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.
The decision to combine the Japan and non-Japan businesses has been in the works for about two years. ôWeÆre a mid-sized company,ö Pflaum says, ôand not so big that our Japan business is fundamentally different. Our team has experience delivering our products and services to different cultures and through different channels.ö
Pflaum had delayed a move from his perch in Singapore to Tokyo for a while because of family reasons but had been planning to make the shift later this year. Matters accelerated however because of two internal transfers. Alan Schoenheimer, who had been RussellÆs Asia-Pacific CEO, was promoted to head the firmÆs international businesses from London. And Rob Bundy, the previous president and CEO at Russell Japan, has moved to the United States to run the firmÆs global index business.
Therefore, effective 1 January 2009, Pflaum is based in Tokyo and his family will follow later this year.
Anticipating the move, Pflaum has spent the past year getting his Singapore-based team up to speed to operate without his day-to-day supervision. That office remains the base for the firmÆs country managers, including Lim Meng-Tat for Southeast Asia, Kim Yuseok for Korea and Gene Chen and Crystal Chen for China.
Pflaum still spends about a week each month in Singapore, and travels to clients in Korea and China directly from Tokyo. He is experienced in running a regional business from Japan, having lived there from 1984-91 as a risk manager for National Bank of Chicago.
Not only is Pflaum stepping up to oversee Asia-Pacific, but he is acquiring the firmÆs biggest book of business in the region by taking over Japanese operations. Russell has a large business as an investment consultant, both as a pure advisor as well as a fund manager.
Pflaum sees the biggest growth in other lines of business, however. First, as a multimanager provider, not just in terms of manager selection, but in running all aspects of a clientÆs portfolio.
Perhaps the biggest opportunity is in what the firm calls implementation services, which includes areas such as transition management, portfolio execution services, FX management and commission-recapture programmes. Providing best execution in these areas can save an institutional client up to 100 basis points in returns, after fees. This is a small business in Japan and in the region today, but Pflaum says it should grow the quickest: ôIn a year like 2008 or 2009, institutions will be paying close attention to every basis point.ö
Fourthly, Russell intends to market its global indices to Asian clients. It has a large index business in the United States, but internationally it acknowledges it faces stiff competition. The firm is confident its product is competitive against the likes of MSCI Barra.
The nadir for Russell last year was the shutting of two of its funds of hedge funds, which in Japan had been marketed via an agreement with Nissay Asset Management, among other channels. These were sold globally but Japan was reportedly a major source of investment. At the time, the funds were underperforming their benchmarks, which had led to a shakeup at RussellÆs headquarters in Tacoma, Washington, including the replacement of its alternatives investment head and then-president and CEO Craig Ueland left the firm.
The closures shocked many investors in Japan. ôWe took a lot of heat for that,ö Pflaum acknowledges.
But he says the fund closures were not due to poor performance (although he says performance was ônot stellarö), but because the firm identified a widening mis-match between its desire for monthly liquidity, and underlying hedge fundsÆ growing apprehension at offering any liquidity. Pflaum argues that Russell was actually ahead of the market because it anticipated that many hedge funds would throw up barriers to redemptions. ôWe lost revenue and put our reputation at risk, but now the move looks smart because so many hedge funds did put up gates around their assets,ö he says.
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