Robert Haber is based in San Francisco, but as managing director and regional CEO of Asia ex-Japan for Barclays Global Investors, he's amassed plenty of frequent-flier miles visiting clients and prospects around the region since 1992. He took some time off from his latest trip to outline how BGI's business is developing in the key Asian markets.
FinanceAsia: How do you describe BGI's business development in Asia ex-Japan?
Haber: The job is more clear for my counterparts covering the US and Europe, where there are plenty of existing pension plans and 401(k)-type business to go after. Asia's a different kind of challenge. The pension funds here are smaller and there are all kinds of regulatory issues. We need to be creative and cast a wider net not just for pension funds but also for, central banks, insurance companies and centralized defined-benefit systems.
What products are you emphasizing?
We continue to develop our business here. We want to become known for more than indexing. For instance we've got a strong enhanced active - others call it enhanced indexing or use other names - in which we manage $135 billion worldwide. This is ideal for risk-controlled strategies looking to add 100-200 basis points of alpha, while keeping the risk commensurate with the index.
We've been prolific in developing absolute return strategies. We've got hedge funds and long/short products in Japan, Australia, the UK and several in the US. By the end of the first quarter we hope to launch an Asia ex-Japan long/short fund that invests in Hong Kong and Singapore.
And the iShares people in the US have filed for SEC approval of a fund to replicate the FTSE/Xinhua China index, which will be available in the States. There are now over 100 iShare-brand ETFs worldwide, following MSCI indices.
Will that be marketed here?
Our global long/short will probably eat up most of the demand. We have that fund to provide clients with an overall exposure. But we will market the Asian fund in the region if the global fund doesn't take it all. If the fund is a success, we'll look to open it wider to invest in Taiwan and Korea.
How about products for Asia-based clients?
We've been developing products in local markets too. One example is our Kodex200 exchange-traded fund (ETF) that we developed with Samsung Investment Trust Management. We're in talks with Samsung about other products too. Similarly in Taiwan we work with a local partner while we're looking at potential local partners in China. Broadly in Asia we continue to work with traditional index and enhanced active products; with long/short strategies; and ETFs in general.
What's the latest in developing a proper mainland China benchmark?
The new Shanghai 180 is nice but still has the handicap of leaving out shares from Shenzhen. There have been developments such as the FTSE/Xinhua 25. But that all-China index remains elusive, and will remain so until the two exchanges find a way to cooperate.
You mentioned you are in talks with local partners.
Yes. We've talked with local fund managers, including a shop in Shanghai that wants to specialize in classic index management. Other firms such as Huaan also have index funds; they aren't true index funds, though, they're really more like enhanced index funds, because these managers do make some active plays. And there are a few companies working on index-based products in anticipation of regulations allowing exchange-traded funds. The China Securities Regulatory Commission is keen on ETFs but a lot of regulation is still required.
Yes, and market infrastructure. Can you talk about that?
You need a market environment that has positive same-day settlement for both the buy and sell of a trade. And you need means of protecting Authorized Participants [i.e. brokers] in terms of holding inventory: they need to hedge. But in China you can't short, there are no futures and options, and no securities lending. These won't be solved for three-to-five years, unless the government steps forward with an IPO-like structure, as they did in Hong Kong [the Tracker Fund]. This option also removes the need for APs.
This was talked about last year. Is it still on the agenda?
I haven't heard anyone talk about it recently, but the government could do it any time it wanted.
Back to your discussions in China: are you interested in forming a fund management joint venture?
Absolutely. We've been talking to firms about some form of technical cooperation. The key is to get involved and get yourself known, and position yourself for the long term. A lot of investment managers see China as the last frontier, but it offers difficulties for Western firms.
Foreigners have to transfer technology that they never had to share in other markets. Most are used to just opening shop, but in China you need a partner, you need to be in a JV relationship with the Westerner in a minority position.
Does BGI have experience in JVs elsewhere?
Some, in Europe. They didn't work out. But in China we want to build relationships and provide technical assistance, and see how we can build a long-term role.
What else are you doing in Korea?
We're trying to access the market via our partnership with Samsung. We're looking to introduce other ETFs and traditional defined-benefit products, as well as products that fit under the notion of ‘lifestyle', ones that would be appropriate both for institutional pension plans and the retail world. In the US we have a series called Life Path, a balance fund in which the customer can adjust the portfolio asset mix. We've already introduced this in Singapore with our partner UOB, just in November. UOB is actually the distributor and manager, and we provide the signals about when to change the asset mix as customers get older. We've modified these products for Asian markets, mainly by changing the percentage invested in US securities.
Is there enough of a defined-contribution market in Asia to warrant that product?
We see a transformation from DB to DC across Asia. We've seen it in Hong Kong with MPF. Singapore has had the CPF for decades but is now allowing investment outside of the government plan. There's potential for Korea to do the same. China will face funding problems and will need to look at DC plans in a few years. It's a case of being prepared for the market to change.
Same story in Taiwan?
Taiwan has different dynamics. The marketplace is more difficult to crack, whether it's retail or institutional. The institutional market is just beginning to look at investment options outside of Taiwan; there are still foreign exchange controls; the government is not as inviting to ETFs as Korea was.
We're working with a SITE, Fuh-Wah Investment Trust, to develop index products for the retail and institutional markets. In October we signed the papers on a strategic partnership, although we've worked together for a few years. For instance, we advised them on turning a tech fund into an index product. We're consulting with them on indexing and ETFs, putting together joint presentations and pitches. They have distribution power, while we share in the revenue and help them educate clients, prospects and the regulators.
In Hong Kong, the ETF scene is dominated by your rival SSGA thanks to the Tracker Fund. How do you manoeuvre in such an environment?
Smile and dial. Develop connections. We offer iShare products as a tool for MPF providers, as well as ORSO schemes, to give them efficient exposure to various markets. The SFC has approved about 35 iShare index funds so far. Many multinationals have retirement plans in Hong Kong, companies that are our clients elsewhere, and we can provide the local entity a plan consistent with the product at the home office.