Cathay Conning Asset Management (CCAM) is beginning to invest money from its first mandate – Asia ex-Japan equities – as it casts around for further recruits in a tough market.
The start-up firm opened in Hong Kong this May with type 1, 4 and 9 licences to serve institutional investors. CEO Mark Konyn has set out to hire 25 staff by the end of Q1 next year.
So far CCAM has Timothy Matson as CIO; Bratin Sanyal as head of equity; Ronald Lee as associate PM; Nipun Sharma as equity analyst; and Paul Sandhu as vice-president of risk and capital management.
It is still looking for equity analysts with fund management capabilities as well as a head of fixed income and 2-3 for institutional sales (where Konyn admits he has dragged his feet a little).
Its $1 billion mandate came from Taiwanese parent Cathay, an indication of how sheltered a start to life CCAM will have. “We are still on our honeymoon,” says Konyn, “but that will only last for a limited period.”
He has set an initial target of $3-$4 billion under management. CCAM will start investing up to half its initial $1 billion allocation into higher yielding stocks, while it thinks about its second and third strategies to push it out to $1 billion by the end of this year.
Konyn argues the new mandate is third-party in everything but name, which he describes as important if CCAM is to build market credibility. “We need to demonstrate we are operating in a way where this could have been [a mandate from] any client,” he notes.
“That is often the failure of companies that come with seed money, that the terms around it are so specific to that seeder that they build up track record, but it is not relevant for the broader market.”
He says the mandate aims for a fairly broad risk-controlled approach to Asia ex-Japan equities. CCAM’s preference is for quality companies with higher yield prospects (3.5-4% per annum). “That is a segment that has performed well, and will continue in our view,” he says.
Interestingly, he notes that if you add stocks to your portfolio weighted by income profile in an outcome oriented approach and without appropriate risk management, you end up with a hefty allocation to China.
CCAM’s approach to China is to invest in overseas listings of Chinese firms and listed companies that benefit from China's economic expansion. Konyn notes, too, that parent Cathay has strong coverage of China stocks and that CCAM is exploring how best to use that expertise out of Hong Kong.
Longer-term CCAM’s ambition is to have QFII access to gain experience of the market before Beijing fully opens its capital account – at which time “QFII will be so small by comparison it will be irrelevant compared to direct access”, adds Konyn.
He says CCAM wants to adopt a dynamic asset allocation approach and to avoid a common approach among start-ups new to the region that feel under pressure to attract third-party assets and so invest in what’s hot for the moment.
“In my experience that’s the worst way to start a relationship with an institutional investor,” he notes. “If you get off to a poor start because the asset class is already overpriced, that relationship never recovers.”
On the Asian fixed income side, Konyn says CCAM is still considering which strategy it wants to focus on initially – local currency, hard currency, credit and high-yield – although that will be dictated by the talent it can attract as well as client preference.
“Fixed income is important but we are realistic,” says Konyn. “Markets are thin and the demand is not there among institutional investors for specialised Asian fixed income.”
In fact, he sees Asia as a gap that international institutions are more likely to fill on the equity than fixed income side. “The relevance of a dedicated Asian fixed income portfolio to an institutional investor still needs to be explored and understood,” he says.
“There is this charge now to build Asian fixed income teams in the market, but I would like to see the business plan that identifies the demand required to justify this build-out.”
Konyn concedes that attracting talent in this market is a challenge. “My sense is there is a lot of cost-cutting being contemplated, bonuses will be down this year for the big players and I think there will be a fair bit of belt-tightening,” he surmises.
He believes hires are there to be made from companies that bulked up on an Asia growth agenda but now find themselves over-resourced in certain areas. This includes alternatives, where anticipated money has not materialised from funds of funds.
Konyn says one area of business that has started well for CCAM is consulting to the insurance industry, where it looks at risk management frameworks and helps with strategic asset allocation using software tools courtesy of Conning’s acquisition of DFA Capital Management in 2010.
“As ever in Asia you can spend the rest of your life building a business plan and strategy and two weeks later realise you were wrong,” says Konyn. “Our business plan is evolving and this will be an important strain of business for us.”
In other areas CCAM is looking to work, Konyn mentions multi-asset and a mid-cap equity strategy.