Capital Group is looking to build a retirement-focused investments business in Asia, the chairman of the US asset manager told AsianInvestor.
With Asian markets’ retirement trends now resembling the path trod by the US, Capital has been looking at how to get involved.
And amid a continuing debate over the direction and growth of China A shares, Capital's chairman has called for an end to the perception that they are emerging-market equities.
In an interview with AsianInvestor during a recent visit to Hong Kong, Los Angeles-based Jim Rothenberg said the asset manager was looking at further regional expansion.
Capital currently has analysts and portfolio managers in Tokyo, Hong Kong, Singapore, Beijing, Mumbai and Sydney.
A large part of Capital’s Asia business has been managing money for institutions. For example, it has a longstanding relationship with Singaporean sovereign wealth fund GIC.
But now, based on current regional retirement trends, Rothenberg said Capital saw the chance to expand and diversify in the market.
“We’re looking at broader opportunities because in many countries the retirement and population dynamics have a familiar element,” he said. “In some cases the demographics are worse than America’s. There are retirement services we can bring here. We can work constructively with firms in retail distribution."
Rothenberg added: “We now have market and client relationship people here, not just in the US. Over time, I expect that if we do a good job on the investment side, we can make relationships with strategic partners and get business here.”
In the US, Capital built its own retail sales system, called American Funds Distributors. By integrating a sales business with the investment business, Capital strove to avoid fads and promote long-term investment in equities, and focused on selling to broker-dealers rather than to individuals.
On China, Rothenberg said that the country presented an “interesting problem”. He said that given the rise in A-share values and the opening-up of its capital market over the past year, China will become the world’s second-largest equity market and then challenge the US for the No 1 spot.
“Given that, it’s strange to think China should be classified as an emerging market,” he said. “I think you should pull China out of the EM bucket. What does that leave you? The US, China, the rest of the developed world, and emerging markets. I think that’s how people will think about asset allocation.”
With the debate between passive and active management as furious as ever, Rothenberg was sanguine about capital moving out of the active space into Libor-plus products since a lack of liquidity would limit their size.
He said that the indexing trend had been accelerating because of active managers’ poor performance during the global financial crisis in 2008-09.
However, he pointed out the potential risks: “Anyone taking that approach has to be reminded that if markets go down, you get 100% of that fall. Indexing won’t save you from down markets. If you buy an asset allocation product from a broker, will the broker really be good at doing what they say they’ll do? History suggests people don’t do too well. It’s better to simply have a diversified long-term portfolio.”
Capital Group Companies manages more than $1.4 trillion of assets, of which more than $1 trillion comes from its American Funds series of mutual funds, many of which are positioned as long-term investment vehicles.
The firm sources around $16 billion from institutional clients in Asia Pacific as of January 2015. It began institutional business in the region by working with GIC of Singapore in 1985, and for a time became GIC’s biggest external manager, according to a history of the firm written by Charles Ellis, investment consultant and founder of Greenwich Associates.
Last year Capital hired Andrew Economos from JP Morgan Asset Management to spearhead opportunities outside the institutional sphere, as reported.