Across Asia’s wealth management markets, deregulation and increased interest in overseas investments are driving domestic fund houses to partner with third-party product providers to offer a wider range of investment vehicles to their distributors.
In Korea, where the retail mutual fund business picked up only in 2005 – largely influenced by the bull market and increased investors’ interest in high-return emerging markets products – the demand for fund management delegation or sub-advisory boomed a couple of years ago.
Domestic asset management firms, with little expertise in investing overseas, had to sub-advise to foreign firms to meet market demand, says Kenneth Kyosuk Lee, head of business development and strategic marketing at Samsung Investment Trust Management.
OVERSEAS EXPANSION
During 2007 and 2008, the firm, which is one of the largest asset managers in Korea with more than $100bn (€72bn) of assets under management – of which 40 per cent is handled in special managed accounts for group companies, including Samsung Life and Samsung Fire and Marine insurance – rapidly expanded its overseas product range, awarding mandates in areas where it lacked expertise.
At the time, there were not many international funds available on the domestic market, says Mr Lee, and the fund house wanted to respond urgently to distributors’ demands, particularly those coming from captive distribution arm Samsung Securities, through which it distributes 50 per cent of its $60bn fund assets.
In 2007, the firm launched a global water fund and a global alternative energy fund. The management of the two funds was delegated to Belgian firm KBC Asset Management. German group WestLB Mellon was appointed to manage an emerging market fund. The firm also added a Japanese equity fund. This is managed in-house, but with Nomura Asset Management acting as its adviser.
Track record, performance, and investment philosophy are very important criteria in manager selection, says Mr Lee. But flexibility on fees proved crucial at the time too, he says. In the country, where the distribution of retail mutual funds is dominated by five or six large banking networks, management fees are “very competitive”, explains Mr Lee.
Three years ago, foreign managers used to leave little space for fee negotiations; but this has changed, since managers have realised the importance of the Korean market. “When we launched the water fund we raised $1bn in three months,” says Mr Lee. “Korean retail investors are real punters.”
With the market downturn and very heavy redemptions, the size of funds decreased dramatically. This has often caused sub-advisers to terminate their mandates. At Samsung Investment, the US equity fund, previously advised by WestLB Mellon is now managed in-house, mainly by investing in exchange traded funds (ETFs). Currently, the total overseas investments of the firm amount to $2bn, of which 50 per cent are delegated or sub-advised assets.
“The period during 2006 to 2008 was a very busy one for fund management delegation, but now most of the regional and country funds have already been launched in the market,” says Mr Lee.
IN-HOUSE EXPERTISE
In the wake of the financial crisis, investors have shifted their investment focus to the broader Asia region, while the major Korean asset management firms have been doing the same for some time. During the past couple of years Samsung Investments opened offices in Hong Kong and Singapore, with the plan to expand further in the region over the next one to two years. The firm recently launched three funds investing in China and in the pan-China region, managed from Hong Kong.
“For the next couple of years, we are mainly focusing on the Asian markets and on building our in-house expertise,” says Mr Lee. He expects that when market conditions improve there may be “the next round” of sub-advisory, perhaps driven by smaller companies who want to fill a gap in the market. “Large companies have already built many resources in-house, and they may just use external managers on an advisory basis, as opposed to full fund management delegation,” he says.
Miraeasset Asset Management, another heavyweight funds group based in the Korean capital of Seoul, has implemented a particularly aggressive expansion strategy in recent years, establishing operations in Asia, Europe and Latin America. The firm, which manages more than $60bn in assets, distributes part of its fund assets through Miraeasset Securities.
OPEN ARCHITECTURE APPROACH
The firm operates on an open architecture basis, according to SungSik Cho, team manager, financial product marketing team at Miraeasset Securities. Products are sourced from major international firms with a presence in Seoul, such as Fidelity, BlackRock, Shroders, AllianceBernstein, as well as from Korean specialised firms. But more than 95 per cent of the fund assets distributed by the firm are managed in-house, admits Mr Cho.
