Invesco sets sights on Greater China

This has been an active year for Anglo-American fund management giant Invesco, which manages $15 billion from Hong Kong, Singapore, Tokyo and Melbourne. It launched its business as a Mandatory Provident Fund service provider in Hong Kong, acquired Taiwan's Grand Pacific Investment Management for $116 million and began helping Shenzhen-based Penghua Fund Management create an open-ended mutual fund product. Asia-Pacific CEO Andrew Lo, whose remit includes Japan, speaks about Invesco's future direction.

FinanceAsia: Where is Invesco physically in Asia?

Andrew Lo: We're in Hong Kong. We acquired Grand Pacific's Site business [Site: Securities Investment Trust Enterprise]. We have a big operation in Japan and a smaller office for marketing and fund management in Singapore. We acquired the old County Investment Management in Melbourne. We have fund managers in Hong Kong and Singapore for the Asia product. We also have fund managers in Australia. And we have fund managers handling local investments in Taiwan and Japan.

You're also advising Penghua in China. How soon before they launch an open-ended mutual fund?

We've been working with them on this for 12 months. I think it will come soon.

Now that China is a member of the WTO, do you need to wait for new regulations before forming a joint venture with Penghua?

I don't think there will be much more detailed regulation. The CSRC will allow us to make an application and we will have to go through an approval process. We hope to have a JV license in six to nine months.

Have you submitted your application yet?

No.

What are you applying for, exactly û a JV to manage closed-end funds, open-ended funds, other products?

We're evaluating the possibilities. We'll be allowed to own up to a third of the joint venture for the first year, and then 49% for three years. I hear that within five years, foreign companies can own 100%. We will do whatever we can within the terms of the WTO agreement.

If you are able to own 100%, will you want to?

If we are allowed, we want to fully own an asset management company.

What's in it for Penghua to help you set up what will quickly become a competitor?

There are going to be a lot of fund management companies, so this issue does not trouble our relations with Penghua. Today there are more airlines in China than there are fund management companies. The market can accommodate more. There's over 50 fund managers in Hong Kong. Given the size of the market, there will be room for good local players and for foreign players.

What will distribution look like?

It's very early days in China. Now fund managers are confined to one distribution channel per product. China will develop multiple distribution channels, through banks and independent financial advisers, for mutual funds and unit-linked investments and pensions. I expect to see a gradual evolution.

What are the big risks in this market for you right now û what keeps you up at night?

Dealing with the market opening. It creates challenges from regulators. Also, finding enough talent. And investor education.

To what degree was your acquisition of Grand Pacific seen as a platform for Mainland China business?

There's no easy 'yes' or 'no' to that question. China is a market on its own, with its own local preferences, requirements and culture. But I believe in the Greater China theme to the extent that talent here in Hong Kong and in Taiwan can be used to kick-start business on the Mainland. The main reason to acquire Grand Pacific was for our Taiwan business, but we did recognize other side benefits.

Is there an advantage of using Hong Kong people versus Taiwanese to set up operations on the Mainland?

The biggest difference is that in Taiwan, they speak Mandarin. We in Hong Kong sometimes have difficulty communicating. But in any market we make use of best practices. As we enter the China market, we are relying more on people from the Greater China region. But we must develop expertise in China itself. Invesco is very localized. In Hong Kong we are run by Hong Kong people; in Japan by Japanese; the same in France, or in Canada. It takes a long time to find local people with a global dimension, but once you've got them it leads to having a stable team.

Any plans for Korea?

It looks tough. We've been looking there for years and we do have clients there. And the investment industry there is changing a lot. But it is very domestic. For international players such as ourselves, the opportunities exist when we have markets become more international.

Southeast Asia û anything stirring?

We've looked at Malaysia before. But in terms of where we are allocating resources, it's the established markets and newly emerging but large markets like China.

You're also in charge of the Japan business. What's the toughest part of being a fund manager there?

There's no inflation. There's no crying need for people to invest in assets and protect their purchasing power. In due course the market will become more favourable. Also, it's quite a large market, but distribution is locked up. The main distributors are big brokers with their own asset management arms and they prefer to sell their own product. There's no open architecture, and I don't know how long that will take to change.

How long has Invesco been in Japan?

Since 1983.

Has it been worth it? The past decade must have been pretty grim.

Actually, overall Japan has been okay for our bottom line. It's the second largest economy in the world. Japan is a big asset class in its own right. The two challenges I've mentioned û no inflation, distribution û won't be there forever. Now in fact is the best time to invest in Japan and build up market position. We're launching new products there. That's the name of the game in Japan, you have to keep launching new products. We're entering the new defined contribution business, we continue to grow our pension business. We were one of the early managers for Nenpuku [now the Government Pension Investment Corporation] and we still manage a large chunk of government authority money.

Will you be looking to make acquisitions there?

Acquisitions in Japan are not easy. There's little available, and you face huge cultural questions.

So the big opportunities remain in Greater China?

Yes. There's no mutual fund market yet. MPF and upcoming reforms in Taiwan are just the tip of the iceberg. The trend is turning mutual funds and managed products into savings vehicles. Once most people look at these products as savings vehicles, you'll have a truly large funds management market. Invesco's strategy is to continue to push the market in that direction. We need for the Hong Kong government to not freeze MPF because of an economic downturn. We need better markets generally. And we need tax preferences for voluntary supplements to MPF. In Taiwan, we need the government to reform the pension system and institutionalize what is now a retail stock market.