Franklin Templeton's robo tie-up could be first of many

The US asset manager has strategically invested into a Singapore-based robo services firm. Other fund houses could follow as automated investing continues to rise across Asia.
Franklin Templeton's robo tie-up could be first of many

Franklin Templeton Investments' (FTI) decision to invest into Singapore-based robo services company Bambu could be the first of similar tie-ups, as asset managers seek to benefit from the huge potential of automated investing in Asia, say industry observers.

On August 30 Bambu, a business-to-business (B2B) robo-advisory platform provider, announced that FTI, venture capital firm Wavemaker Partners and fintech investor Robby Hikowitz had led and completed a round of funding for it. FTI also became Bambu’s first strategic investor. Terms of the funding were not disclosed.

Bambu’s announcement is one of the first publicly-known deals between an international fund house and an Asia-based B2B robo adviser. Industry observers believe it could pave the way for similar alliances in the future.

“It is possible that FTI could play a more active role as a strategic investor; it could be looking at building its own robo platform using Bambu technology to directly distribute funds to clients or could help Bambu add an overlay of investment capabilities to its technology,” Steven Seow, Asia head of wealth management at Mercer, told AsianInvestor.

Bambu’s co-founder and CEO Ned Philips has acknowledged only that the company will work with Franklin Templeton on digital strategies. “The plan is to work together since they have considerable experience on the asset management side,” he told AsianInvestor. He declined to elaborate. 

The company, which was founded in February 2016 by Philips and chief operating officer Aki Ranin, offers a technology platform that helps companies offer automated and technology augmented investment services to their clients. In a press release, the company said it would use the investment to expand its fund sales and business development amid a rising global interest in robo-adviser solutions, and bulk up its research and development in Singapore.

Excluding the current investment, Bambu has recieved more than $1 million in funding and generated about $500,000 in revenue since inception, a company spokeperson said.

Growing fast

The strategic investment by FTI indicates that Franklin Templeton is willing to incorporate robo advising into its more traditional investing approach as it attempts to build assets in Asia Pacific.

In contrast to Franklin Templeton’s active stock-picking funds, the robo advisers that Bambu helps create typically invest into passive index-tracking products, usually exchange-traded funds (ETFs). The business model is viewed as having enormous potential, given the explosive growth of low-cost passive products, a tougher regulatory environment and the rise of the digitally savvy milliennials.

A July 2017 report by Business Insider Intelligence forecasts that robo-advisors will manage around $1 trillion by 2020, and around $4.6 trillion by 2022.

While North America is the leading robo-advisory market today, Asia is expected to catch up and outpace the rest of the world in terms of AUM managed by robo-advisors by 2022, according to the report.

The region’s robo-advisory landscape is evolving rapidly. In July this year, Malaysia-headquartered Farringdon Group was the latest firm to unveil a robo-advisor. Called Algebra, it follows Shariah investment guidelines.

Marvelstone Capital, an alternative management fund manager in Singapore, has also announced plans to unveil a robo adviser for family offices in Asia in the third quarter of this year.

Other entities that have robo-advisor solutions include Prive Managers and 8 Securities in Hong Kong, and Bento and Smartly in Singapore.

Yet Bambu's Philips believes Asia is just at the start of the journey to digitise wealth.

He said there is still a big gap in public understanding of robo-advisories. “Whether it’s a private bank client or an ordinary retail investor, most people have still not interacted with robo-advice platforms.”

He forecasts more partnerships being established between between financial firms, consumer firms and fintech firms over the next three to five years to build digital platforms.

Shifting strategy

Tying up with a robo advisory company could mark a strategic evolution for Franklin Templeton.

The $742.8 billion US-headquartered asset manager was among the earliest to set up a dedicated emerging markets equity team under veteran investor Mark Mobius, who opened a research office in Hong Kong in 1987. It grew its assets on the back of a reputation for canny active investing into emerging markets and Asia.

However, Franklin Templeton has struggled in recent years due to a combination of a decreasing global interest in emerging markets and growing pessimism among institutional investors about the ability of active fund houses to deliver market-beating returns. It saw a 6% net outflow in assets under management (AUM) during 2016, for example—although its total AUM rose $22.8 billion again during the first half, on the back of improving emerging market performance.

While Franklin Templeton may be the first asset manager to tie up with an Asia-based robo advisory firm, many of its rivals have sought to do so in other parts of the world over the past two years.

BlackRock acquired FutureAdvisor in August 2015, while in September 2015 Aberdeen Asset Management (now Standard Life Aberdeen) snapped up Parmenion. In January 2016 Invesco bought Jemstep, while most recently Allianz acquired MoneyFarm in September 2016.

While the growth potential is exciting, competition and low margins are likely to make it a cut-throat area in which to operate. Experts believe the business-to-consumer (B2C) robo advisory model will face the toughest time as it needs to spend heavily on marketing to acquire new clients, which can be time consuming.

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