Deutsche Asset Management recently took FinanceAsia to lunch at the China Club in Singapore's Capital Tower, which boasts soaring 360-degree views - the sort of panorama that inspires executives to talk about their firms' ambitions. Choy Peng-wah, CEO for Asia, and Sam Hanbury, head of sales and marketing for Asia, discuss DeAM's regional priorities: South Korea and India.

Korea is an enticing but difficult market for global fund companies. What has been your approach?

Choy Peng-wah: We started looking at Korea two years ago because of its scale and the size of its population. We looked at joint ventures, but the local investment trust companies had become discredited. We asked ourselves, with our foreign brand, do we really want to enter this market in a JV? It would be difficult to convince the local management to change. We talked to one of the largest investment trust companes, which had huge staff and union issues. If we inherited a team of a thousand people, what's the chance we could change the management without running a reputational risk?

We were the first foreign firm to apply for an investment trust management company (ITMC) license without a ground presence, although Deutsche Bank has an existing, profitable business in investment banking. Competitors that now own 100% of their own ITMCs first had to have a rep office. Schroders had a rep office for five years, and Templeton began there as a JV.

But then Deutsche Asset Management acquired Zurich Scudder Investments.

Choy: Yes, along came Scudder - a dream. Before we had huge pressures about whom we could hire. Korean regulations apply along Japanese standards, the government is concerned about foreign branches' access to information from Korea. This meant none of our regional managers could have a role, the local team is responsible. Scudder has a long history in Korea and a good track record managing Korean funds in New York, although the staff there are more like analysts, rather than managing assets for domestic clients.

Sam Hanbury: The Scudder deal advanced our life in Korea by two years. It didn't change our plan but it gave us great people. We didn't have to go out and hire a top equities team.

Choy: Now there is further deregulation in the form of the new Asset Management Act, which is putting ITMCs and asset management companies [AMCs] more in balance. It is also liberalizing some of the Chinese walls on information. We still can't share client information outside of Seoul, but we can use our global research capability for local clients. Our Korean-based fund managers are now opened to out international stock views, and we can deliver on sector and regional mandates. We still need to educate the public to see a longer investment horizon, though - most funds in Korea last about a year because there simply isn't more interest, the distributors get bored.

So enter the partnership with Woori Financial?

Hanbury: Exactly. All we want to do is manufacturing. We like to have big distribution partners, like ChinaTrust in Taiwan. It has to be a mutually beneficial relationship. Woori has a huge franchise in Korea but they don't sell many mutual funds. In Germany, we have proven we can sell funds through banks, and that's something Woori could identify with.

Why not create this kind of relationship with a Citibank or a Standard Chartered?

Choy: The arrangement with Woori is not exclusive. We'll work with these other banks too. But Citibank wants different things. It has many regional fund management companies it can do business with in Korea. Woori - that's a totally different scale of relationship, where we help develop products together. We only want three or four of this kind of deep relationships.

Hanbury: We see three prongs to distribution. First are the global distributors who work with us everywhere we both have a presence, like Merrill Lynch or Citibank. The next level is regional, with the likes of HSBC or Standard Chartered, which may use a different array of product. These relationships tend to be price-sensitive, we negotiate big amounts of business, and the banks value their branding above ours.

Then there is the local level with banks such as DBS or UOB in Singapore, or ChinaTrust or Woori. This level accesses the broadest base of clients, but not the highest revenue. But in large markets such as Korea, Taiwan, India and China, that's where the growth is.

What about securities companies?

Choy: They use a different business model. Banks want to augment their asset base. Woori is a newcomer to the ITMC market. It is experiencing huge growth but from a low base, but has the potential to use its branch network to rival the selling strength of Kookmin. We'll still work with other banks or brokers, but we see Woori as a strategic partner with preference.

You have told me that Korea and India are your big priorities for growth. What about China - what has come of the technical agreement with Dacheng Fund Management?

Choy: That has expired. The local parties didn't see the advantage in working with us. We're still looking but letting Deutsche Bank take the lead.

Why didn't the locals see an advantage?

Choy: Dacheng's shareholders didn't object to foreign partners, but they did expect a certain price, and management was concerned about losing control. After a year, we realized they weren't going to sell and let foreigners run things. Well, they couldn't have our brand and still have control. But the regulators have allowed more competition, and newcomers are setting up quickly - I think older fund companies have been surprised at how quickly authorities have granted new licenses. So there will be opportunities for us.

What would lead a local firm to make those concessions?

Choy: With QFII and later QDII, they'll need help to handle foreign assets and the complexities of managing mutual fund registrars. There's no client service in China, and fund companies see performance only in terms in launching the next fund, not in terms of servicing existing clients.

It has been a positive experience for us. We got our name in front of the authorities and learned how the market works. Deutsche Bank across all its business lines wants access to China. Deutsche Asset Management needs to find local securities companies or investment trust companies that are interested in a relationship with Deutsche Bank as a whole, not just a one-off deal with the asset management division.

Hanbury: The focus on Korea and India is the right decision. China is not a revenue generator; it's learning years. In India, the mutual fund market is $26 billion, of which only $4 billion is in the private sector - the rest is managed by the State Bank of India or the Unit Trust of India. UTI is falling apart, the private sector is growing rapidly. UTI is going to be split and restructured, it has an image problem. There's going to be a lot of top-line growth over the next few years due to deregulation, privatization and increasing demand from the high-net worth market. The standard of competition on the ground is surprisingly high. There are a lot of bright people who see opportunity there.

Choy: In India you need a trustee company to sponsor an asset manager. We have set up a trustee company that can sponsor Deutsche Asset Management. We manufacture mutual funds to be distributed by the bank and by brokers. Right now India is full of mom-and-pop outfits selling multiple products, but they find it hard to manage and control everything.

We expect pension deregulation. Right now foreign fund managers can invest up to 40% of their assets offshore in G3 bonds, so it's already opening. The life insurance is $40 billion and growing. There's a lot of money around. If we can get started on the ground and make a mild profit and be ready for liberalization, we see a good opportunity.

We can own up to 75% of our asset management operation in India with only a $5 million investment. We could own 100% but for $50 million, and with capital controls it'd be hard to remit that. So we need a local company or individual to be our partner. In both Korea and India, you need to plan a lot and accept a level of risk.

Hanbury: But you don't need to be first. We actually see first-generation firms leaving. In India we get offered to buy asset management companies regularly. We take our time. We're now getting a license to launch our first mutual funds in India.