20th Anniversary Special Edition
Please find below table of contents of our 20th Anniversary Special Edition
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In the summer of 1987 I arrived in Hong Kong from Malaysia where I had worked as a financial journalist with the Business Times daily newspaper. I arrived on July 19 of that year to start work as one of the writers for a banking and finance monthly magazine; three months later, on October 19, Black Monday on Wall Street took place, and I witnessed the impact of globalisation first hand: how a market collapse can have far reaching consequences across the globe.
A HISTORY OF THE INVESTMENT TRUST: PART ONE
The era since the fall of the Berlin Wall is often characterised as a time of extreme globalisation and financialisation, with its emphasis on deregulation, international trade and investment and capital markets. The reality is more prosaic. Whilst trade is as old as mankind, the modalities have evolved over the centuries, from the pillage and piracy of the early medieval periods to more law-based systems beginning around 1500.
A HISTORY OF THE INVESTMENT TRUST: PART TWO
Outside London, the next place UK trusts were floated was Scotland. Dundee, a port city engaged in heavy industry, shipbuilding, and textiles was not considered a financial centre. Its wealth was tied to the cotton trade with the American South and the jute trade with India and, in the 1860s, achieved unparalleled wealth on the back of the US Civil War in which it traded with both sides. In 1870 a young clerk, Robert Fleming, was sent to the US on jute company business and became convinced that the depressed post-war US offered great investment opportunities.
Scotland is a renowned centre of excellence in investment management with its origins dating back to the 19th century. Asia Asset Management (AAM) parleys with some of the country’s most prominent players to find out how a country with such a small population – 5.35 million as of mid-2014, according to the National Records of Scotland – has managed to forge such a distinctive footprint throughout the world and continually punch above its weight so successfully against its much larger counterparts in the field of asset management.
The Asian financial crisis may have been a milestone in the development and maturation of Asia as an economic region, but since then, the region has not exactly been short on further crises. From the dotcom crash to the Global Financial Crisis to the European sovereign debt crisis (a.k.a. GFC Part Deux), the crises have come one after another – interspersed, admittedly, with high growth and development that has arguably put the region on a more equal footing with the Western regions. The Asian financial crisis has also been characterised since as a learning experience for regulators, institutions and populations across the region. So what have they learned from the ensuing crises since?
Asset management is one area where Asia still appears to be in catch-up to the West, even in its more advanced economies. BCG completed a study in mid-2015 aptly titled “Catching Asset Management’s Tilt Toward Asia”, which stated that “at the beginning of 2015, on the basis of fundamental measures such as household wealth and banking assets, Asia Pacific represented about a third of the world economy and global finance. The asset management industry, however, has not kept pace. Asia-Pacific’s portion of global assets under management (AUM) – only about 15% – is unchanged since 2007.” Confirming this, EY’s “Global Wealth and Asset Management Industry Outlook” for 2014 noted that, at US$1.7 trillion, Asia’s total mutual fund AUM was still well behind Western markets both in size and in growth, at +5.8% for the full year of 2013, or less than half the North American growth rate. “North America and Europe were the largest contributors to the growth in mutual fund assets in 2013,” EY concluded.
CORPORATE GOVERNANCE IN ASIA
My journey with corporate governance started back in the 1980s when I was working for a local entrepreneur who had four companies listed on Bursa, the Malaysian Stock Exchange. I was an accountant and my role included corporate and tax planning for many of the subsidiaries within the group. The Stock Exchange rules and Companies Act at that time were less stringent back then and it was left to honest entrepreneurs to behave in an ethical manner. Then came the stock and property market crash of 1986 and rules were tightened. Related party transaction rules, including loans to directors and related companies, were overhauled to protect minority shareholders.
ASIAN HEDGE FUND
Looking around today, the Asian hedge fund industry may be a relatively small part of the global alternative industry, but it reflects the same trends and preoccupations of the global industry, with similar levels of sophistication. Apart from size, and the underlying asset opportunity set, it is functionally well integrated with the rest of the world.
