Goldman Sachs Asset Management is transforming its business in Asia ex-Japan from an almost solely institutional one to one that includes retail lines, says Vincent Duhamel, managing director and global head of GSAMÆs central bank activities.

This reflects not only a natural extension of the firmÆs development throughout the region but also the opportunity to serve a growing legion of middle-class urbanites. There is no defined-benefit corporate pension market in Asia ex-Japan outside of Hong KongÆs industry, which is closed and due to contract. Rather, pension reform is encouraging more defined-contribution frameworks, which lend themselves more to a retail business for fund managers.

Duhamel says the regionÆs market is bifurcating: the institutional business is limited to giant central banks, big insurance companies and large state-owned official institutions (such as national pension systems), while much of the growth is about accessing the regionÆs growing retail or high-net-worth universe.

Oliver Bolitho, managing director and head of GSAM Asia ex-Japan, transferred from London to Hong Kong in March in part to spearhead this strategy.

Duhamel says the firm is starting on æphase threeÆ of its overall business strategy in the region. The first phase was selling GoldmanÆs worldwide offshore investment capabilities to Asian institutions, while running pan-Asia investment products for global clients from hubs in Singapore and Hong Kong.

Phase two was developing a local manufacturing capability in key markets. To this end GSAM has a research capability for A shares in Shanghai, and for the past year has been building a team in Mumbai under Prashant Khemka, a longstanding member of the firmÆs US growth equity team who returned from America to his native India to build the investment capability. It could sell its offshore products to local investors as well as manufacture local products, as it has already with China A-shares, to international clients.

The third phase is manufacturing domestic investment products to be sold to domestic clients û in particular the retail sector, particularly where defined-contribution systems are being put in place. The firm already has a retail business in markets like the United States. Duhamel says over the next five years or so, GSAM intends to develop this capability in China, India and South Korea, where the firm is acquiring Macquarie-IMM Asset Management.

That deal will give GSAM an existing domestic business and make Korea its priority in terms of developing an onshore business. Wang Hsueh-ming, chairwoman of the investment management division in China, is researching ways to enter that market.

Duhamel declined to elucidate GSAMÆs ideas for the mainland in detail, but notes that, first, control is important, and second, that the firm is not interested in merely sub-advising for local fund managers as Lehman Brothers has done for Huaan Fund Management (in a QDII trial). ôWorking with a partner just to get to know the market was the game five years ago,ö he notes. ôThings have stepped up.ö The firm is willing to work with partners to jointly develop products under the new QDII regime, but Duhamel stresses GSAM is looking to build for the long term, not merely on an opportunistic basis.

India offers a different challenge. First, the firm is keen to find the right people to lead its onshore business, particularly with regard to distribution, but who also can integrate into the Goldman culture. Second, while regulation gives more freedom than in China, there remain a lot of unknowns, says Bolitho. The full spectrum of investment products has yet to be spelled out in law, for example.