Aberdeen sticks with equities niche in Thailand

The fund house's bread-and-butter in Thailand has been retail investors, but now it is tapping into the institutional side of the business.

Aberdeen Asset Management has been present in the Thai market since 2002 and manages around $670 million in assets in equity, fixed income and property portfolios, making it one of the country's largest managers of foreign investment funds (FIFs). Aberdeen is also the first international asset management firm to have a Thai fund listed on the London Stock Exchange and registered in Singapore.

Aberdeen Thailand's strength has been its equities investment capability. The fund house has a high concentration of equity funds in Thailand -- 12 out of its 15 fund offerings in that market invest in stocks. Included in the 15 funds are four equity-focused FIFs, which invest in Asia-Pacific ex-Japan, global, European, and emerging market equities.

Chaikaseam Vadhanasiripong
Chaikaseam Vadhanasiripong
"Although globally, Aberdeen's assets are invested 50-50 in equities and fixed income, in Asia we are known more as equity investors," says Chaikaseam Vadhanasiripong, Bangkok-based head of funds distribution at Aberdeen Thailand. "We have built on that reputation in Thailand and have focused on this niche."

Aberdeen Thailand plans to add FIFs to its platform this year, giving local investors the opportunity to diversify their investments, improve returns and cash-in on growth of other economies in the region. The fund house plans to offer China and India funds, in particular, to take advantage of attractive valuations.

Equities has been Aberdeen Thailand's niche in that market, which makes absolute sense given that it wouldn't be able to compete head-on with local asset management companies that have the backing of hundreds of branches of their banking parents.

With networks of around 500 to 600 branches nationwide, banks provide a powerful built-in distribution network for their asset management units, making it very hard for the likes of Aberdeen Thailand to compete on the same footing. Siam Commercial Bank Asset Management, a unit of Siam Commercial Bank; Kasikorn Asset Management, a unit of Kasikorn Bank Group; and BBL Asset Management, a unit of Bangkok Bank, continue to corner a substantial share of the market. Their combined AUM is 50% of the total mutual fund assets in Thailand.

Thailand had around $38.5 billion in mutual fund assets at the end of 2008, according to Boston-based financial services consultancy Cerulli Associates, and around 80% of that is in fixed-income funds.

Asset management affiliates of banks have been able to attract depositors to either switch to funds or invest in funds in addition to their savings deposits. They have done this by dangling low fees (ranging from 0.2% to 0.6% for fixed-income portfolios) and tax incentives. They have been achieving volume by offering Treasury bill products camouflaged as mutual funds. Such products help investors avail of the tax incentive that they would not have in an ordinary bank product. These are cash funds or money market funds, which are income-type funds that typically have a rollover period of three months to one year, making them very similar to time deposits but with the tax breaks of mutual funds. Bank deposits are subject to a 15% income tax.

What Aberdeen Thailand is after is the investors that are keen to put their money in equities. There's the 20% who invest in non-fixed income products after all. Plus, there's the untapped portion of bank deposits. Bank deposits in Thailand are estimated at Bt6.7 trillion ($197 billion), leaving a lot more room for money to flow into fixed-income assets.

So far, most of Aberdeen Thailand's assets have come from retail investors, but it has also been trying to grow its private fund and provident fund business. Around 75% of Aberdeen Thailand's assets under management (AUM) comes from mutual fund sales. Within its mutual fund sales, around 80% of the assets are sourced from retail investors. 

The remaining 25% of Aberdeen Thailand's AUM comes from private funds sold to institutional investors. The fund house has a steep minimum investment requirement of Bt300 million ($8.8 million), making their private funds not easily accessible to high-net-worth individuals. Other fund houses in Thailand typically have a minimum investment requirement of around Bt20 million ($588,235) to Bt30 million ($882.352) for private funds.

"We have been building up our business more from the retail market but indeed our plan is to tap more into the institutional side of the business, given what happened last year with the global financial crisis," says Vadhanasiripong. "The crisis has actually tuned out to be an opportunity for us because investors are exploring more regional investments."

Aberdeen Thailand has a staff of 50, making it the fund house's second largest office in Asia next to Singapore. Backed by its team of regional fund managers in Singapore, the Thailand office has eight investment professionals including three equities specialists, three fixed-income specialists, one dealer, and one investment support staffer. Each member of Aberdeen Thailand's investment team has, on average, more than 12 years of experience.

Aberdeen Thailand fund managers make regular visits to companies with solid long-term prospects in search of the best investment ideas. Information from these visits is shared with regional colleagues and analysis is undertaken to identify quality companies. Company visits are made at semi-annual intervals to reaffirm that the fund house has picked the right companies with strong fundamentals and reasonable valuations. The fund house believes that the fact that it is a long-term shareholder of many major Thai companies gives it the kind of direct access to senior management that its competitors do not have.

"Our fund managers have regional meetings twice a week and before any investment decision can be reached the local fund managers here have a meeting with the fund managers over at Singapore," says Vadhanasiripong. "We see this as an advantage because we are able to bring in the international perspective to our investment process. We don't just look at the local market. When we look at a stock, we compare it with its peers overseas."

On the investment side, Aberdeen Thailand is implementing global standards to its investment processes, with a long-standing emphasis on transparency and corporate governance. On the product side, the fund house is able to provide clients with both onshore and offshore portfolios. On the service side, the fund house is able to make use of the group's resources to maintain after-sales services, especially being one of the few fund houses able to provide meaningful updates on foreign investment funds. It is for these reasons and more that Aberdeen was AsianInvestor's pick for onshore fund house of the year in Thailand for our 2009 Investment Performance Awards.

"This is an important advantage over our local peers where they're feeding their FIF funds into third-party fund managers and are not being able to acquire updated or specific fund information," says Vadhanasiripong. "We are able to access databases with detailed fund information, complete with market commentary and webcasts, as well as direct contact to foreign fund managers. All these are impossible for local peers."

In common with Aberdeen's operations across Asia, Aberdeen Thailand takes a traditional buy-and-hold, fundamentals-driven approach to investment, with an emphasis on transparency and consistency of process. Whereas many of its rivals have over-stretched and over-complicated processes, the fund house has remained committed to its value-oriented, back-to-basics approach.

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