Anthony Francis Neoh, who is acclaimed as the father of the Qualified Foreign Institutional Investor (QFII) scheme, plays an important role in the liberalisation of China’s capital market. The groundbreaking concept he introduced helps China to fill the void in foreign investment.
Two key words - “demographics and deflation” - dominate discussion of asset management in Japan nowadays, while other terms such as portfolio “diversification” and “drawdown” of savings also crop up frequently. They all relate to the changing financial needs of Japan’s fast-ageing society in a changing economic context.
There is no denying that the Australian funds management industry has come a long way. In 1990, it had A$200 billion (US$156 billion) under management, equivalent to about 2.1% of Australia’s gross domestic product.
After three decades of continuous development, Thailand’s social security and pension system must address inequality issues if it is to remain sustainable. Today the country’s old-age retirement programs that offer members tremendous benefits only cover retirement incomes for about one third of the country’s workforce of 38 million. Our current retirement programs fail to cover more than 25 million people working in Thailand.
The last 20 years have witnessed skyrocketing growth in passive management. Twenty years ago, for example, the world’s largest index mutual fund – the Vanguard 500, which tracks the S&P 500® Index – held a respectable US$15 billion in assets under management. Today its total AUM stands at US$167 billion. Even more impressive has been the growth of the SPDR S&P 500 ETF – the first US-listed exchange-traded fund, and only two years old in 1995. Then, its AUM stood at less than US$1 billion; today, they have grown to US$169 billion.
The banking sector has long played a major role in fuelling the Asian economies as it provides the much needed capital for companies to execute their ambitious expansion plans. Despite being the driving force for economic growth, excessive borrowings can result in disastrous credit crunches, which have in the past largely undermined the financial strength of Asian countries. On a positive note, however, such financial turmoil generally provides a good opportunity for countries to review and fill in the gaps in their policy frameworks.
The Investment Management industry is at a crossroads. A major transition is underway with the rapid growth of wealth in Asia, the rise of passive players, the compression of operating margins and increased regulations. In this highly complex and competitive landscape, the role of the Investment Management COO will grow in importance as strategic decisions on providing scalable product support, building or outsourcing major operational components and the adoption of best practices, will have a significant impact on a company’s growth.
For all the developed-economy status and institutional quality of some of its markets, Asia Pacific still contains others that are regarded as very much frontier investment propositions, as well as still more that are seen as definitely towards the early end of emerging-market status. As a result, investors have very different perspectives on these prospects: some avoiding them, others taking the early-mover opportunity as a positive specialisation. What follows are some views from both ends of the spectrum.
ASIAN HEDGE FUND
Asia’s economic development continues to attract global investor’s interest. Yet, investing in Asia-focused hedge funds has been challenging due to illiquidity, shorting constraints, and underdeveloped legal systems. Moreover, Asia consists of many diverse economies and heterogeneous cultures, each presenting unique challenges and at different stages of economic and financial market evolution.
ASSET MANAGEMENT IN ASIA
Asia is now a major asset management player. Total AUM in Hong Kong and China as of end 2014 was over US$3 trillion, with China having grown by a resounding 61% over the previous year. In Singapore itself, AUM has jumped by 30% from US$1.8 trillion at end 2013 to US$2.4 trillion by end 2014. Some of the largest and most respected government and sovereign funds are located in this region. Hence, at this time in the history of Asian asset management, which is at the cusp of change, it especially behoves us to understand and internalise ongoing strategic trends in our industry.
TRENDS IN ASIA
While a large part of Asia approaches retirement, technology is pushing the investment decision down to the end beneficiary to reduce liability and costs. With access to information, analytics and a wide range of options, self-directed investment of both government-mandated and personal retirement savings will be easily executed and monitored online. Access to investments is increasingly available to everyone and the new global graduated universal tax standard applies to nearly everyone. From crowdfunding to peer-to-peer (P2P) loans, investing and capital-raising are bypassing bricks and mortar institutions, and in some cases, traditional regulators. City centres now feature hotels, restaurants, shops and art museums instead of banks, property shops and stock brokers.
