As Asia is growing fast and unveiling an unprecedented amount of wealth accumulation, fund managers are more and more looking at the region with the sake of “cracking the market” and making a place on the eastside. When this actually makes sense, there are however many aspects that should be considered.
Hong Kong remains an important financial centre but Singapore definitely took the lead in terms of Asset Management hub. The Lion City implemented a serie of incentives that definitely provides an attractive tax and legal environement for any asset manager willing to set up in the City (see my last article – february 2015). The main advantage to confer to Singapore also relates to its geographical proximity with some of the most active and growing pools of wealth in South East Asia (Indonesia, Philippines, Malaysia).
Following the aftermath of the 2008 financial crisis, major financial centres undertook an array of policies in order to protect retail investors from investment sollicitations.
- When domiciled in another country, an investment fund can be marketed freely to institutionals (large banks, insurance groups) and does not require any previous registration.
- As per accredited investors, regulation has been updated in 2014 and requires fund managers to register the fund under the “restricted scheme” through the MAS online portal.
Investment funds domiciled offshore and aimed at being offered to institutionals or accredited investors do not require previous authorization or registration. Documentary proof of the “accredited status” of the investor has however to be provided (financial statements).
When these conditions do not really impede the distribution of funds in Asia, additional tightening can be expected. Indeed, the Hong Kong securities and Futures Commission (SFC) informally mentioned last year that they might gradually adopt more restrictive interpretations with regards to funds distribution and treat marketing to professional investors as marketing to the public.
All in all, the accrued restrictions surrounding the distribution of funds in Asia officially aim at protecting investors but informally at encouraging the set up of fund managers locally. Over the next 5 years if not earlier, boutique fund managers will have to consider the setup of a local representation or local partnership if interested to further develop in the region.
Time concept : In Asia, time has no limit ..
Knowing your market is essential when you intend to tap into it. This encompasses not only product suitability but also mindset undertanding. Marketing funds in Asia can take a very long time and therefore patience is key. As for any product, investors will first take time to hear about the product, then recognize the brand and finally try out the products if convinced that the momentum is here and attractive yield is almost guaranteed.
On the contrary, once the decision is taken, the investment horizon is very short. A risk of sudden outflow should therefore be well considered by the Portfolio Manager.
The first generation of Asians built up their wealth mainly throuh own businesses and property investment . This is mainly due to cultural mindset but also restrictions against investing overseas. With the globalisation and gradual opening of capital markets, asians started to invest abroad but still, remain largely focused on Asia. The reason is simple: they know the region (geographically close) and it provides very attractive investment returns. Investors are starting to invest abroad in a portfolio diversification approach but again, time and investment education are key.
Risk exposure awareness and investment horizon
Asians are reputed gamblers and rather prefer to trade bonds, stocks or derivatives by themselves instead of trusting a professional portfolio manager. However, market volatility and increased wealth preservation awareness has provided for a gradual shift towards professionally managed portfolio. Change is on its way but investment funds penetration in Asia still remains low compared to western peers.
All in all, Asia is a tremendous market for the asset management industry. Capital markets are gradually opening and providing asset managers with an extraordinary potential of development. When deciding to market funds in Asia, it is important to keep in mind three important factors: time, performance and branding : marketing is what the fund manager does while branding is what the fund manager is. Slight difference but important one especially in Asia where your branding identification is key.