Back in May, head Platforumer Holly Mackay wrote an article for Fund Strategy about fund managers ‘making a break’ for cross-border’. She outlined the European platform market and open architecture in Asia, aiming to prompt fund managers to explore international opportunities and recognise the increasing importance of building a global brand.
Yet we see a real challenge for fund managers looking to extend their gaze beyond the UK: highly-concentrated markets. Let’s refer to our Open Architecture-O-Meter’, which shows the proportion of assets held by the top three and top five managers in 16 European and Asian markets (many thanks to our friends at Lipper for providing the data, which N.B. only reflects local activity and excludes fund-of-funds). Surprisingly using this measure, China looks the most ‘open’, with the top five managers only accounting for 29 per cent of locally-sourced funds; the top ten only make up 46 per cent. But China is very much a local market, with entry granted to foreign firms solely via joint ventures with a local.
So excluding China from consideration, the UK is the most open architecture market. Fund management company concentration is higher elsewhere – and substantially so once you get past Taiwan on the chart.
The sea of blue at the top half of the chart shows that it is European markets that are typically more ‘closed’ by our measure. From this perspective, fund managers may have more chance of joining the party in Hong Kong, Singapore or Taiwan than in say, Switzerland or Germany – the former have a very open approach to foreign funds, while the latter see local giants (who rule the roost across manufacturing and distribution) such as Deutsche, UBS and Credit Suisse dominating.
Non-local fund managers would find themselves among familiar company in Singapore – 2,409 foreign funds were registered there at the end of 2012, marking a growth in registrations of 13 per cent that year alone. Schroders is the top manager when looking at local funds and excluding multi-manager, with AUM of $3.94bn – 16 per cent of the total for locally-sourced funds. 43 per cent of local industry people we surveyed on Asian fund markets named the British-born fund manager as a top brand in Singapore.
Aberdeen and First State are in the top five, with $5.62bn AUM between them (in local funds, excluding multi-manager). Some of the major distributors are also distinctly familiar: UBS, Credit Suisse and Julius Baer, to name a few. Private banking is a major force across Singapore and Hong Kong.
In Hong Kong where the ratio of non-native investors to native investors is roughly 2:1, it’s almost a case of ‘preaching to the converted’. J.P. Morgan is huge here, accounting for 23 per cent of local activity AUM, or $13.71bn. Fidelity , Schroders and Invesco are other major players. Interestingly almost half of those interviewed about these markets name Fidelity as a top fund manager brand in Hong Kong, compared to a fifth naming J.P. Morgan.
Taiwan is intriguing not only because fund manager concentration is comparable to that in the UK; it is also the only Asia ex-Japan market in which the sale of offshore funds surpasses locally-based funds. J.P. Morgan is the second biggest fund manager (closely following domestic player Cathay Securities) with $3.41bn AUM (10 per cent). Baring and ING are other major names. Of additional interest is the fact that senior local industry figures name Fidelity, BlackRock and Franklin Templeton as top brands there. In fact BlackRock receives high mention across the board, despite not having the retail AUM to show for it. In contrast to Singapore and Hong Kong, distributor brands are notably more local in flavour e.g. Fubon and China Trust.
There is clearly room at the party for foreign firms and Asia shows a greater, less complicated appetite for third-party funds than in Europe. Citi is a major force in distribution and has a well-known open approach to fund selection, since disposing of the Legg Mason business. So banks in the Asian region are open to reviewing and distributing foreign funds, yes, but the concentration we see locally is replicated over there. One major distributor told us that more than 80 per cent of flows went to just 10 managers in 2012.
So although our Open Architecture-O-Meter highlights the red Asian markets as being more open, the familiar European challenge of acute concentration remains a constant.