The ageing population in Korea is attributable to low fertility rates and increasing longevity. The country’s fertility rate was 1.47 in the year 2000, and reached a record low of 1.08 in 2005. In 2014, the fertility rate rose moderately to 1.21, but still remains among the lowest of all OECD (Organisation for Economic Cooperation and Development) countries. Despite the Korean government having initiated long-term plans to improve fertility rates since 2007, including measures such as benefits of childcare benefits for childcare and maternity leave, these have had little impact. Young people are delaying marriage and are having fewer children than the previous generation. Economic and cultural factors appear to be equally concerning. Culturally, male dominant societies including Korea and others such as Japan, Germany, Austria, and southern European countries, have experienced similar sharp declines or maintain below average fertility rates.
Ahkter Abdul Manan
On October 19, 1987, better known as Black Monday, stock markets around the world crashed as most market indices fell within a short time. I was in shock as that happened just three months after I joined the asset management industry as an equities analyst in a merchant bank, now known as an investment bank. Twenty years ago back in 1995, I was assistant general manager and head of the investment department of Malaysian International Merchant Bankers Berhad (MIMB), the same merchant bank I started my career with. I survived the 1987 crash, a mini crash in October 1989 and an unimaginable ‘super bull run’ in 1993. My job responsibilities back in 1995 included actively managing the institutional, statutory and private pension funds and providing custodian-cum-clearing agent services to foreign clients of the Malaysian equities market.
Twenty years ago, in 1995, I was the managing director of GMO Hong Kong. I had returned to my native city three years before, tasked with the privilege of setting up the Asian office of one of the leading active quantitative fund managers in the world. It was a far cry from where I was less than a decade before, pursuing my doctorate in theoretical particle physics. The crossover from academic to fund manager wasn’t as strange as it might first appear. America had flattened London with its use of technology and the British banks had to catch up. Barings were hiring physics doctorates, and for me, it was a simple case of being in the right place at the right time.
I was first introduced to the mutual fund industry by SK Mitra in 1992 and was pulled into the Birla Sun Life Mutual Fund back in 1994. Raising money from retail was tough in those days. However, any success was seen as a great achievement. I remember we raised US$7 million in one of the income fund launches. It was a great moment of celebration for all of us.
Dr. David M. Blitzer
The 1990s was a decade of rapid growth for index investing and for S&P Dow Jones Indices, then known as S&P Indices. ETFs began in Canada in 1989 and then grew rapidly in America after the “Big SPDR” tracking the S&P 500® was launched in 1993. In 1995, at about the time Asia Asset Management was founded, my responsibilities shifted and I became chairman of the S&P Index Committee. As indices took up more and more of my time, other economists took over the economic forecasting I had been doing, and after 15 years of successful predictions, I was ready for a change. Having joined S&P Indices from its parent company, McGraw-Hill, as index futures started in 1982 and becoming chairman of the Index Committee during the rise of ETFs, I had fortuitous timing.
I remember vividly in 1992 when Thailand de-monopolised its asset management business during the interim Anand Panyarachun government.
I stepped foot into the global custody industry back in 1994 from an accounting firm to join one of BNY Mellon’s competitors in Toronto, Canada. My first key assignment there was to deal with derivatives valuation and processing – a complex instrument which was on the boom as many Canadian mutual funds were entering into in order to establish foreign content exposure for their investment portfolios.
