AllianceBernstein faces frustrations in Taiwan growth
AllianceBernstein Investments Taiwan is finding it tough to build market share in the highly competitive onshore market as a latecomer, a process made even more difficult by the lack of product track records and some local processes lagging behind global standards.
AllianceBernstein entered Taiwan market in 2001. While it has since become the island's largest offshore fund house, it only started the onshore business in 2011 when it bought a local fund house Taiwan International Investment Management.
The Taiwanese regulator is encouraging international fund houses to be more localised in the island, by offering more Taiwanese dollar-denominated products, Derek Yung, chairman of AllianceBernstein Investments Taiwan, told AsianInvestor. However, “we need to have product of track record, people's confidence and AUM accumulation, etc. It’s not going to be built overnight,” he added.
The [actual investment] process is “very challenging”, he added, with “some of the processes lagging behind the global standard.”
The fund house has volunteered global best practice information to the Financial Supervisory Commission (FSC), the financial regulator in Taiwan, which has helped, he said.
One example of of where this information sharing yielded results relates to the trading day mechanism. In the past, investors bought onshore funds at the trading day (T day) price, but redeemed them at T+1. Now, both subscription and redemption date of some onshore fund are at the T day price, which is same with most offshore funds, Yung said.
AllianceBernstein's offshore assets under management business has done very well in Taiwan. Assets sourced from Taiwanese investors into offshore funds reached $14.9 billion as of the end of 2015, a 17% market share.
In the local market, it has enjoyed strong asset growth due to the launch of investment-linked insurance products last year. Strong demand for these products helped AllianceBernstein expand its local fund assets by roughly 18 times over the three years to the end of 2015 to reach about $3.6 billion. Yung said the company will keep launching new onshore products, including a global equity fund this year.
AllianceBernstein's mandated assets in Taiwan rose 112% year-on-year to NT$93.5 billion as of February, all of which were investment-linked insurance products, according to Securities Investment Trust & Consulting Association (Sitca) data. That made it the second largest offshore fund house for mandate assets in Taiwan, following Prudential Financial Securities Investment Trust Enterprise (NT$108.6 billion), and ahead of HSBC Global Asset Management (Taiwan) (NT$74.9 billion).
However, AllianceBernstein’s assets in onshore funds are much smaller (NT$28.1 billion, as of end February) compared to global competitors such as JP Morgan Asset Management (NT$100.4 billion), Franklin Templeton Investments (NT$84.6 billion), and Allianze Global Investor (NT$81.5 billion). This is most due to its late entry into the local funds market.
Taiwan’s FSC has been updating its rules and regulations since 2012 to encourage offshore funds to contribute more to the local market. The regulator started a “deep cultivation plan” in 2013 to prod foreign fund houses into become more committed; part of this plan comprised of a scorecard scheme to assess fund houses based on criteria including employment of local, investments, tax and revenue contributions, and talent cultivation in Taiwan.
So far, only JP Morgan Asset Management and Allianz Global Investors - which have operated in the local market for 31 years and 26 years, respectively - have been given the reward, which gives them more favorable conditions. For example, they can apply for three foreign funds in one application, while other foreign fund houses can only apply for one at a time.
AllianceBernstein, on the other hand, obtained a waiver last year on the cap that limits the number of Taiwanese investors allowed to invest into an offshore fund. In November 2014 FSC imposed a 50% limitation on the percentage local investors could comprise of an offshore fund's AUM, versus the previous 70% cap. However, it allowed offshore fund houses that it considered to have shown dedication to local industry to retain the 70% level.
The tightening regulation has led some pure offshore companies to leave Taiwan, but the industry remains healthy and not alarming at this point, Yung said.
In 2016, AllianceBernstein plans to launch one onshore equity fund to invest globally, and one offshore equity fund as well. It does not intend to launch any multi asset funds this year because it has got three onshore multi-asset funds (one global, one Asia and one Europe), and two offshore already in Taiwan, Yung told AsianInvestor.
AllianceBernstein launched the onshore version of its flagship global high-yield bond fund in Taiwanese dollars and renminbi last year, raising about NT$6 billion during the initial offering period. AllianceBernstein’s largest onshore fund by AUM is its Multi-Asset Income FOF, which stood at NT$14.37 billion as of February 2016.