Indonesia's Rp140 trillion ($15.6 billion) mutual-funds industry is in an early stage of development, which makes it tough for distributors to achieve the critical mass and scale needed to make it profitable to sell products.
So it has proved for Deutsche Bank Private Wealth Management, which has relinquished its licence to sell onshore mutual funds, with a view to focusing on larger parts of its Indonesian business, such as fixed-income securities.
The firm’s clients have transferred their portfolios to other firms, most of them choosing to move to Commonwealth Bank, says a source. Australia’s Commonwealth Bank confirms it has taken on Deutsche Bank clients and completed the process "a couple of months ago".
A Deutsche spokesman would not say how much the mutual-funds business had held in terms of assets under management, apart from that it was “very small”. The firm also declined to comment on whether or when it might regain a licence and start selling mutual funds again.
A big challenge for foreign firms in Indonesia is that onshore branches of foreign companies can only sell products with domestic asset exposure. This means they have little competitive advantage over domestic banks or foreign firms with onshore joint-ventures.
There is no such restriction on what wealthy Indonesians can buy from offshore product providers, however. Hence, foreign private banks – including Deutsche Bank PWM – do a lot of business with Indonesian high-net-worth individuals from Singapore. Some estimate that wealthy Indonesians park half to two-thirds of their money in the Lion City.
That said, several foreign banks have had success onshore having set up or acquired domestic distribution networks. Firms with onshore retail businesses include Citi, CIMB, Commonwealth Bank, DBS, HSBC, OCBC and Standard Chartered, and four of the top five investment product distributors are foreign banks or cross-border joint-ventures.
Moreover, international players are increasingly keen to tap the fast-growing wealth of Indonesians, with Standard Chartered among those to have announced onshore expansion plans and hires. The bank this year unveiled plans to hire 100 relationship managers in Indonesia, while firms across the board have been ramping up their Indonesian client-servicing teams in Singapore.