managers are trading a wider range of financial instruments, accessing new markets, alternative investments and diversifying their asset class exposure. A number of dynamic headwinds have to be overcome if they are to succeed and stand out from the increased competition.
The iceberg effect
Much emphasis has been put on the front office - trading strategies, asset allocation, achieving best execution and low latency trading - because these are the most obvious drivers of performance. However, in a world of shrinking margins, risk aversion and increased demand for reporting and regulatory compliance, the linkages to middle and back office processes are coming into the limelight more than ever before.
Pedro Borda, chief executive, ASEAN region at CIMB-Principal Asset Management Berhad, talks to Asia Asset Management about the firm's operations in Malaysia and its aspirations in Asia.
Investors are sticking to their guns
The US default crisis came close to wreaking havoc on the global economy in early October. Cathay Conning Asset Management (CCAM) believes that this incident, while not weakening the quality of US treasuries, will nonetheless spur an increasing number of institutional investors to diversify their bond portfolios in aid of reducing their dependency on US treasuries.
Raising the bar
As an investment approach, impact investing is in its infancy in Asia. In the United States, one of the early movers was the Rockefeller Foundation. At its simplest, impact investing aims to generate sustainable long-term returns. And as the term implies, the strategy also aims to have a positive social and environmental impact, objectives that are not mutually exclusive.
The number of high net wealth individuals (HNWIs) and ultra-HNWIs in Asia has more than doubled in the last five years. And this wealthy slice of the population is expected to grow further still, powered by the underlying growth potential of the middle class, especially in emerging markets where people are growing their private wealth in lock-step with their burgeoning economies.
EXCHANGE TRADE FUNDS
Sky's the limit
Although there are still questions on when and how it will be develop&ed and implemented, the greatest perceived opportunity in the Asia Pacific ex-Japan region for many asset managers and exchange traded fund (ETF) providers is the development of the mutual recognition regime with China. On my last visit to Hong Kong on September 23, after a 20-hour delay while we all waited for typhoon Usagi to pass over Hong Kong, a number of people expressed a view that an ETF(s) might be the first product to be offered via the mutual recognition scheme.
The real deal
Asia has come of age in the last two decades. And its real estate markets have matured significantly and opened up to international capital. Institutional investment in Asian real estate really only began in the mid-1990s with the raising of the early generation of closed-end Asia funds. According to Scott Girard, CEO and CIO, Asia real estate at M&G Real Estate, Asia now comprises around 34% of the global real estate investable universe and it is growing, on average by 11% per annum - far quicker than other regions.
Build and expand
As Asia continues to boom, the need for major infrastructure projects right across the region is growing increasingly dire. With this, investment opportunities are enormous and fund managers have been quick to accommodate demand.
The term “real assets” is typically used to refer to tangible assets that have inherent value due to their utility, such as real estate and infrastructure. Today, pension funds are able to access real assets in a myriad of ways, across public and private markets as well as across the capital structure in both equity and debt. Be it a real estate investment trust (REIT), an infrastructure bond, an equity stake in an office building or an interest in an infrastructure debt fund, there is no shortage of choice in how one may approach investing in real assets.
Great rotation materialises in unexpected form
Asia's supply-driven bond markets are set for continued growth thanks to the rising need for sovereign bond issuance to finance massive and long-overdue infrastructure and a likely upturn in corporate bond issuance on the back of sustained low global interest rates, the implementation of Basel III, and continued European deleveraging. Meanwhile, deepening global interest among investors in these markets (both corporate and sovereign) is also clearly present.
BY THE NUMBERS
Fund Markets: How they have progressed
Flavour of the month
The term ‘frontier market’ has been around since 1992. It was coined to describe a sub-set of emerging markets that were both smaller in terms of market capitalisation, and less liquid. Despite the upheavals stemming from sporadic economic development and political instability over the years, frontier markets have become significant attractions for foreign institutional investors, the rationale being that their low economic base and minimal investment correlation with their more developed counterparts have helped them to hedge against GFC macro-risk.
Shaken, not stirred
The connection between British secret agent James Bond and the Scottish financial industry is not as obscure as it may first appear. With a history dating back to the establishment of the Bank of Scotland in 1695 and the Royal Bank of Scotland in 1727, Scotland has long been considered a pioneer in investment management and financial services. The country also played a major role in the investment management sector in the 1870s, when investment trusts were pioneered by Scotsman Robert Fleming, grandfather to Ian Fleming, creator of 007.
The pensions dimension
Institutional investors in general and pension funds in particular have shown themselves great enthusiasts for secular growth to underpin their private equity (PE) commitments, and seldom more so than in Asia. As Hong Kong’s Under Secretary for Financial Services and the Treasury, Julia Leung, remarked to the 12th Hong Kong Venture Capital Association China Private Equity Summit in June this year.
Satisfying desire for diversification
Pension funds have hardly fallen out of love with hedge funds, despite some striking instances of underperformance and occasional moves against the asset class by unfriendly legislators. The 2013 Global Alternatives Survey by Towers Watson and FTfm, revealed an 8% rise from US$1.23 trillion in 2011 to $1.33 trillion in 2012 in the hedge fund assets held by the top 100 asset managers that deal with pension funds. But how are pension funds viewing their public markets alternative investments post-crisis, in Asia and elsewhere?
While retail investors are unsurprisingly the subject of most behavioural finance studies, given their propensity to fall into the most obvious investment traps, the shallower behavioural pitfalls that institutional investors slide into, often based around confidence issues, have a dramatic impact on overall market activity given their powerful dollar clout. The development of a broader understanding about these issues may go a long way to avoiding some of the biggest problems surrounding financial crises.
Same subject, different angle
Professor Robert Shiller, Sterling Professor of Economics at Yale University and the author’s dissertation advisor back at Yale, won the Nobel Prize in Economics this year for his contribution to ‘The Empirical Analysis of Asset Prices’ (in conjunction with Professor Eugene Fama and Professor Lars Hanssen, both from University of Chicago).
Loss of faith
Looking back over 18 years and trying to avoid the temporary distractions provided by fluctuations in the economy, the industry and the attempts to regulate it, what do we find? We find, I fear, a steady decline in the faith felt by the general public in the financial industry in general, and financial advice in particular.
China then, China now
Elsewhere in this magazine there is a great deal of coverage about how the business of raising funds and/or managing those assets for investors has changed in the past two decades. In this column, we take more of an arm’s length look – spanning about half a century – at non-business trends and events that inevitably influence the purely financial aspects of the economy.
TIMELINE OF EVENTS
18 years of pensions and fund management in Asia