On Investing

East meets West

I have been immersed in Asian fund markets, speaking to distribution heads from the global fund groups about their experiences in the region for The Platforum’s upcoming report on open architecture in Asia.

The region is of huge interest, not least because of the sheer number of potential investors. Unlocking this potential or gaining a share of the current, relatively small pool of assets cannot be done by simply leveraging what has been built in Europe and the US – it requires local knowledge.

The personal touch

Understanding local nuances goes well beyond differences in assets under management, asset splits and the structure of distribution. Building relationships with distributors requires knowledge of how the gatekeepers like to be treated, then finding the right products and marketing them effectively.

A personal approach is ideal when dealing with local distribution partners. The latter is likely to expect branch visits, training for its advisers and partnering on PR activity, as well as a marketing budget for this.

As you will find in fund markets the world over, there is a home bias for investors when picking funds. Even in the big offshore fund markets of Hong Kong, Singapore and Taiwan, the appetite is largely for Asian equity and fixed-income funds. Korean funds sell big in South Korea; Thai funds do well in Thailand; and the rules in Indonesia mean funds have to be composed of at least 85 per cent Indonesian stocks.

The prevalence of thematic investing in the region means other markets may be in vogue for six months but, generally, assets in Asian strategies are stickier. And while performance data does not necessarily support the importance of having locally-based fund managers, this is something fund buyers feel strongly about. Building a local investment team shows longer-term commitment to the market, giving a level of credibility.

Brand is another consideration that matters universally but is doubly important in Asian markets. “There is a reason that Louis Vuitton and Chanel have the highest sales in Asia,” one fund manager told me. So the next time someone asks you what Louis Vuitton and Schroders or Chanel and Fidelity have in common, don’t look so surprised.

Thinking of fund manager brands as akin to other retail brands may be helpful in the Asian context. Banks regularly run promotions and giveaways as part of campaigns to sell products, including mutual funds. One group gave away teddy bears as part of an educational campaign on investing in bear markets.

Perhaps the biggest divergence in investor culture between East and West is in ‘hold’ periods. Taiwan is particularly notorious for high churn, with investors holding funds for three to six months before selling them on. Across Asia Pacific, the average holding period is significantly shorter than in Europe.

Recognising the problem, measures are being taken within Asia to try to encourage longer-term investing, such as Thailand’s introduction of long-term equity funds and retirement mutual funds with tax incentives. With ageing populations and gaping holes in retirement saving, we are likely to see further incentives.

A world of difference

Finally, it is crucial to remember there is no ‘one size fits all’ strategy for Asia. You cannot legitimately have a regional strategy in Asia any more than you can in Europe.

Aside from the differing legalities around offshore fund distribution and how new entrants establish a local presence, cultural differences are significant. You would never look at Japan in
a regional context, for example.

This month’s missive may have been a whistle-stop tour around the Asian markets but the journey for a new market entrant will be anything but. Asia is a long-term play, requiring commitment and deep pockets.

Offshore fund assets under management in Hong Kong, Singapore and Taiwan may have led some to believe otherwise but, as one industry expert put it to me: “The days of jumping on the bandwagon and making some quick money are over. The market expects more.”

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