Over the last few months it seems the European asset management industry is facing new competitors. In the past the main competitors of the European fund industry were U.S. asset managers who launched funds in Ireland and Luxembourg to conquer the European markets. Nowadays, there are still U.S. managers starting new businesses in Europe, but we also see an increasing number of Asian asset managers moving to Europe to take their share of the European market. To discover more about the rationale behind the move of Asian asset managers to Europe, Detlef Glow—Lipper’s Head of EMEA research—has spoken with Goh Soo May, Director Fixed Income, Frank Lim, Director Product Specialist and Eamon Keaveny, Director Head of Business Development Middle East & Continental Europe at Lion Global Investors in Singapore.
Lion Global Investors (LGI) was established in 1986 as OCBC Asset Management and is wholly owned by Oversea-Chinese Banking Corporation (OCBC). The ownership is split into two stakes: 70% is held by Great Eastern Holdings Limited, which belongs to the insurance company Great Eastern, and 30% is held by Orient Holdings Private Limited. Both shareholders are part of the OCBC group. According to the corporate presentation, LGI has US$25.8 billion in assets under management as of June 30, 2014. The majority of these assets are held in segregated accounts (85.4%), while insurance-linked products and unit trusts account for 6.0% each. The company’s headquarters is in Singapore, while it also has regional offices in Malaysia and Brunei. It is noteworthy that LGI—in 2011—was one of the first local Asian asset managers starting to conduct business in Europe.
Asked why LGI has started an operation in Europe instead of growing its business in Asia, Mr. Lim said that LGI wanted to diversify its asset base, i.e., it wanted to generate inflows from new/different sources such as European retail and institutional investors. He also explained that the competition between asset managers in Asia is very strong and that it is hard to convince Asian investors to invest in mutual funds, since there are all kinds of investment opportunities available to them. Ms. Goh added that even retail investors would rather buy stocks on the exchange than use mutual funds for their investments. In addition, insurance companies gather a large portion of retail savings, which is then not available for mutual fund investments.
In contrast, it is clear that investors in Europe are looking for opportunities to enhance their returns and therefore are buying Asian bonds. Since LGI specializes in managing Asian bonds and equities, it sees a good chance for raising additional assets. According to Mr. Keaveny, the local business and staff base is one of the biggest competitive advantages for Asian asset managers, since they know even the small local companies that are not usually covered by analysts of larger stock brokers. This seems to be especially true for LGI; it shows an Asian focus also in the staff base, with only 2 of the 150 employees being from the Western world. Ms. Goh said that LGI specializes in offering niche products to differentiate itself from its competitors. She explained that large Western asset management companies often focus on “plain-vanilla” strategies, while LGI focuses on niche local investment opportunities identified by an experienced indigenous team who understands Asia better. The LGI team uses the resources from both equity and bond analyses, as well as the in-house market knowledge gathered through the company’s team-based structure.
From my point of view there is a good chance the Asian asset managers who start business in Europe can become successful. But they need to be sure they really offer and deliver added value to investors. Otherwise, European investors might rather invest in Asia with asset managers with whom they are familiar. I also believe that Asian asset managers can deliver added value with their local approaches for niche strategies, which might lead to additional inflows to these products. In this regard it would be key that the new asset managers have a proven track record to showcase their areas of expertise. Even though Asian fund promoters know UCITS very well (this legal structure is also widely used in Asia), they need to ensure that they use the right infrastructure (platform) to enable investors to buy and sell their funds. In addition, it might be helpful if new asset managers, regardless of where they are domiciled, offer a greater-than-needed transparency to convince investors about their funds. This means, I assume, that local Asian asset managers will meet their own goals if they are able to meet the needs of European investors.
The views expressed are the views of the author, not necessarily those of Thomson Reuters.