ING Investment Management has just launched an Asian bond fund for the Philippine market that is being distributed by Metrobank. This marks the first domestic retail investment product that is mainly exposed to non-Philippine risks, says Michael Ferrer, regional general manager at ING in Hong Kong.

Until recently, regulation concerning offshore investments was fuzzy and the regulator, Bangko Sentral ng Pilipinas, was said to be uneasy about offshoring capital. But late last year the government passed new rules to make the investment management business more transparent. It allowed banks' trust divisions to established pooled funds (unit investment trust funds) and in the process gave providers the green light for international products.

The independent asset management industry in the Philippines is tiny, but banks have built a substantial business in their trust divisions providing pooled investment vehicles and the market is now around $7 billion.

This move represents the first time ING has worked with Metrobank. ING's investment business in the Philippines has to date been mainly institutional, as it lacks its own distribution network to tackle retail investors. So now it is creating products for local banks.

Although there are other international funds available in the Philippines, they tend to tilt heavily toward dollar-denominated Philippine government bonds or other local issuers, says Ferrer.

Initially Metrobank was interested in a global fixed income product, to give investors diversification. But over time, the bank decided it wanted to downplay exposure to Philippine names while also reducing the overall risk level. It also preferred an Asian theme, to give investors a sense of familiarity. The fund will invest in dollar-denominated issues by regional sovereigns and high investment grade corporations. "The yields will be low but this is mainly a diversification play," Ferrer says.

Ultimately he hopes to see Filipinos become interested in higher risk asset classes such as equities, but this will take time. The local equity markets are illiquid and a lot of investors have been burned. They remain very risk-averse.

The Asian bond fund launched with $10 million under management but Ferrer thinks this product could reach 10 times that size. He notes Metrobank already has an international bond fund (mainly holding Philippine government bonds) with $600 million under management.

If this is a success, ING hopes to introduce more offshore products, both to Metrobank clients as well as to other banks, including areas such as emerging market debt.