Dato’ Cheah Cheng Hye
I was born in Malaysia, and I grew up there, coming to Hong Kong to work when I was in my early twenties. I was a journalist, and in Hong Kong my career flourished, in such publications as The Wall Street Journal (Asian edition), Far Eastern Economic Review and Asiaweek. Those were the golden years of English-language regional journalism in East and Southeast Asia, and I was able to travel across the region reporting on politics and finance. In the late 1980s, in my mid-30s, I had a career change, landing a job as Head of Research for Hong Kong and China, in the Hong Kong stockbroking unit of the British merchant bank, Morgan Grenfell.
Manoj R. Dani, CPA CAIA
Nearly two decades ago I embarked on a new career as senior executive coach and corporate advisor to financial institutions. We secured our first and second corporate clients, a respected private bank and a global alternative investment manager, in the same week of establishing the firm. We were engaged to take their executives on an odyssey of high-impact communication skills and business pipeline growth. We have since worked with many other clients, most of them financial institutions.
The one thing I’ve always known was that I wanted to work in the investment industry. I began my career as a fund manager for MeesPierson in the US. In 1994 I was given the opportunity to move from New York to Hong Kong as an investment manager at the firm, and at that stage of your career you just go for it.
In 1995 I was working for Jardine Fleming Investment Management as equity fund manager running China funds out of Hong Kong. Having been educated at Hong Kong International School, I’d returned to the US to finish college and gone to London to study for my MBA. I returned to Hong Kong in 1987, with a simple goal: to experience working in Hong Kong before its handover in 1997.
Kai Tak: probably the best tourist attraction Hong Kong has ever had. What a place to first arrive into. The right hand banked turn as your Cathay pilot approached Beacon Hill, then watching what people were having for dinner as you flew right past their flat windows over Kowloon City. Ah, the smell of the nullah once you had landed, combined with the neon lights of the city and the beehive-like activity on tarmac all said, “Welcome to Hong Kong”. Then you had the frenetic activity to get you from the plane to the terminal to immigration and then to those taxi lines where you were whisked home.
I started my career with AXA Investment Managers 16 years ago, and have more than 30 years of experience in the finance industry. Shortly after joining the firm, I was asked to go to Japan in order to lead a task force assessing AXA IM’s potential in Japan following the acquisition of Nippon Dentai, the seventh largest insurance company in Japan, by AXA Group. I was supposed to stay five weeks but I ended up staying for five years as CEO of AXA IM Japan and then Asian Regional Director from 2002 onwards.
The global economy has seen many twists and turns over the past 20 years. The market upheavals such as the Asian financial crisis, dotcom bubbles, and the global financial tsunami posed a severe test to many countries’ financial authorities. The recent economic slowdown in some countries has also caused disturbances to global stock markets.
Ajai M. Kaul
I’ve now been with AllianceBernstein, or Alliance Capital as it was known when I joined, for 21 years, having joined the firm in New York. Back then, I’d heard they were looking to form an asset management arm in India, and happened to know the person responsible for setting up the operation from the US. I interviewed with him and shortly after he put me on a plane and sent me packing off to India – that was in the fourth quarter of 1994.
The evolution of the Indian mutual fund industry has been quite fascinating. I have had the privilege of observing the inner workings of the industry first as a distributor in my role as Country Head of HSBC’s Personal Financial Services. I then became a key stakeholder and insider, when I joined Franklin Templeton in 2006, as its India head.
Stuart H. Leckie, O.B.E., J.P., F.I.A., F.S.A.
As we are celebrating Asia Asset Management’s 20th birthday, it seems appropriate to take a look at the development of pensions/investment activity in Hong Kong from a longer perspective.
Back in 1995 I was senior marketing manager for a major global asset manager, based in Hong Kong. The city’s asset management industry was nascent at the time and offices were generally small enough that we could try our hands at many different parts of the business. My role included everything from talking to and signing up distributors and holding brand training sessions through to copywriting advertisements and other marketing collateral. The sky was the limit.
