Just seven years ago, Mark te Riele, then Dutch distribution boss at Fortis Investments, used to sit with a map of Holland in front of him, studiously dividing resources and time of his seven staff between product marketing campaigns in Amsterdam, Rotterdam and The Hague.
Today, in his operations room, high above the harbour in his adopted Hong Kong home, the map is of Asia, where he oversees 45 staff in 11 countries distributing products managed by BNP Paribas Investment Partners. His Asian clients currently hold investments worth €57bn ($75bn), making BNP Paribas the seventh largest foreign asset manager in the region.
Although the task is a much bigger one, the challenges are essentially the same: choosing markets which will benefit most from the group’s limited regional resources and drawing up a business plan to maximise product distribution.
Just as he prioritised the key Dutch commercial and port cities, Mr te Riele is helping to shape the BNP Paribas distribution focus in his preferred destinations of Korea, China, Indonesia and India.
“There are not a lot of foreign asset managers present in Indonesia as entry barriers are quite high,” he says. Indonesia, where Mr te Riele has been based in the past, before assuming the pan-Asian distribution role, is a market so far dominated by Citigroup, HSBC, Standard Chartered and Commonwealth Bank, although local institutions such as Bank Mandiri are gradually gaining market share and offer the biggest potential growth.
“Indonesia is still a very closed market, so there is not much room for people to invest overseas. We are talking about Indonesian equity and fixed income,” he says. “There is room for diversification, even domestically and we are working closely with the regulator to help bring this about.”
BNP Paribas has already introduced protected products and dollar denominated funds for its Indonesian client base and is looking for ways in which it can further expand the product range within a tight regulatory structure.
Also, limits for investing in overseas equities in India, another key distribution market for BNP Paribas, are far from being totally utilised, says Mr te Riele. “Indian investors have not yet shown appetite to invest overseas,” he adds. “When they can get 7 to 9 per cent on fixed income domestic products, why would a customer want to go elsewhere?”
DIVERSIFICATION
Persuading clients to broaden their emerging market exposure is one of the first steps to diversifying the product portfolios on which Mr te Riele’s business case relies. “People in Hong Kong first look as the Hong Kong market, then greater China and then Asia,” he says. “Traditionally, there has not been enough attention paid by Asian investors to European equities, but it might still be too early for them to hear that message.
“We have teams in all Bric countries, but we can go beyond that into Indonesia, Turkey and the Middle East. You need understanding of local culture and habits in order to outperform indices,” he says. “The base of our strategy is always to have local teams on the ground.”
His key job is to combine post-merger product sets of three groups who all had a strong imprint in Asia – Fortis, ABN Amro and BNP Paribas – under the sole brand of the French bank.
“My team is still a bit under-estimated by distributors,” he admits. “They typically had a relationship with one of our predecessors, but they are not yet aware of our combined offering. That’s what we want to increase awareness of across Asia.”
In order to do achieve this, the range of the regional offering must be boosted, believes Mr te Riele, particularly in the area of emerging markets. The group’s two flagship products for Asia are both emerging market bond funds, which have maintained investor interest despite uncertain economic conditions.
Thankfully, the Asian banks, many of whom do not typically have their own proprietary asset management offering, are typically much more receptive to external products than the far more inward looking European giants Mr Te Riele used to encounter on the Benelux beat.
“Asian businesses in general are a lot more open than their European counterparts. And in the financial world, there are not so many proprietary asset management operations owned by banks,” he adds, meaning there is less likelihood of the Chinese banks having a financial interest in pumping a particular set of products through their own branch networks.
While the starting point of most foreign fund houses is to work with the largest cross-border distribution houses – HSBC and Citi – on a regional level, the secondary focus on private banks, predominantly in the hubs of Hong Kong and Singapore and local banks in all the markets, including Taiwan and Indonesia, is potentially the more important one for the longer term.
“It is automatically the case that a local bank, particularly in emerging markets, is better suited and equipped to serve the local market,” he says. “It is harder to penetrate the market and start business in more emerging parts of Asia, so there will be a place for global banks in terms of acquisitions. For us, it is about the willingness to become a local player by adopting local standards and hiring local people to run the business.”
The emergence of regional champions such as DBS and Standard Chartered out of Singapore is part of a trend which can also be seen among Japanese and Chinese banks, eager to become pan-Asian distributors, believes Mr te Riele.
“But the challenge is the same, for Asian banks expanding in Asia and for global banks expanding in Asia, it is to understand and service local markets.”
BNP Paribas Investment Partners Asian clients hold investments worth $75bn
BNP Paribas is the seventh largest foreign asset manager in Asia
POST-CRISIS INVESTING
Fighting against a short-term time horizon is another problem for fund houses in Asia. “We are always trying to persuade people to invest for the longer-term,” says Mr te Riele. “In Asia, mutual funds are in the client’s most risky bucket, whereas in the US there is a much broader acceptance of mutual funds within the core of a client’s portfolio.”
For fund houses active in Asia, the crisis was relatively short-lived, with the main consequence being a shift in investor sentiment away from equities to emerging markets bonds and a halving of volumes of structured product sales following counterparty problems triggered by the Lehman collapse.
“For a while, the structured product problems coloured clients’ views on investment products in general and mutual funds suffered too. But Hong Kong investors now realise it is a different product category,” says Mr Te Riele.
Regulators too, across Asia, have become particularly concerned since 2008 about the financial products being sold to their citizens, he says, with some comfort offered by those funds already having the Ucits III approval from European counterparts. However the retail investor on the street does not understand or care about this, says Mr te Riele. “The Ucits concept is too far away from their day-to-day lives.”
The same is more or less true for distributors, he believes, with the key criteria being that the fund is fully approved for sale in the key jurisdictions they do business in. Ucits does not mean much to them. What matters is where the fund is registered, which can impact their business.
He hopes this will change over time. “It would be great for us and our distributors if there was a globally accepted stamp of quality for all mutual funds,” says Mr te Riele.
