Private banks seen as hindering Asia multi-asset funds

Asia needs to change its pension structures to facilitate change, says the chief executive of Principal Global Investors. It comes amid a growing belief that private banks are preventing the uptake of multi-asset funds.
Private banks seen as hindering Asia multi-asset funds

The role of private banks is making it difficult to achieve a faster penetration of multi-asset funds in Asia, says the CEO of Principal Global Investors (PGI).

Amid a slow regional uptake, the chief executive believes multi-asset products will only become essential in Asia with a move towards a defined-contribution type of pension structure.

And looking at the regional investment landscape, he claims that mutual funds are more popular because of the tendency of Asian investors to look for short-term investments.

Jim McCaughan, chief executive of US-based PGI, told AsianInvestor that private banking was a key roadblock in the development of multi-asset funds.

“I think why these multi-asset funds [target date, risk fund or diversified income fund] have been slower in Asia is because of the private banking here. Private banking regards creating asset allocation as their added value,” noted McCaughan.

McCaughan said Asian investors preferred mutual funds because of the tendency to invest short term.

“Multi-growth and multi-asset products are designed for more long-term savings while mutual funds have a high churn element in Asia. And that continues to be a headwind,” he added.

For multi-asset products to become essential in Asia, McCaughan said the region must move towards a defined-contribution type of pension structure. PGI is a big player in the US retirement and multi-asset product markets. The group is an mandatory provident fund provider in Hong Kong and last year it acquired Axa Group's MPF business.

“In the US the market is really all about pension and a lot of money is tax deferred through pension or annuity. You don’t have those pension structures in Asia and you have a modest mandatory plan and fund set-up in Hong Kong.

“What you will see is that some of the US mutual funds have been multi-asset funds, and that has only begun in Asia,” noted McCaughan.

Investment research firm Cerulli Associates’ research showed that multi-asset funds have in fact been generating good demand from Asian investors, at least in Singapore and Hong Kong.

“Such funds continue to draw investor interest. Previously it was widely believed that such funds appealed to investors for their ability to ride out market gyrations during periods of uncertainty,” Cerulli said in a product trend report.

“But now, it seems that instead of the relative comfort levels that the funds’ asset allocation strategies bring, it is the stable monthly income feature that has investors hooked.”

It estimated that the AUM of mixed asset funds in Hong Kong was $22.4 billion as of the end of October 2014, nearly three times more than the figure of $7.7 billion in 2012. In Singapore, mixed-asset funds took up 20.7% of the total locally-domiciled assets at $39.1 billion in September 2014, up from a 14.3% share in 2012.

Cerulli said managers doubted investors understood multi-asset products, adding that the income feature of these funds was and will be the main draw for investors.

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