Low interest rates in the United States and throughout much of Asia have driven some of the region's biggest corporations to consider using external fund managers to add punch to cash management, says Michael Winter, executive director and Singapore CEO at UBS Global Asset Management.

Like other investment bank-affiliated investment management firms, UBS' traditional client base in Asia has been central banks and other official institutions, and recently big insurance companies. But recently corporations have become a potential source of business for these houses as well.

Their aims are more modest than traditional institutional investors: while a life insurance company mandate demands, say, 300bp over a fixed-income benchmark, corporations are looking more at an additional return of 80bp to100bp. Usually corporations rely on structured products from investment banks, but are beginning to branch out to fund managers.

"Corporates may have a one- to two-year programme," Winter says. He has seen some corporations allow managers to invest in durations as far out as three years, and down the credit curve as far as single-A rated bonds, which is pretty aggressive for what is meant to be a war chest investing in cash and short-term bonds. "Or we pitch the full use of fixed income instruments but with the interest rate risk hedged, so theoretically it looks like very short duration," he adds.

But it is not clear whether corporates will prove to be a sustainable business for fund managers. If interest rates continue to climb - and in the US, the Federal Reserve has notched them up eight times in the past two years - the allure of mandating fund houses may fade. Adding 100bp is impressive when the Fed funds rate is 2% to 3%, less interesting if it is 5% to 6%.

Moreover, mandating external managers is not a priority for corporate treasurers, which do not face the liability pressures of pension funds or insurance companies. "It's very hard work," Winter says.

For now, UBS has notched successes among Taiwan's big tech companies, which tend to be cash rich. Singapore offers another potential stomping ground, one that Temasek-backed Fullerton Asset Management is trying to exploit.

Asian corporations have long been targeted by fund management companies, but often from a wealth management perspective for the family owners and key managers, say industry executives. Many private banks and hedge fund companies manage money for corporations where the line between principals' money and the company's money gets blurred.