New Star International, a boutique fund manager based in the United Kingdom, has just received authorization from Hong Kong's Securities and Futures Commission to promote an umbrella fund of equity and fixed-income products here. New Star is now in the process of sorting out distribution via private banks and independent financial advisors.
In particular it wants to establish an exclusive relationship with one of the major commercial banks in Hong Kong to jointly promote the new offering. Philip Goldsmith, Dublin-based managing director of the firm, says New Star is now in talks with several potential partners. It is also on the watch list of several private banks, which require the newly authorized funds to achieve a track record or reach a certain size.
New Star is a new firm but with old antecedents. It was founded by John Duffield in July 2001 based on the acquisition of Bank of America's London asset management arm, World Invest. Duffield was the founder of Jupiter Asset Management and its former chairman, and remains a high-profile figure in Britain's funds industry. To complement the acquisition's roster of US corporate clients, New Star bought part of Aberdeen Asset Management's UK retail business earlier this year. It currently manages $6 billion managed by 35 investment professionals, all nabbed from top fund management names in the UK.
Its investment philosophy is to allow its fund managers complete latitude within their mandate (subject of course to compliance control). "We are stock pickers," Goldsmith says. "There's no investment committee, no stock list."
Upon establishment the firm has quickly sought out markets with regulatory and market structures similar to the UK to expand into, and set up a marketing office in Hong Kong in late 2001, headed by Diccon Martin, regional director. The same umbrella structure that it's registered in Hong Kong is also being promoted in Malta, for example, and New Star plans to look at South Africa next.
Although Goldsmith says the firm expects modest interest initially in its new fund offering in Hong Kong, he sees the territory as a potentially lucrative market, despite the keen competition. "By global retail market standards, Hong Kong is sophisticated," he says. "Retail will invest in the US, in Japan, which is in contrast to the UK. Flows to guaranteed funds is slowing and falling interest rates are making it more for fund managers to structure those products. Inflows to bonds are rising, however - just this past quarter saw $1.2 billion go into bond funds. And Hong Kong investors will start to look at equities again."
He says the company wants to raise $100-200 million over the next two years from Hong Kong.
The New Star umbrella includes one bond fund and six equity funds, and the firm hopes the bond piece will catch investors' attention. Then they can switch into equities later at no charge. The Strategic Government Bond Fund, managed by Theo Zemek and Simon Ward in London, seeks to achieve 4-5% yield net fees by investing in both G7 and emerging market dollar-denominated treasuries.
The equity funds cover strategies in European growth, Japan recovery, the UK, Asian opportunities, emerging markets and the United States. As a boutique, the firm is more agile when it comes to investing in mid-cap stocks, where it derives most of its alpha. "Most of the funds authorized in Hong Kong are from the mega-players, but there are few boutique managers that can do what we do," Goldsmith says.