1995 was for me a milestone. It was the year I made the switch from the public to the private sector, from GIC to the other side. It was also not long after I returned from working several years in New York. It was conventional wisdom then that the US was a sunset industry while Asia was seeing a sunrise. After a short stint on the sell-side, I joined Morgan Grenfell Asset Management Asia to spearhead their maiden effort into Asian bonds. In the early-to-mid ’90s, it seemed so obvious that the Asian century had arrived. After the 1987 and 1990 stock market crashes of New York and Tokyo respectively, the mantle had been handed over to Asia. Stock markets in the four Asian tigers (Korea, Taiwan, Hong Kong and Singapore) were booming, while their fixed income markets were coming into their own. The latter was characterised by short-term papers, commercial papers and promissory notes, denominated either in US dollars or in local currencies. In US dollars, the yield had a nice spread over US Treasury while the local currency ones had even better return prospects - yield curves in Asia were all higher than the US and most Asian currencies were pegged to the Greenback.
Shortly after graduating from university and embarking on my career, I had already encountered major headwinds. I may have picked the most challenging moment to join the financial industry at a time when the Asian financial crisis was about to begin in 1997.
When I think of my journey in the asset management business in India, I look 25 years back to 1990. I joined the General Insurance Company of India (GIC), a wholly government owned entity, to start the GIC Mutual Fund. I was a senior investment banker at that time having worked in a public sector bank, a British bank and an American bank. My main motivation was to be on the other side of the table managing investments rather than raising investment for clients. Public sector institutions enjoyed ‘commanding heights’ of the economy. So in 1990 I became perhaps the first private sector professional in the mutual fund industry, restricted only to government owned entities. India had just started its slow, hesitant start in opening up the controlled economy.
Twenty years ago, here in Hong Kong, my business partner, Francis and I, were just two years into our newly established asset management business investing in Asian fixed income. We had given up our comfortable day jobs as portfolio managers to challenge the norm to invest in an asset class that firstly, was close to non-existent, and secondly, unlike the US, had no natural demand from investors here in Asia. Our vision was that one day, the Asian bond market would become bigger than the equity market. Thus, we set up Income Partners as an independent firm to help our clients invest in Asian fixed income with no conflict of interest.
Back in 1995, I was a general manager responsible for the investment management department working for a large Japanese trust bank in Tokyo. In the late ’90s the non-performing loan book caused by the collapse of the bubble economy in Japan led to financial crisis. Vast amounts of financial assets were accumulated due to the monetary easing in the prior period and I began to believe that the asset management industry would become an integral part of the financial sector. However, Asia’s currency crisis meant that a medium to long-term commitment was needed in order to nurture and develop asset management in the region.
Twenty years ago in 1995, I was appointed branch manager of the Industrial Bank of Japan, Zurich Branch, which was set up in 1994 to provide treasury services for The Industrial Bank of Japan Switzerland AG. At 34 years old I was the youngest to become a branch manager among all IBJ branches in the bank’s history. It was during the period in Zurich that I learned not only how to manage a branch as a whole, but also about the private banking business, which at that time was managed by The Industrial Bank of Japan Switzerland AG. The private banking business was very interesting and attractive, but no one, including myself, had any idea at the time that I would be in the asset management business industry ten years later.
Back at the time when I was in university, I had made up my mind to learn Mandarin which seemed like an interesting language to me.
After almost 20 years in the Asian fund management industry, I see a circularity to my work experience that I’ll attempt to explain in this article. My fund industry journey starts after many years as an IFA in UK, Hong Kong and Japan, after I entered the fund industry in September 1996, joining Franklin Templeton in their Hong Kong office with an institutional marketing role.
Dominic Scriven, OBE
Asia in the 1980s was not Asia today. Investment pioneers talked of the NICs (KNICKS - Newly Industrialised Countries) and the NIEs (KNEES - Newly Industrialising Economies). The NICs were Korea, Taiwan, Hong Kong and Singapore; the NIEs were Philippines, Thailand, Malaysia and Indonesia. There was talk of waterfalls from Japan to the NICs, to the NIEs, and then on further down the economic foodchain. Scarcely anyone talked of investing in China. How quaint!
