Global fund houses seeking to sell products in Hong Kong must make strong commitment to local resources and provide sufficient after-sales support, said the head gatekeeper at Hong Kong's Hang Seng Bank.
“Some global managers might want to distribute their funds in Asia but won’t invest in the market – that is a concern for us,” noted Rosita Lee, head of investment products and advisory, citing one of three core criteria for manager selection. "We need timely support in marketing or even something as basic as fund performance inquiry."
The ability of a fund house to provide local-language prospectuses and updates is key to distribution for the bank, one of the biggest in Hong Kong, since most of its clients are Chinese speakers.
Hang Seng’s total retail banking and wealth management assets as at the end of June comprised HK$324.7 billion ($42 billion), but Lee declined to provide the figure for its assets under management.
The firm is looking to expand the range of products offered to its Prestige Banking segment, which targets customers with HK$1 million and above. This will include adding non-retail approved funds to the platform; these can be brought to market quicker than retail products.
Hang Seng has around 20 managers on its platform running some 400 funds. The bank did not say whether it plans to increase the number of manager relationships.
It segments clients according to investable assets, comprising private banking for those with HK$10 million in assets, Prestige Banking with HK$1 million in assets and Preferred Banking with HK$200,000 and above.
Meanwhile, the bank plans to invest more in its online platform, iPower, which targets the young affluent segment and was set up in 2013. The minimum fund subscription is lower and the fee is charged based on assets under management and not by transaction.
“There has been a strong growth in our digital platform in terms of transaction count, as it now accounts for 40% of the bank’s total. In terms of lump sum turnover, digital accounts for 15%."
And she sees the electronic platform continuing to grow – without specifying a target – and the bank aiming to increase its usability.
In addition to local commitment and support, Hang Seng’s other two criteria for picking managers are investment capability and risk management.
For managers with similar capabilities, the bank will look at how well established their investment processes are. “Do they rely on one or two star managers? What’s their manager turnover like? Do they have a separate research team to support the fund managers?”
This helps the bank understand how fund houses manage their portfolio and why they outperform or underperform their peers, said Lee.
With regard to risk management, Hang Seng looks to ensure that the manager has good checks and balances. This would include whether there is a separate team to monitor fund managers and ensure that internal investment guidelines are being followed.
The bank analyses individual funds on several time horizons, including their performance record since launch and over one, three and five years.
* The full interview appears in the November issue of AsianInvestor magazine.