Every year, AsianInvestor's editorial team conduct an intensive analysis of the region's leading asset management service providers, fund products and asset managers, to ascertain the top organisations of the previous 12 months.
The winners of these categories must combine a mixture of business performance, growth and progress, measured on both quantitative and qualitative criteria. Below, we detail why we chose this year's winners of our asset service categories, which comprise the leading custodians, best tax auditor, standout index provider and top law firm for asset managers.
BEST LAW FIRM, ASSET MANAGEMENT
As a large international law firm with 200 lawyers in each of the major financial centres of New York, London and Hong Kong, Mayer Brown has been able to cater to the needs of an increasingly international-minded set of asset owners and fund managers from the region.
In the 10 years since the firm merged with leading Hong Kong firm Johnson Stokes & Master, it has focused its financial services efforts on offering legal advice to a mixture of banks, life insurers and particularly private equity companies, both local and international.
Led by Robert Woll, the company’s China and Hong Kong investment funds business has enjoyed strong connections with general partners and limited partners operating in greater China. Mayer Brown has worked on a set of deals in this space, including fund formations, primary fundraisings and fund restructurings.
One example was its work advising on a joint-venture between Chinese corporates and a regional infrastructure fund and co-investments; another was the creation of a real estate co-investment fund and consortium between a local player and major international private equity companies.
This source of business is only likely to rise as China liberalises further, and more assets flow into the country’s private funds industry. And that’s not all; the firm has also advised on the formation of pan-Asian investment funds and other vehicles in Southeast Asia, India and beyond.
BEST AUDITOR (FUNDS AND TAX)
The big four auditing company has been hard at work investing into its regional capabilities, with a particular emphasis on work relating to China.
KPMG considers itself a market leader when it comes to auditing Hong Kong-based funds, enjoying a market share of well over one-third. But it looks to do a lot more than simple auditing, aiming to offer strategic, regulatory and operating advice as well.
The company boasts an array of clients in the region that include some of the world’s largest banks, private equity companies and fund houses. Among them is the Mandatory Provident Pension Schemes Authority, as well as key pension fund providers in Hong Kong.
In addition to provide such services, KPMG has been expanding its work in the environmental, social and governance (ESG) side, as regulators and big asset owners like Japan’s Government Pension Investment Fund and Hong Kong’s Exchange Fund seek to ensure fund managers demonstrate ESG in their investment processes. To this end KPMG has spoken with industry participants and regulators on next steps and has worked with a Chinese fund manager to develop its ESG policy and sustainable investment strategy.
Other areas in which KPMG has been active include lobbying Hong Kong’s Financial Services and Treasury Bureau to amend the tax exemption for funds, and participating in efforts to have Hong Kong introduce a limited liability partnership structure to encourage private equity funds to domicile in the city – something its government is likely to finalise by 2020. KPMG has also coordinated a joint publication with the Hong Kong Trustees’ Association, to suggest reforms that would enhance the city’s appeal as a trust jurisdiction.
These efforts have gained the support of market participants. In one testimonial, the Asia-Pacific chief financial officer of one international fund manager extolled KPMG’s “time management of the audit planning, accuracy, appropriate governance as well as providing the update Accounting Standards while performing the Fund audit”. Meanwhile the head of a major fund manager offering MPF funds said praised the company for “working closely with HKTA, the government, and regulators and the business community to put Hong Kong back on the map as a key trust jurisdiction operator”.
BEST INDEX PROVIDER, GLOBAL
For its ability to almost single-handedly open up China’s A-share market to international investors, MSCI deserves a great deal of credit.
The index provider spent several years in negotiation with the Chinese authorities over adding local shares to its Emerging Market (EM) index, yet held off until both it and the key fund managers and asset owners that use its benchmark indexes were satisfied with the level of liberalisation the Chinese authorities had conducted.
The subsequent limited inclusion took place in June 2018, and it saw 222 large-cap A-shares being included at a relatively light 5% weighting. However, this partial inclusion will increase in the coming years and it means that every equity fund that uses MSCI’s indexes as a benchmark will have to consider how best to invest in China’s local shares. That means billions of dollars of foreign investment – as of June 2018 $1.8 trillion in assets were benchmarked against the MSCI EM index.
In addition to this groundbreaking change, MSCI's environmental, social and governance (ESG) themed research and products continue to gain ground as more fund houses and asset owners seek to understand and incorporate such principles into more of how they invest.
In 2017 and 2018 alone MSCI won mandates with Japan’s Government Pension Investment Fund, New Zealand Super and a major Malaysian asset owner, while globally over $180 billion has been allocated by asset owners to MSCI’s ESG indexes. Plus it has ESG ratings on 540 Chinese companies, and intends to offer such ratings on all major A-share issuers from the country.
