It is common wisdom these days in the funds management business that a house must either have a niche specialization that forces distributors and consultants to seek it out, or it must be big, have a famous name and be able to provide every portfolio strategy under the sun. If you're not a boutique or Fidelity, then it will be difficult to win consultant recommendations or get on a distributor's shelf.

Mid-sized players trying to make a name for themselves in Asia have a hard task, but not an impossible one. Funds management is not a static industry and as economic conditions change, new possibilities arise.

First State Investments is one firm trying to establish itself in Asia. A unit of Commonwealth Bank of Australia, it has offices in Hong Kong and Singapore, and is in the process of creating a joint venture in Shanghai. But it is hardly a household name; it may be 'global' but not in the league of the top tier; and it has a sufficiently wide variety of funds to not be seen as a boutique. With $62 billion of assets under management globally, it is definitely second-tier in size but too big to be a specialist. And about two-thirds of that is from its domestic business in Australia, so its global footprint is modest.

Nonetheless the firm has made strides in the region lately and is looking to consolidate its position by launching an Asian balanced fund to the Hong Kong retail market.

First State is not a boutique but it has benefited in the institutional market by promoting itself as an expert in global emerging market and Asia-Pacific equities. This has just recently become a hot sector, as global investors realize that Asian stocks are likely to outperform American and European ones for the medium term. First State is also benefiting from the trend among Asian institutions away from balanced portfolios toward specialist mandates. As a result it has made consultants' lists for the Asian equities category and has picked up a number of mandates this year, says Amy Cho, head of sales in Hong Kong.

So by pluck and by luck, First State has managed to wedge its way into the institutional market. It manages $1.8 billion in Asian equities, a respectable sum, although most of that is still from insurance affiliate CMG Asia.

Meanwhile First State has just launched its Asian Bridge Fund, a balanced portfolio of Asian equity and debt for the Hong Kong retail market. The retail market - potentially far more lucrative - is difficult to crack, and the Bridge Fund is a good example of the compromises a challenger must make to take on the incumbents.

First State is a player in Hong Kong, if not a giant - it has 20 funds authorized here, and claims to have launched Hong Kong's first no-load guaranteed fund. Similarly the Asian Bridge Fund is no-load, with no fees for performance, subscription or redemption. There is only a 1% annual management fee, some of which it splits with its distributors.

This is certainly unusual. In Hong Kong and Singapore, distributors - the banks - are so powerful that they can freely charge a 5% load on any fund, which they see as a commodity. It is now common practice for banks to have eight to 12 preferred manufacturers with which they deal exclusively, making it doubly hard for newcomers such as First State to break in.

First State therefore had to come up with something to attract attention, and in this case it's the no-load concept, which it hopes will appeal to investors. But the major distributors have no desire or need to forego their loads, so First State is partnered with Shanghai Commercial Bank, Wing Hang Bank and ABN AMRO Bank, as well as some independent financial advisers. In other words, it's forced to deal with the small fry.

"Once we demonstrate a good track record, we hope to line up bigger banks," says Cho. She acknowledges that banks have preferred global suppliers, but says, "We're also global. It takes time to catch up. And big banks still have product gaps."

She thinks the balanced concept will become more popular with retail investors, who have been investing in bond portfolios since the beginning of the year and are looking for more equities upside, but without all the risk. Moreover the low-interest rate environment has made structuring new guaranteed funds too difficult.

Cho says the Asian Bridge Fund appeals to distributors also because it is easy for them to administrate. The fund invests in coupon-yielding bonds and dividend-yielding stocks, and pays a semi-annual coupon to investors. Therefore while redemptions are possible at any time, subscriptions are limited only in periods shortly after those coupons are paid. This lets bank staff focus on other products most of the year.

Meanwhile First State is trying to become a major name the old-fashioned way: performance. Cho sees the lines between institutional and retail markets blurring, citing the Mandatory Provident Fund scheme as an example. Over time more individuals will choose their MPF fund managers. The underlying funds for MPF plans were all made from scratch, so comparisons between manufacturers is easy. Cho says in 2002, CMG Asia, whose funds are managed by First State, was the only MPF service provider to earn a positive return.