Invesco has been providing alternative investments geared to fit the more process-oriented tastes of institutional investors in the United States since 1992. In 2003 it brought that approach to Japan and has so far raised over $1 billion in assets. Now the firm is targeting traditional institutional investors in Asia ex-Japan. Spearheading this effort is Carlos Higuchi, an ex-Nomura Securities specialist in fixed-income structured products, who joined the firm in Tokyo in 2003 as Asia-Pacific head of alternative products, and has just moved to Hong Kong.
Invesco doesn't try to compete with the typical hedge fund boutique. Instead it goes after institutions such as pension funds by offering alternative exposures based on the kind of platform that institutions are familiar with: highly transparent, benchmark-driven, traditional set fees and standard, team-oriented manager-remuneration packages, in return for more modest alpha performance.
"Clients can see all of our long and short positions, the portfolio is completely transparent," says John Middleton, New York-based portfolio manager at the firm's global structured products group. Adds Higuchi: "As regulators and investors continue to require more reporting, we'll be prepared." It sees its competitors as other fund houses with global platforms chasing institutions across asset classes, such as BGI and State Street Global Advisors.
The challenge, however, is that Asian investors don't have the same desperate, back-against-the-wall situation shared by most Japanese institutions, which faced consecutive years of declining equity markets and zero interest rates. Therefore it is adding to its product stable to provide more aggressive offerings to institutions in Asia ex-Japan.
The firm has four basic strategies in its structured products line-up: absolute-return funds (mainly in equity market-neutral and futures plays), private equity, real estate and leveraged loans. It is also looking at introducing commodities.
Invesco is also now marketing itself to funds of hedge funds, in order to get its absolute-return strategies on their shelves.
Japanese pension funds and insurance companies have so far focused on bank loans and US Reits, from among Invesco's offerings, but are now looking at core real estate investments and collateralized loan obligations. In the hedge fund space, institutions tend to look at funds of hedge funds - which is not what Invesco does. And for market-neutral equity strategies, Japanese investors usually want domestic products. At this point Invesco's market-neutral strategies are focused on the US and Europe, but the firm intends to introduce a Japanese version soon. It is also about to roll out a principal-guaranteed absolute-return fund to Japanese clients.
In Asia ex-Japan, Higuchi sees a different type of demand. Invesco made an initial foray into Asia in 2003 with a Hong Kong-authorized guaranteed fund that invests in underlying absolute-return products.
In addition to marketing Invesco to funds of hedge funds that invest Asian client money, it is about to introduce a global Reit fund on an offshore basis (it may register it in Singapore), as well as a new global absolute-return fund that it will launch next month. This fund combines US and European market-neutral strategies and US and European financial futures strategies, all four of which share low correlations. Investors may invest in a combined four-strategy fund or allocate by themselves among the four portfolios. This fund aims at a modest alpha target of 6% over Libor, although returns can ramp up considerably if leveraged, Middleton says. (The Japanese market-neutral capacity will be added later, he says.)
However, Invesco realizes that selling to Asian clients will be more challenging. Unlike in Japan, equity markets have done well and domestic yields provide decent yields. A US real estate or loans product won't offer clients attractive spreads, particularly not after forex costs. So Invesco is launching the global Reit to boost yields. And in Taiwan and Korea, it is negotiating with domestic fund houses in order to introduce its global product range to domestic investors.