Massachusetts-based Affiliated Managers Group (AMG) will join the parade of asset managers setting up in Asia when it opens its Hong Kong office in the coming months. And it sees China as the biggest opportunity, particularly from a wholesale perspective.
Last week, Sean Healey, chief executive of AMG, which holds a series of stakes in boutique investment firms worldwide and has $250 billion in AUM, was in Hong Kong to chat to clients, look at office space and discuss potential acquisitions. And he’s likely to visit Australia once a year and Asia twice a year in the future.
UK-based private equity firm Pantheon, of which AMG acquired 85% in February, has its Asia office in Hong Kong’s Exchange Square, which Healey says is a potential choice for AMG’s new location. That said, that lease comes up soon, and what Pantheon does could affect the decision.
The office will add to those AMG has in Australia, Europe and the Middle East. The firm has already hired a head of Asia, but cannot reveal his name until its licence is approved. The company also set up a partnership with Value Partners late last year, involving taking a 5% stake in the Hong Kong-based hedge fund.
Despite AMG being an American firm, only 30% of its investments are in US equities. Some 35% of its portfolio is in global equities, with a substantial 10% of total AUM in emerging-market stocks, the majority of which, estimates Healey, is invested in Asia. Reflecting this international spread, half of its investors are US-based and half non-US.
Some 30% of AMG’s US and global AUM is retail, but the Asia-Pacific business is largely institutional, says Healey, and is likely to remain that way. “We’re not going to set up a store front selling AMG funds here and expect to succeed,” he says. “We’ll find ways to partner with entities in this market, and we already sub-advise. We’re not trying to emulate Fidelity’s strategy.”
Healey declined to discuss specific distribution or sub-advisory agreements. As for investment mandates, he says, “the major focus of opportunity in Asia is the relatively narrow set of very large and sophisticated investors”. Indeed, some of its affiliates are sub-advising on retail-size chunks from banks and insurance firms.
In terms of regional or country focus, Healey does not rule out any potential clients across Asia. However, he says the biggest opportunity will be the “enormous tide of funds that will come from mainland China”, as domestic investors are increasingly able to invest offshore. AMG won’t have a brand it promotes in China, he adds, but it is positioning itself at the wholesale level.
Will AMG or any of its affiliates seek a qualified foreign institutional investor (QFII) quota? “It remains to be seen how we participate,” he says. “It will depend how the market develops. To exploit the retail opportunity in China, it won’t be directly but through partnerships with large Chinese firms that have a well-known brand.”
Some of AMG’s partner managers have been coming to Asia already, but it helps to have partners on the ground that already have relationships with the key institutional investors who can introduce and manage relationships, Healey says.
Asked if AMG’s arrival in Asia later than some of its peers will be a hindrance, he says he doesn’t think so. What matters most to clients is not how long firms have been in the region, adds Healey, but which ones have the best suite of products and the best returns and track record.
Thus far, AMG’s partners with presences in Asia – Pantheon and Value Partners – are alternatives-focused. Will that continue to be the focus or is the firm likely to seek out traditional, long-only managers?
Healey is elusive about specifics, and will only say that the global M&A environment in the asset-management industry currently favours buyers. There are lots of sellers, including banks and insurance companies, as well as independent managers, plus relatively few competitors, he says.
AMG runs a different boutique model from that of firms like Legg Mason, says Healey, in that it takes majority stakes in mid-sized fund managers rather than acquiring whole companies.
Generally speaking, the model is based on independent firms that are seeking a succession solution, he explains: “The firm has been very successful; the founding partners have created a lot of value, they’ve probably spread equity to the next generation; the next generation are very good, and they may not want to sell 100% to a bank.”
They could potentially list, but that involves cost and complexity, says Healey. Or they could take a private equity investor, but as soon as those investors come in they are thinking about how they can get out, he adds. “We are a permanent partner that occupies that space before you sell the whole thing or sell to a private equity firm,” says Healey.