Michael Dommermuth is head of Asia investments for MFC Global Investment Management Asia. He oversees all investment activities across Asia ex-Japan and the overall business. He joined Manulife in 2001 and has a total of 22 years capital market experience. It is under his leadership that MFC Global is expanding aggressively in Asia.
MFC Global is the asset management arm of financial services firm Manulife Financial. It manages balance sheet money for Manulife's insurance business as well as institutional assets on behalf of pension plans, endowment funds, and financial services companies. It also manages retail funds through Manulife Financial and John Hancock distribution networks as well as for other financial institutions offering mutual funds, separately managed accounts and closed-end funds.av
Dommermuth shares with AsianInvestor how MFC Global has grown in Asia and how it plans to continue to expand in this region.
Could you give us a bit of a background on MFC Global Investment Management's business in Asia?
Over the years, what has happened to Manulife globally also happened here in Asia. The fastest growing component of our assets was not the general accounts but what was happening in the off-balance sheet, wealth management products. There you see the rise of the MPF (Mandatory Provident Fund) business and today we are the second largest MPF player in Hong Kong as well as the mutual fund platforms and other pension accounts and what are called unit-linked accounts that exist in Hong Kong and right across the region.
So while we see rapid growth on the general account in the order of about 20% growth, the off-balance sheet is growing 20% to 40% per annum. That fundamentally altered our focus as an asset manager. And what is required as a general account manager is very different from what is required of a third-party manager.
How has the business evolved since then?
That shaped the decisions that we made. The truth that we arrived upon is if you want to attract top-tier talent and you want to engage and retain them, you must be seen to achieve growth in the off-balance sheet side of the business. That is the course that we set upon four years ago. What's unfolded since then is four years ago we had three asset management companies around the region: Tokyo, Hong Kong and Jakarta. But it wasn't just those countries where we were seeing growth in third party business. It was everywhere in Asia.
So we began forming asset management companies right across the region. In Vietnam, we are one of only four fund houses that have a license to operate there. We are pretty excited about Vietnam. We formed an asset management company in Thailand. Just in this past year, we formed fully licensed asset management companies in Singapore and Malaysia. The one that we formed in Malaysia was particularly problematic because we have a listed entity there so we had to completely change the company's structure to accommodate the formation of that structure. Most recently we acquired Fuhwa Securities Investment Trust in Taiwan. We thought it was the best path into that market. That was the first time in the company's history that we bought an asset management company. Ordinarily we want to grow organically.
What is your plan across the region?
What we are seeing is more rapid growth outside Hong Kong. We're going down the path of two main changes.
One is to make Hong Kong our hub of Asian activities. What that meant is installing a top notch group of people that could oversee this utter complexity -- nine countries and all the moving parts, striving individually to install the infrastructure that is needed and the people that are needed, different regulatory regimes, different tax regimes. That really reshaped this whole office.
The second thing is the territories themselves. If you trace back four years ago, the people that we had in this office were really part-time accountants and controllers. And in fact if you talk to those individuals, they felt much more a part of the local business operations rather than part of a global asset management arm.
We set out to change that, separating out the investment arm, appointing the investment heads., building the back office operations, installing very talented portfolio managers, lifting them out of those life companies and bringing them into the asset management companies where we thought was a much better environment for them to operate.
How big is your investment team in Asia?
We have gone from 66 to 180 people in the region over the past four years. There are now 80 investment professionals. On the equity desk Asia ex-Japan, we went from 12 equity professionals to 38. We have gone from 14 fixed income professionals to 25, of which 9 are pure credit focused. In Hong Kong, we have 80 staff, where we have seven investment professionals on the fixed income desk and 10 on the equities desk.
What is your AUM?
Globally, MFC Global manages about $240 billion. Within Asia, $17 billion. But Asia by far is the fastest growing component of our global enterprise. For Manulife as a whole, Asia is really one of the main growth stories.
What happened four years ago that made you want to focus on the third party business?