The index provider has rolled out products in newer areas too. This included factor indexes, where it launched the MSCI FaCS and MSCI Factor Box in January 2018, as well as new ‘megatrend’ indexes in October, which focuses on companies set to benefit from major economic, social and demographic changes.
All-told, MSCI continues to set the pace when it comes to global equity investing.
BEST GLOBAL CUSTODIAN FOR MUTUAL FUNDS
HSBC Securities Services
The custody capabilities of HSBC Securities Services (HSS) when it comes to mutual funds are very well established. The bank covers 96 markets globally, 27 of which are in Asia and the Middle East, with it enjoying an onshore presence in 17 markets in the region.
HSS enjoyed strong performance during 2018; it saw over 200 new fund custody mandates in Asia Pacific, which ensured it could boast revenue growth of over 10% amid a general fund market struggles during the fourth quarter. This included some big new wins, including custody and fund administration for a leading insurer-linked asset manager in China, as well as gaining a mandate from a Chinese insurer for a fast-growing Ucits fund, which is projected to grow by over 10 times over the coming year.
While HSS possesses a regional presence, its penetration into the growing fund interest in China is where it truly shines. The bank retained major market shares for custody services in the various fund access lines into China. This included almost one-third of approved quotas for qualified foreign institutional investors (QFII), over 50% of renminbi QFIIs – including new fund administration mandates from an Irish fund house and a Japan-based bank – and well over a quarter of clients engaging in China’s interbank bond market.
Added to that, HSS boasts being the favoured custodian behind large percentages of the clients engaging in the China-Hong Kong Stock and Bond Connect programmes, ensuring HSS is the go-to bank when it comes to foreign investors looking to have support for their China investment ambitions.
Plus HSS launched a new product called the ETF Portal last year to bring primary dealers, issuers and service providers onto one platform. That should be a good preparation for the eventual launch of ETF Connect between Hong Kong and China.
BEST GLOBAL CUSTODIAN FOR ASSET OWNERS
In a trying year and increasingly unsettled markets for custodians, BNY Mellon solidified its status as a custodian for asset owners to rely on.
The US company enjoyed a major boost in its new assets under custody as a succession of new mandates led its total AUC in the region to hit $1.1 trillion at the end of 2018. Most notable in this total was BNY Mellon’s getting the public approval of Korea’s National Pension Service in September 2018 as a global custodian for fixed income. The $600 billion state pension provider was publicly stated its faith in BNY Mellon when picking it.
It could also boast of onboarding a major Southeast Asian insurer, and offering another insurance client its Eagle ACCESS investment book of record solution. Added to that was a succession of other approvals, that ensured left BNY Mellon was a custodian to assets being operated by several central banks, most of the region’s largest sovereign wealth funds, and two of the region’s top five pension funds too. This included three sovereign wealth funds in the region, which used BNY Mellon to help support their securities lending programmes last year.
A big challenge for custodians in the future will be their ability to harness technology, making their services faster and their ability to show their clients their total risk exposures more real-time. To do this BNY Mellon has been investing globally, and it has a $2.4 billion budget on improving its technology.
This commitment has helped it form the cloud-based Risk View platform, which offers clients measuring tools to assess their portfolio fund and sub-portfolio risk reporting. This features as part of its Global Risk Solutions, which offers daily performance risk for clients – and increasingly important tool as more asset owners diversify their portfolios into new areas. These steps are likely to ensure BNY Mellon retains its appeal with the region’s institutional investors.
BEST BANK FOR CROSS-BORDER CUSTODY
BNP Paribas Securities Services
French bank BNPp Paribas Securities Services has been working on combining a global custodian role with aspects of local custodianship as well. And the bank has demonstrated its ability to help investors access investments across borders.
Over the past year BNP Paribas focused on expanding Hong Kong’s mutual recognition fund schemes, the passporting regime that allows approved funds based in the territory to be distributed into other geographies, and vice-versa. The French bank was the first custodian to provide access to the Hong Kong-Switzerland MRF, it has supported client fund distribution through the new Hong Kong-UK, Hong Kong-France and Hong Kong-Luxembourg links.
Other notable firsts for 2018 include the bank acting as the first custodian for a fund under the Asean CIS passporting scheme, while it has also held various forums on Asia Regional Fund Passporting Scheme, including hosting a roundtable on it in February.
BNP Paribas Securities Services has been active in the growing fund links with China too. It offers a multi-broker integrated settlement model for Stock Connect that guarantees delivery-versus-payment settlement, and its strength means that it now settles up to 15% of northbound Stock Connect deal flow each day.
For Bond Connect, BNP Paribas offers an FX settlement system that lets clients settle in onshore renminbi instead of the more common offshore CNH renminbi, a difference that helps reduce FX risk.
The bank has also expanded its settlement and custody activity for investors heading into the Chinese interbank bond market scheme, doubling its number of client accounts and seeing assets under custody rose by over 100% while its settlements volume increase five times over the previous year.