Two years ago, Citigroup Asset Management launched an offshore principal-guaranteed fund for the Korean retail market, distributed through its consumer bank affiliate. It was the first such product in that market - and the last, because the regulators stopped approving these structures on the grounds that retail investors shouldn't be paying such high fees to an asset manager to hold a portfolio of zero-coupon bonds.
That fund matures in 2004, and with that deadline in mind, Citigroup Asset Management is keen to take stock of the Korean market. "We need a new strategy for Korea," says Hong Kong-based Mabel Chan, head of retail sales for Asia, who joined the firm in May 2002 after serving at Mercury Asset Management (later under the Merrill Lynch name) and Prudential Financial (USA).
The firm is considering establishing an office in Seoul, or at least putting someone on the ground, so that it will be able to build distribution relationships and support partners, in the Korean language.
It currently has sales representatives in Hong Kong, Singapore, Taiwan and Indonesia. Citibank has branches in Korea and is setting the pace in developing Korean wealth management centres. "This year we developed our business in Indonesia, and next year it will be Korea," Chan says.
A previous interview with Citigroup AM (see FinanceAsia magazine, December 2002) reported at the end of 2002 that it had raised $14.8 billion from clients in Asia ex-Japan, including retail, high-net worth and institutional, and that it managed $2.5 billion in the region, out of a total of $450 billion.
Chan declined to provide specific figures on the retail business, but the group's total assets under management has risen to $492.5 billion. It currently has about 60 funds registered in the region, including Hong Kong, Singapore and Taiwan.
Citi's consumer bank is of course a funds distribution powerhouse across the region, catering especially to the more sophisticated end of the retail segment. (For an in-depth analysis of retail funds distribution in Singapore and Hong Kong, see AsianInvestor magazine's August/September 2003 edition.)
Nonetheless, in some markets, Citigroup AM has traditionally used additional channels, and is looking to expand these. Last year it added its first third parties in Hong Kong, including Dah Sing Bank, Citic Ka Wah Bank and a local insurance joint venture between Citibank and Fubon. "We'll continue to expand the business in Hong Kong," Chan says. "We need to develop strategic relationships." She notes that in developed markets, competition is increasingly about developing service, and achieving this is the key to distribution arrangements.
The other key is having a complete funds offering, and to that end, Citigroup AM last week launched an umbrella structure of about 20 funds, the Salomon Brothers Global Horizon series, to complement Citi's existing and more traditional range of product. The new funds cover asset classes such as high-yield bonds, municipal bonds and various US equity styles.
The firm has had third-party arrangements in Singapore with HSBC and Standard Chartered Bank for four or five years - which is not so surprising considering that HSBC is not dominant in Singapore as it is in Hong Kong, and where interest in its own suite of products may not be so acute.
Chan is waiting to see how ongoing liberalization in the Lion City pans out before introducing more products. The firm has a feeder-fund structure in place, which it plans to continue, but now that offshore, non-Singapore dollar products can be sold directly, it may consider that route as well.
It is in Taiwan, perhaps, that Citigroup AM is looking to diversify distribution most rapidly. It already sells four funds via Fubon Insurance (in which Citigroup owns a stake), and it wants to expand that. In July, Citigroup AM launched the Salomon Horizon series here. Now that it is armed with more weapons, it is looking for channels to discharge them.
Indonesia is the market growing the fastest for Citi at present. The consumer bank has a dozen branches there, and has had rupiah-denominated funds for several years. It recently launched a fixed-income fund that generated $300 million, and Chan says another fund launch is being timed for this month. "There's relatively little competition there," she says, noting the new products are also available through Standard Chartered. "More local Indonesian banks are selling funds. It's like Taiwan five years ago." She says she continues to seek exclusive relationships with local banks. (Again, see AsianInvestor's August/September issue for a feature story exploring the Indonesian funds market.)
In keeping with the Citibank investment philosophy, Chan declined to talk much about what specific products she thinks will be 'hot' in the coming months. She notes that the Korean guaranteed fund was not only Korea's last, but also Citigroup's.
"We prefer a long-term financial planning approach using open-ended funds," Chan says. "We realize many Asian clients like to trade, but we don't focus on a particular product set. Investors need to understand the asset allocation process. We want to introduce open-ended, traditional funds, and encourage investors to leverage our fund managers' expertise."