Strategic thinking binding East and West together

With Asian markets taking up an increasing amount of management time for most global fund houses, investment management consultant Daniel Enskat has been asked by his firm, Strategic Insight, to set up a Shanghai-based arm for what has been traditionally a US and Euro-centric consultancy.

He has seen the likes of Allianz, Templeton, Schroders and Fidelity grabbing serious ground in Asia, positioning themselves to compete for the next five years not just with other foreign houses, but with local and regional players keen to succeed at home.

He points to Japan’s Nikko Asset Management’s plan to establish itself as a Pan-Asian regional player following some high-profile hires. “Nikko has the ambition to be the next Jardine Fleming,” says Mr Enskat. “They really see Japan as the next powerhouse.” Nikko has also just handed in a takeover bid for DBS Asset Management in Singapore.

Among several examples of strong product innovation from Japanese firms, Nikko’s regional rival Nomura raised $1.5bn in just 3 weeks for its Smartgrid & Cloud Computing fund, sub-advised by Allianz subsidiary RCM, which is typical of partnerships entered by Tokyo’s pioneering asset management groups. “The Japanese need to get out of Japan,” says Mr Enskat. “They want to talk about Asia as a whole going forward, no longer just Asia-ex Japan.”

Another one of the early, pioneering trends Mr Enskat is uncovering is the use of Asian markets as a testing ground for European groups. DWS is among those houses letting loose a prototype product, seeing how it goes down in the East and then launch a lookalike for Teutonic consumption. The Germans recently tried this with a Taiwanese climate change fund predating the European launch.

“European fund managers are increasingly putting their heads of product development in Asia, and if it works, they are re-importing what they find to Europe,” reveals Mr Enskat.

But while the Europeans push out to the East, they are witnessing a parallel “West to East” distribution attack on home territory. Not only are fund houses such Mirae of Korea – which has launched six emerging market funds in the US –and India’s ICICI building up aggressive distribution campaigns, but wealth managers such as Bank of China are causing ructions in Geneva’s staid private banking community through aggressive recruitment drives.

“This is a once-in-a-lifetime opportunity for Asian managers to take market share from European firms,” he says. “They want to figure out: will institutions in Europe or the US choose a Chinese fund manager over Fidelity for their Asian investments?”

The overarching trend, which Mr Enskat sees across Asian and European markets, is that of private banks engaging with a smaller number of asset managers who are being asked to share their asset allocation views. But the branch reality is still one of latest themes and products being pushed to customers.

“A lot of US firms just could not crack Asia,” says Mr Enskat. “The banks tell them: ‘You are flavour of the month.’ But the US firms believe they are long-term retirement planners. It goes against their ethos when the Asian groups tell them that they are only selling their funds for one month, while they are hot. The Americans really don’t know how to deal with that.”

This is part of the risk-taking culture in Asian markets, believes Mr Enskkat. “Look at the Forbidden City in Beijing,” he says. “Every 100 years it burned down, but every 100 years they rebuilt it even better. This is similar to the concept for Asian entrepreneurs, where every five years, if you lose money, you can make it back over the next five years.”

A typical Chinese family office might hold half its assets in cash and the rest in a handful of high-risks stocks, he says. “They say: why should I adopt a US-style asset allocation model, when in a time of crisis, all assets go down?”

Daniel Enskat, Strategic Insight