Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
Last year the firm enjoyed strong asset growth thanks in equal part to kind markets and net inflows, with assets under management sourced from the Asia-Pacific hitting $82 billion, up from $43 billion a year ago, according to AsianInvestor research.
Japan and Taiwan were notable contributors, with the firm selling India infrastructure and equity funds to the Japanese, and an infrastructure fund to Taiwan. Its Dragon/Peacock fund, which covers China and India equities and enjoyed an annualised return of 72% last year, is now the largest equity mutual fund in Singapore.
Strapp says Asian growth stories, which drove business in 2007, will continue to be leading themes in 2008, but he doubts these asset classes will repeat last yearÆs spectacular performance. Valuations in these equity markets are stretched, not to mention the spectre of slowing global economies and inflationary threats, he says.
The firmÆs strategy nonetheless is to identify four to six big-picture, sustainable investment stories. It has added to its teams in several areas to prepare for opportunities it sees this year. It will continue to introduce products related to infrastructure, emerging Asia and the China/India theme, as well as newer areas such as global emerging markets, absolute return funds and, for institutional investors, credit products.
The first area of focus has been research, specifically bringing in sector specialists, which Prudential never used before. In mid-2007 it hired Morgan StanleyÆs Hugh Maxwell-Davis to cover banks and financial institutions in Singapore. Pru will soon announce the hiring of a tech analyst, and continues to seek a specialist in resources. ôAdd up those three sectors and you have 35% of market capitalisation in Asia-Pacific,ö Strapp notes.
These follow the hiring in Singapore of two Asian equity portfolio managers, reported by AsianInvestor in December: Margaret Weir (ex-Aegon) and Andrew Cormie (ex-JPMorgan).
The latest hire is Fedra DellÆAquila, a specialist in Latin America and Eastern Europe/North Africa stocks, who will help the Singapore team launch a global emerging-markets fund this year.
Strapp acknowledges fund houses can be prone to over-hiring when times are good, but says the firm is not adding headcount on the assumption of another year of 50-100% asset price rises. Rather, he asserts the Asia story remains appealing, noting demand in Europe and North America continues to be strong.
Although Prudential Asset ManagementÆs original function was to manage assets for its parent company, UK-based Prudential Assurance, today more growth comes from the retail segment.
It has now begun selling to private banks, an initiative under Singapore-based Suraj Mishra, as well as going after third-party institutional business a bit more aggressively now. To further this ambition, Pru continues to seek talent for its credit and derivatives teams. Strapp says the credit crunch has put a lot of experienced peoplesÆ CVs in circulation.
ôPrivate banks are a wholesale opportunity that requires the same kind of expertise and credentials as you need to sell to institutions like sovereign wealth funds,ö Strapp says. ôYou have to pass performance tests, demonstrate the teamÆs stability and show your investment process.ö He says private banks have become a major third distribution channel in the past few years as Asian markets have matured and monetary authorities shown to be prudent.
The analysts and portfolio managers report to Ashish Goyal, Hong Kong-based CIO for Asian equity, part of StrappÆs team. Strapp, Mishra and COO Ted Pull are the triumvirate at Prudential Asset Management in Asia who report to Barry Stowe, chief executive of Prudential Corporation in Asia.
Regulators keep their eyes open on tightening insurance industry by introducing more detailed risk management requirements, which could bring pressure on smaller players.
China and India are more obvious choices for AustralianSuper to consider in Asia Pacific, but the super fund currently lacks the expertise and prefers to stick to the US and Europe.
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