A range of new opportunities has arisen in Asia for asset managers seeking to diversify their offerings and expand upon their global footprint. However, while the region promises a number of new investment opportunities and boasts strong economic fundamentals, it is not without its fair share of challenges. “You have to understand that Asia is the fastest growing region relative to others in the world, whether you’re talking about the US, Europe or even Japan,” says Lennie Lim, Managing Director and Regional Head of Legg Mason’s Asia distribution business.
“There is a tremendous amount of wealth being created here, given the strong economies of Asian countries, given the customarily high savings rates of inhabitants, and – not least – given the sheer size of the population.” The continent’s strong fundamentals, coupled with an increasingly influential investment climate, means that enterprising investment managers are now beginning to see Asia as a region rich with fresh opportunities and the potential to carry on giving far into the future.
“These factors have given rise to one of the largest number of high net worth individuals worldwide [see Fig. 1]. So if you look at it from a Legg Mason perspective, this gives us considerably good growth opportunities to expand our business. On top of that, it provides Legg Mason with diversity, in terms of a revenue base as well as a different client base,” says Lim.
Developments in Asia have seen global asset managers like Legg Mason gain a solid footing in the market, and adapt their products and services in what ways they can to better accommodate for clients. “From an investment managers point of view, Asia’s economy and the increased weight it has on the world stage will have an extreme effect on global benchmarks. What’s more, the weightage looks like it’s only going to increase, and therefore, the relevance – in terms of managing Asian assets – increases its importance over time,” says Lim. “One piece of advice that my father used to give to me as a child was: ‘whoever pays the piper calls the tune’. And to my earlier point about the tremendous amount of wealth being created in Asia, I think that it is important for asset managers to be very client focused and to understand the needs of Asian investors.”
Developments in Asia have seen global asset managers like Legg Mason gain a solid footing in the market
Large-scale personalisation
Originally founded in Baltimore, Maryland in 1899, Legg Mason has expanded upon its humble beginnings from over 100 years ago and has since become one of the largest asset management firms worldwide. Now serving individual and institutional clients across six continents, as of April 2014 the firm controlled $673bn in assets, and cemented its place in the top 20 asset managers in the world, measured by assets under management.
“Legg Mason is a global asset management company, and I think the diversity we have seen in Asia shows that we not only need to be global, but that we also need to be local,” says Lim. “When I say local, I mean that we need to have that local touch in many Asian countries.” After years of steady growth, Legg Mason’s Asian operations are well positioned to expand upon the firm’s already impressive asset base by offering a diversified range of cross border and locally domiciled mutual funds.
Although the mix of markets in Asia means there is a great deal of diversity on offer for asset managers, it’s crucial that firms take pains to better understand the individual quirks of clients in often very different countries. “It is very, very important for us to really understand our clients’ needs in each of the countries we operate, and to be able to provide that local touch,” says Lim. “What I mean by this is really developing a very customised way of reaching out to them, be it through media, micro sites, updates or training, and by providing market materials personalised to them.”
Central to Legg Mason’s commitment to client centricity is a unique business model that puts clients front and centre in all it does. Instead of being one single, uniform entity, the firm is made up of a network of wholly owned investment managers. “I think Legg Mason is very unique in our multi affiliate model, in that we have really first in class managers who operate very independently,” says Lim. “We like this because we have very good investment teams and have demonstrated an ability to deliver superior performance in the different asset management classes as a result. Where I come in is really to provide the mutual fund distribution across the different affiliates we have. This means there is a single point of contact between the client and their chosen asset manager.”
The model also aids in differentiating Legg Mason’s products and services from others on offer in the region, and shows good faith in the firms it has acquired. By permitting each of its affiliate firms to act with complete investment autonomy and with an unaltered culture, Legg Mason can revert to whatever affiliate it believes is most suited to the task at hand. “I like to develop what I call a true partnership with my mutual fund distributors, and to me a true partnership means being a strategic partner, as well as being a partner of choice for them, and for me, a partner of focus. As a whole we want to understand clearly the depth of our partner’s product range and the solutions that they’re trying to offer to clients. Our close partnership with distributors allows us to fill gaps within their investment offering with products in which we have demonstrated superior investment performance.”
Issues in Asia
Although Asia presents a number of opportunities for asset managers, there are still a number of hurdles for firms to overcome first before they’re in a position to reap the rewards. For one, the Federal Reserve’s taper talk last year and the consequences it brought for emerging markets has cemented a real sense of anxiety, and many have come to fear the repercussions of a high interest environment should it come to pass.
What’s more, opportunities to create collective investment schemes from country-to-country across Asia are still relatively limited. Nonetheless, the pass-porting of funds marks a significant development for Asian markets, although the process is still some way from its full potential. “I think the most recent, significant change has been the pass-porting of funds between countries, which began most notably with a mutual recognition between China and Hong Kong,” says Lim. “After this initial partnership began there have been further instances of pass-porting funds between other Asian countries, and now there is the distinct possibility that other countries such as Japan could join into such passport arrangements.”
Provided policymakers can patch together a workable system, funds will be able to flow more freely between Asian countries, and the barriers for some asset management firms such as Legg Mason will begin to lift. With a bigger pool of assets to choose from and an improved upon total expense ratio, the benefits of an Asean scheme for fund managers are clear. Succeeding in Asian markets amounts to much more than playing the waiting game, however, and asks that firms adapt to ways they can to meet the ever-changing demands of the continent. Not content with a unique business model and a distinct focus on local concerns, Legg Mason has taken strides to make headway in whatever markets the company can.
“Since the acquisition of Citigroup Asset Management at the end of 2005, we have been very successful in growing our business in Singapore, Hong Kong and Taiwan,” says Lim, speaking on the firm’s most impressive gains in Asia. “We have been able to really broaden our existing business in Hong Kong and Taiwan. Specifically in Taiwan, we are looking at a new overseas business unit policy that the Taiwanese regulators have set up, which will create opportunities in the private banking space. We are also increasing our focus on the private banking hubs in Singapore and Hong Kong, which is the traditional base for private banking business in Asia.”
Clearly Asia is an influential player in the international development of investment trends, though what’s just as clear is that asset management firms must constantly adjust their strategy if they are to keep up with the rapid pace of change. “The mix of markets in Asia means they are a lot more dynamic,” says Lim, and for firms to succeed in much the same way Legg Mason has done, they must mirror the asset manager’s local focus and flexibility.