Asia is one part of a much larger global effort to build our third party asset management arm. Asia was brought into this global effort though a change of leadership. John Shed, head of international investment operations, and I joined about four years ago. It was fairly apparent when John and I got here that there was an opportunity, but it was also apparent that to realise that opportunity, some fundamental changes were needed. To be clear, we have come a long way, but we have much work left to do until we are completely satisfied with what we are building.
What will come next?
We are just starting and to reinforce that point. Until a year ago, we did not have any sales and marketing presence. Whatever we were managing was because the clients came to us. It's only since we appointed Avere Hill as our Asia head of sales and marketing that we really began a full-fledged sales and marketing ream which now numbers 12 people across the region which we will continue to build.
Everything we do is cautious. Regardless of the crisis, the path for us is clear. We have investment operations in 10 countries, including asset management companies in eight. We are presently looking at forming an asset management company in the Philippines.
We also have been exploring the China market for quite some time now and we made significant progress in identifying the partner that will help us build the asset management company that will be consistent with our culture. We hope to press forward with the China asset management company within one year.
Also, two markets of interest to us would be Korea and India.
Is the focus mainly on third party institutional or will you also be looking at a more retail approach somewhere down the line?
We can't ignore the retail. Bear in mind that across the region, we have over 30 retail platforms. We have a distribution force of about 30,000 agents and that's why our parentage is so vitally important to us. Manulife provides stability in tough times and Manulife is also a leading edge distribution company and has an amazing distribution presence across most of Asia.
How would you convince institutions that you would be in the best position to manage their money?
One thing I would mention is topical, and it's parentage. We are seeing fundamental changes in Asia's asset management industry, which is predictable because Asia is a boom or bust economy. Those who arrive here in good times leave in bad times but we have been here throughout. Manulife is the largest life company in North America and is the fourth largest in the world and retains a double A rating. That's vital. Institutions don't want to deal with boutique shops with weak parentage because they don't know who their partner will be a year down the road and that's important to them.
The second thing I would mention is Asian markets are fundamentally inefficient and active management brings real value. Having people local on the ground is extraordinarily helpful to weigh in on those market inefficiencies and it's all about how we connect those offices and how we communicate with the Hong Kong hub and each other. We believe that having this very large footprint across the region improves our performance.
The third thing that I would walk them true has always been true for us but then again it's topical. We have a culture here where the way we construct portfolios, the way we adjust those portfolios, the way we examine the risks inherent to those portfolios, is rigorous. We spend as much time in our weekly calls with our Asian investment desk talking about the risk aspects of the portfolios that we manage and the intent is not to avoid risk because that's impossible. The point of the whole exercise is to make sure that the manager fully understands the risks that they have taken and they are comfortable with those risks.
The final point I would make is relatively straightforward. We view ourselves very simply. We want to be consummately good in managing Asian assets. Period. In this office there are only three strategies that I care at all about: Greater China, Asia Pacific equities, and Asia fixed income. That's it. We want to be very, very good in managing those products. We don't do gimmick products that will have a short shelf life. We stick to out knitting.
Which markets in Asia are contributing the most to your bottom line and which ones are the ones with the most growth potential?
Undoubtedly the office that I can't escape and I am most proud of is Indonesia, surprisingly. I know there are other markets that are very seriously attracting global asset managers. Indonesia is probably the last one they think about. But for me, Indonesia is pretty special. Our company there is something that we formed in 1996. Growth was slow at first, but then the mutual fund market began to build and develop. It's a market that also causes us heartache. There was the 2005 bond fund crisis and the nature of the regulatory regime. Through it all we just had luck, some amazingly talented people. One of those people is Raymond Gin, our equity head. He applies global standards of excellence in how he manages his portfolio. On an annualised basis, he has delivered 580 basis points in outperformance compared with the benchmark, over the past five years. He has been with the company for five years. He came from New Zealand. He is a well-known figure in Indonesia, he is probably one of the most highly regarded equity managers in Indonesia.
The office where I think there would be a lot of opportunities available to us would be Taiwan.