All eyes in the investment management community are on accessing the China market, and one of the more interesting players to watch is newcomer BOCI-Prudential Asset Management, which has just launched its first retail mutual fund in Hong Kong.
The JV opened its doors in January 2000 and quickly made a splash as one of the top-five winners in the Mandatory Provident Fund scheme business when MPF launched 12 months later in terms of gaining customers. It also had a pensions business for ORSO (Occupational Retirement Schemes Ordinance) plans, and now has $1.2 billion under management, says Lionel Kwok, CIO.
The JV is 64%-owned by Bank of China International, the investment banking division of Beijing-based Bank of China (not to be confused with Bank of China û Hong Kong, which is the amalgamation of 11 local commercial banks also owned by BoC). Prudential of the United Kingdom owns the other 36%.
Kwok declined to speak in detail about the firm's China strategy, noting his responsibility is to get BOCI-Pru established in Hong Kong. He is building an investment team, including fund managers and analysts, that will boast a multitude of investment strategies, including quant, technical, fundamental and value methodologies. "We are not your traditional active manager," Kwok asserts.
MPF and a decent ORSO business allowed the JV to make a splash. Now it is trying to crack the institutional market as well as launch a series of retail-oriented mutual funds.
"The institutional market is hard to break into," Kwok says. "It's well covered and our competitors have long histories. We need to establish a good track record, demonstrate a transparent investment process and ensure risk control and risk monitoring. Risk management is very important, particularly since many clients have gone through volatile markets recently, such as in 1998 and again in 2000. We are working closely with consultants to ensure that we produce what we say we are going to produce, and cross-checking our performance against our investment styles."
BOCI-Pru is now making strides along the retail front, having just launched a unit trust, the China Prosperity Guaranteed Fund, which will guarantee the principal investment plus a 10% return over a four-and-a-half year maturity. The underlying investment is a structured note with an embedded option against 20 H shares and red chips, focused on China's growth prospects, Olympics-related infrastructure plays and WTO entry.
Bank of China - Hong Kong is distrubuting the funds, and the guarantor is UBS.
Says Kwok: "The Hong Kong retail investor is different from that in the US, where you've had a long history of 401(k) and investing. Hong Kong's mutual fund penetration rate has been low, around 6%, although since the launch of MPF that has risen to 10% or more. So there is a lot of potential, but it's opportunistic."
As a result, BOCI-Pru is readying an arsenal of equity funds, including global, Hong Kong and China themes. Kwok also foresees the day when the company can spin out bond funds and funds of hedge funds, regulations allowing.
As for expanding across the region, Kwok says the firm must first establish itself in Hong Kong, and then consider the costs and benefits of other markets. Singapore, for example, requires significant costs such as establishing an office.
As for China, Kwok will only say that BOCI-Pru is watching closely as the regulatory environment evolves. But obviously, with the Bank of China as a parent, one must wonder about the possibilities. Of the dozen foreign fund managers forging alliances with domestic fund managers and securities companies, none enjoy this kind of pedigree. BOCI-Pru is a foreign firm as far as Beijing is concerned, and it has taken a look at similar tie-ups. For now it has not been satisfied with such a proto-arrangement.