Paul Smith, CFA
Twenty years ago I came out to Hong Kong to run the custody and security operations of the Bank of Bermuda across Asia. What struck me coming from London was that industry was very nascent, certainly in the world of alternatives. There was at that time no hedge fund industry to speak of, bar a couple of managers, so I saw great opportunities. One of my first impressions across the region was the wonderful variety and diversity of relatively sophisticated markets alongside unsophisticated markets, as well as variations in regulation and in turn, the operating effectiveness across the various countries. The overriding feeling back then was one of a lack of development, coupled with a buzz of excitement that we were at the frontier of a region that was ripe for growth, expansion, and change.
When Marty and I started out, we knew there were big possibilities ahead for REITs. But sometimes reality has a way of surprising even your greatest expectations.
Dr. Tan Chong Koay
I was born in Malaysia on January 3, 1950 into a humble family. We lived in a small village with neither running water nor electricity. Nor were there normal sanitary facilities which we now take for granted. Growing up in this basic environment, I was determined to work hard and to excel in my career. My dream was to build a longterm track record in my selected field. After working for 18 years helping others to build their fund management businesses, I founded Pheim Asset Management Sdn Bhd, Malaysia (Pheim Malaysia) on January 3, 1994 and then Pheim Asset Management (Asia) Pte Ltd, Singapore (Pheim Singapore) on January 11 the following year.
I’ve seen tremendous changes in the Thai asset management industry in the past two decades. The Thai mutual fund industry grew dramatically between 2006 and 2010 as it quickly became an alternative savings channel when real interest rates remained negative. Fixed income funds also played an important industry growth role. Products such as fixed income and money market funds became deposit substitutes. At the same time, tax-advantaged long-term equity funds (LTF) and Retirement Mutual Funds (RMF) have driven equity mutual fund growth.
Thio Boon Kiat
Looking back at the past 20 years, I am thankful for the many varied opportunities throughout my career in the fund management industry.
Although Thailand’s asset management industry has expanded exponentially in the past several decades, Tisco Asset Management Co. Ltd. (Tisco) is growing in special niche markets because of its unique position.
Arnout van Rijn
Robeco’s first global emerging markets fund, the Robeco Group Emerging Markets Fund, was launched in November 1994, and I was selected to be its fund manager after only four years at the firm. It was not a market I was very familiar with. In my junior years I had done some work in the Asia Pacific markets, mostly in Hong Kong, some in Australia, but I knew very little about emerging markets back then. Before I was approached to run the emerging markets fund I had been managing a European portfolio; so for me, the whole of 1995 was a year of travelling a lot to get to know the emerging market countries, in Asia and in Latin America. I was still based in Rotterdam at the time, and I ran the emerging markets fund from there between 1995 and 2000.
I brought my family to England in 1991. I attended my MBA study and my wife became our four year old son’s kindergarten teacher. A year later, we came back to Hong Kong and I restarted my career as Treasury Department head for a listed company. As Senior Manager – Treasury & Investment, I invested in US Treasury bonds and Southeast Asian equities. I wanted to be a financier rather than a bond salesman after five years heading up a bond sales desk. Seeking credit rating and issuing bonds was something that really interested me. I managed the interest rate risk of the company’s debt using interest rate swaps and caps.
Staying a Step Ahead with Sector Investing
Some of the biggest challenges currently faced by investors include how to position portfolios for potential rises in interest rates, higher volatility and any slowdown in corporate profits. In this environment, we think sector investing is an attractive strategy that can augment traditional stock-picking and asset allocation strategies.
THEN AND NOW
TIMELINE OF EVENTS
Asia Asset Management takes a look at the milestones that have contributed to the landscape of the asset management industry over the past 20 years
FAMOUS LAST WORDS