What can internet firms teach asset managers?
Asset managers have much to learn from internet companies and a pressing need to work with them more closely, a funds forum in London heard this week.
Sanjiv Sawhney, head of global custody at Citibank, pointed to two distinct advantages that internet firms have over asset management companies: intelligent data (and the tools to make sense of it), and close access to customers.
He suggested that while asset managers have a mass of data, they generally lack the understanding of how to mine it to develop products that investors are asking for. Here is where they can learn from – and will likely have to work with – internet firms, he argued.
“They [internet firms] have a great way to segment and know their clients,” said Gad Amar, a managing director at BlackRock. “Why wouldn’t they sell them the right investment product or suggest a balanced fund portfolio to fit their financial profile.”
Amar was speaking at a conference hosted by Association of the Luxembourg Fund Industry (Alfi) in London on Wednesday.
Last month, Tianjin-based Tianhong Asset Management overtook ChinaAMC in terms of assets under management to become China’s biggest fund house, thanks to its internet product.
The firm’s AUM almost trebled in the first quarter of this year, to Rmb553 billion ($88.8 billion) from Rmb194 billion, according to Haitong Securities, as reported.
The extent to which Luxembourg-domiciled Ucits funds still dominate the landscape in Asia was underlined at the conference by the latest Lipper figures showing that 71% of cross-border funds marketed in Hong Kong are Lux-based, and 59% for Japan.
Still, there was much to interest Asian investors at the conference. Shoqat Bunglawala, head of international product strategy and development at Goldman Sachs Asset Management, flagged uncertainty surrounding potential tax changes from Beijing as a concern in light of the liberalisation of China’s onshore market.
While he was positive about the firm’s growing allocation to domestic Chinese equities via its qualified foreign institutional investor (QFII) quota (it has not taken RQFII allocations), he said these “contingent tax liabilities” needed to be addressed by the government.
Nevertheless, he countered by saying that in light of Beijing’s desire for A-shares to be admitted to MSCI World and other global indices, it most likely would address this.
Asian investors might have thanked platform chairman Noel Fessey for opening a discussion on smart beta by describing the investment strategy as “mutton dressed as lamb”.
With European and US asset managers seemingly releasing new smart-beta products every week, no one on the discussion panel was going to agree with Fessey, who runs Schroders’ funds services business.
Still, Bunglawala noted use of passive vehicles was not generally a route chosen by investors under Ucits: less than $1 trillion of Ucits’ $8 trillion funds market is passive.
Amar of BlackRock emphasised how short the period is between the introduction of a new beta product and its commoditisation.
If it works, he said, passive firms have a very small window before investors flock, and management fees are eroded by the arrival of other providers.
The pressure on beta providers to innovate constantly is extreme, he concluded. But when they do, investors are prepared to pay a premium for this innovation.