Investment consultancy Morningstar aims to strengthen its business in Asia by adding fund analysts and attracting clients for its fund-of-fund offering, after it recently obtained an investment management licence in Hong Kong.
Joe Mansueto, Morningstar founder and chief executive, told AsianInvestor he’d like to see a “commensurate capacity” to that in Europe and the US, but declined to give specific projections. The aim would be both to transfer staff from the US and hire locally in the region.
Currently, out of 110 manager research analysts globally (as of March 2014), there are 30-40 analysts in Europe, the Middle East and Africa and around 30 in Asia Pacific.
Mansueto said he’s bullish on China, thanks to a combination of the high saving rate and the need to manage wealth better for retirement.
The Chinese market is “hyper-competitive”, with competitors springing up frequently, he admitted, but said they don’t have Morningstar’s experience and track record in putting together research and recommendations on managers. They also will find it hard to challenge the US firm in providing a global portfolio view, added Mansueto.
Morningstar has been growing organically in the country to its current headcount of around 900. This includes 810 employees in Shenzhen, who focus on fund database compilation and software development and some 40 staff who sell into the mainland market.
The firm is the only US firm licensed to sell quantitative fund ratings in the country and it has an investment management presence there.
Morningstar has already been boosting its offering in Asia following its receipt of an investment management licence in Hong Kong in May. It moved a director of investment consulting, Tao Jin, to the city earlier this year with a view to building up its investment management capabilities.
It offers largely asset allocation and fund-of-fund (FoF) advisory services, whereby it helps with allocation decisions, due diligence on managers and running FoF portfolios. The new licence means it can provide proprietary asset allocation, manager selection and portfolio construction services locally.
“The challenge now is building relationships, finding distribution [for these services],” says Mansueto. “We’re fairly well known in Asia and have a good presence, but now we need to move forward.”
However, FoF offerings charge a layer on fees on top of those for the underlying managers. Asked how Morningstar will deal with the issue that Asian investors tend to be particularly sensitive to costs, Mansueto said: “We’re keenly aware of fee sensitivity – we need to make sure we have an offering to end investors that’s competitive and performs well.”