Taiwan has become an increasingly expensive market for foreign asset managers to do business in, making it all the harder to justify a greater commitment to the island.
But that isn't holding Aberdeen Asset Management back. Less than four months after it announced its acquisition of Standard Life’s global business, Aberdeen announced on Thursday that it will take over Value Partners Concord Asset Management (VPC AM) in Taiwan.
In an interview with AsianInvestor on Friday, Michelle Maa, Aberdeen’s Taiwan general manager, recognised that the Taiwan asset management market is crowded and highly competitive. But she stressed that “retail investors’ demands in Taiwan are actually not fully served”.
Two key issues are the high concentration of product types and high fee levels – where Aberdeen sees opportunities.
The aim for Aberdeen, Maa said, is balanced growth in both retail and institutional spaces. And through VPC AM it is now better placed to deliver it, some local market experts agree.
"The acquisition will enable Aberdeen to manufacture local-domiciled funds and manage domestic mandates, so the benefit is obvious,” a Taipei-based consultant told AsianInvestor, on condition of anonymity.
Licenses and privileges
Aberdeen started selling funds in Taiwan in 1999 through a third-party master agent. It set up a securities investment consulting enterprise (SICE) and become its own master agent in 2008.
But with a SICE licence Aberdeen was restricted to distributing only offshore funds. Now as a securities investment trust enterprise (SITE), a position Aberdeen has long sought, it can go further by building out locally domiciled funds. And with VPC AM it also now holds a discretionary mandate licence, which enables it to manage onshore mandates.
Naturally, it could have applied for these licences directly but the process is faster via an acquisition, Maa said.
Foreign asset managers also face stricter requirements in Taiwan these days, making it more difficult to gain approval for new offshore funds and operating licences. Foreign fund managers without regulatory privilege typically face a five-month registration process for their funds and can only apply one fund for registration one time.
The Financial Supervisory Commission granted privileges, giving them improved access to Taiwan’s funds market, to just six foreign managers last year: AllianceBernstein, Allianz Global Investors, Eastspring, Franklin Templeton, JP Morgan AM and Schroders.
Commenting on the competition offered by these big foreign players, which are deeply rooted in Taiwan, Maa said she doesn’t think it’s a zero-sum market. “We don’t aim to grasp market share from other players but want to contribute to the growth and expansion of the pie,” she said.
Aberdeen’s acquisition of VPC AM was also partly motivated by the Taiwan authorities longstanding desire for fund firms to be more committed to the health of the local investments industry, Maa said. In keeping with that, she noted that Aberdeen is taking on two graduates next month on a two-year training programme. Talent cultivation is one of the key criteria in the government’s commitment measurements.
Markets in play
On the products side, Maa emphasised Taiwan ageing demographics; many investors are in the late 40s or early 50s and preparing for their retirement needs.
That’s why Taiwan investors are keen on funds that offer regulator dividends. About half of the offshore funds that Taiwanese investors buy are in the fixed income space, mostly high-yield bonds, she said.
But “that may make them miss other investment opportunities. So we want to bring more options of good investments into the market,” Maa said.
The takeover of VPC AM is still pending regulatory approval. Once it’s concluded, Aberdeen’s initial plan is to produce multi-asset products.
Foreign asset managers can introduce overseas-domiciled multi-asset funds into Taiwan but the benefit of doing local-domiciled funds is that “we can communicate with target clients and sales partners to make the right products catering to their needs,” Maa said.
In other plans, Maa said Aberdeen want to bring the investment process involving environmental, social and governance (ESG) factors to the Taiwan market.
It also wants to further promote retail distribution review (RDR) funds in Taiwan. RDR is a type of funds that complies with UK rules that prevent fund managers from splitting management fees with distributors, which can help lower management fees for retail investors.
Lastly, Aberdeen last year started introducing its robo-advisory service, already available in the UK to some distributors in Taiwan such as banks.
As of end May, Aberdeen had 26 offshore funds registered with combined assets under management of $1.5bn, the majority of which are invested in equities. It plans to introduce an Indian bond fund in the second half of this year.