Having announced a strategic alliance with Rothschild Asset Management this week, Singapore’s APS Asset Management also has a larger tie-up in the works, AsianInvestor can reveal.
Such agreements are a way for smaller investment boutiques to expand their business more cheaply than via acquisitions or organic growth, said Wong Kok Hoi, APS’s founder and chief investment officer.
He declined to reveal the name of the imminent partner, saying only that it was a large Asian institution and that the deal would be announced this year.
“Asset managers are facing headwinds, and we’ve seen a number of mergers in recent years, such as Aberdeen-Standard Life and Janus Henderson,” noted Wong. “The very large managers will survive because of their scale, though they are under enormous pressure to deliver alpha.”
At the other end of the scale are the small players with less than $1 billion under management, he said, while Asian firms managing $10 billion-plus are considered a decent size in the region. “APS is sandwiched between the two, with about $3 billion.”
“Our view is that either you stay very small and keep costs very low," said Wong, "or you get larger because you need more revenue to maintain the necessary infrastructure for institutional business.”
It is expensive to grow organically, he added, and more cost-effective to establish strategic alliances with complimentary partners. Hence the tie-up with Rothschild AM, which only manages US stocks, while APS AM only offers Asian equity funds.
More such tie-ups are likely among smaller fund houses, agreed Roger Bacon, Asia-Pacific head of investments at Citi Private Bank.
“The cost of doing business globally in an effective way is now so high that it will be increasingly important for companies to find ways to efficiently scale their businesses, particularly in examples such as this, where there is a clear geographic symbiosis,” he told AsianInvestor by email.
APS did have a partnership in the past with UK fund house Martin Currie, but there have since been major staff changes at the latter firm, which was acquired in 2014 by US funds group Legg Mason.
Asked whether APS had considered selling up, Wong said: “We get approached all the time. But we decided that we should focus on what we do and build it ourselves rather than rely on a larger financial institutions to help us grow.”
APS has a two-man office in New York, from which it markets to large institutions; indeed 45% of its assets are sourced from North American clients. Its average mandate size in the US is $200 million, said Wong.
The firm, with $2.7 billion under management, also has offices in Beijing, Shanghai, Shenzhen and Tokyo.