International fund houses did not have a great 2015 in Asia Pacific, but there were some bright spots. US firm Principal Global Investors’ regionally sourced assets increased 22.34% to $35.4 billion in the year to end-September, driven largely by flows in Japan and into income products.
This made it the third fastest growing global fund house in the region by AsianInvestor’s AI100 data* and continues its strong, steady progress in Asia, following AUM rises of 37% and 35% in the previous two September-to-September periods.
Income-related strategies have seen strong demand over the last few years and particularly in 2015, said Kirk West, PGI’s chief executive for Asia based in Singapore.
The biggest inflows from Asia-Pacific clients went into four asset classes: preferred securities, investment-grade bonds, high-yield bonds and real estate investment trusts (Reits).
PGI saw the biggest Asia-Pacific flows into funds invested in preferred securities listed in the US and Europe, with AUM rising to $1.9 billion as at September 30 from $1.6 billion year-on-year. These strategies have posted 6% average annual return for the last 10 years.
The firm plans to continue the income focus by launching three or four new share classes in Asia, across multi-asset, diversified growth and diversified income strategies. At the moment, it offers Australian dollar-hedged, Singapore dollar-hedged and yen-hedged funds.
Meanwhile, Japan was the fastest growing geographical market for PGI in the year to September, with AUM there rising 38.84% to $19.3 billion on demand for US high-yield bonds, preferred securities and US real estate, said West. Australia/New Zealand AUM rose slightly from $6.8 billion to $6.98 billion due to flows into US real estate, Reits and global equities.
AUM sourced from Asia ex-Japan grew about 10% to $9.1 billion. The most popular products for PGI’s clients in North Asia were global equities in China, Hong Kong equities in Hong Kong, global property securities (mostly Reits) in Taiwan and preferred securities, global equities and US real estate in South Korea.
In Southeast Asia, institutions are showing appetite for Reits, equities and US investment-grade credits, said Celestine Khoo, PGI’s head of Southeast Asia.
EM equities may be heavily out of favour, but they have underperformed developed-market stocks over the past five years, and Asian equity valuations are now very attractive, West said. Institutions are starting to show interest again in reviewing their EM exposure, he noted, pointing to “a couple of large searches for Asian-type strategies” he saw in the market last month.
Meanwhile, although 90% of PGI’s asset base in Asia Pacific is institutional, the firm is pushing to expand its third-party fund distribution and high-net-worth client base. In December Monica Tang joined as director to help expand funds distribution in Southeast Asia with a focus on private banking.
Retail and private bank distribution is more sensitive to brand recognition than institutional business, West said, hence the need to boost spending on marketing in the region. PGI has been allocating more resources to fund distribution in recent years.