Third parties the way to increase Lion’s share

Full of the experience gained at Fullerton Fund Management, Gerard Lee joined Singapore-based competitor Lion Global Investors as chief executive at the end of 2010 with the clear objective of boosting the firm’s overseas third-party asset management business.

A wholly-owned subsidiary of OCBC Bank – the Overseas-Chinese Banking Corporation – Lion Global Investors manages 75 per cent of the S$29bn ($23.5bn) total assets on behalf of the group’s insurer, Singapore-based Great Eastern Life. Third-party assets account for the rest, but they are mainly sourced domestically.

“Based on our current capability and fund range, we are not selling our products widely enough,” says Mr Lee. The firm should be able to break into Japan, Korea, China, Australia and, going west, Europe and North America, he believes.

EARLY DAYS

But setting up offices in various parts of the world would be too costly for now and the fly in, fly-out model is not very effective. People do not buy funds only based on performance, he states, acknowledging the importance of service, brand and information delivery.

“We are very early in the game and we will have to work with on the ground third-party fund introducers to start with, and we will have to ensure that the products they already represent will not conflict with ours,” states Mr Lee.

This is not an ideal solution, he says, but the only one available in the short to medium-term and also the one he used at Fullerton successfully.

Third-party introducers or agents are typically boutique companies, often made up of only a handful of professionals who boast good connections in the industry, having mainly worked in investment banks or asset management companies. Their services are gradually getting known to Asian-headquartered fund management companies who aim to promote their products in the US or Europe.

Third-party agents are paid “a retainer” or a flat fee and then in case of a successful deal, they are given a trailer, or a percentage of the management fee earned from the agreement with distributors.

“You give away some fees, but then you immediately get your first half a dozen to a dozen clients. If the business begins to build up scale, then I will start to set up sale offices,” he says.

Third-party agents may be also come in handy for entry into Japan, where the culture is very different and language is a barrier, but they will not be used for South-East Asia, Taiwan, Hong Kong or China, he explains. One of the first things Mr Lee did was to set up marketing teams, at the moment all based in Singapore, who focus on various regions in the world for strategic growth.

“China is one of my priorities, as you can’t be a truly Asian asset management company without a China strategy,” he says, hinting at the possibility of a future joint venture there.

Mr Lee hopes to make inroads with high level distributors and gatekeepers such as multi-management companies, private banks or family offices and even fund platforms, where the money is traditionally less sticky. Building a track record as Asian specialists, both in the equity and fixed income space, will eventually allow the firm to target large institutional investors too.

Lion Global Investors has already registered five equity and fixed-income funds in Luxembourg, with the plan to launch Ucits compliant structures globally. These funds are also pending approval in Singapore.

ASIAN ATTRIBUTES

Being part of a large banking group and having been in the business for almost three decades, the firm has an advantage over an asset management boutique, he says. “The most important things we sell are the four Ps: performance, process, people and products.”

But what will appeal to Western distributors are the “truly Asian attributes”, claims Mr Lee. Unlike many global asset management firms operating in Asia, shareholders, asset managers and professionals at the firm are all Asian and this is a strong selling point.

In his expansion strategy, Mr Lee takes inspiration from the many examples of success of “made in Asia” products.

“Who would have imagined in the 1960s that Toyota, Honda and Nissan would be the best selling cars in the US today?” Korean Hyundai also has made big inroads in the US automotive market. Samsung mobile phones, unknown until the 2000 Olympic Games in Sidney, are now the top selling handsets in the world; Singapore airlines, which started operations only in 1972, are now rated very highly on a global scale.

“The fact that the market is already very competitive and crowded must not stop you from trying, as there will always be somebody who is willing to try out a new product,” he adds. Performance, service and innovation are the key ingredients, but innovation does not mean re-packaging products using derivatives and flogging them to the market.

“Innovation is not just about coming up with new and fanciful financial products. We have to think of creative solutions to solve people’s problems,” says Mr Lee.

For example, “everybody today is crazy about the renminbi-denominated bond funds,” in view of the expected appreciation of the Chinese currency, he says. The question is not if, but when and at what rate appreciation will take place.

However, most of the renminbi products can only buy offshore bonds and most of the funds end up sitting up in deposits. A product that invests in Asian currencies, which are going to appreciate along with the renminbi, would be a better solution. Such a fund is already in the pipeline at Lion, reveals Mr Lee.

Despite his long-term vision, Mr Lee is aware the future is not going to be an easy ride. Competition is increasing on all fronts.

“The biggest competition for a company like Lion continues to be from the European and American companies,” he explains. “They are coming in with a lot of resources and are very prepared to spend their money. We have to run fast, because competition is getting more intense.”

On the other hand, Japanese firms, such as Mizuho or Sumitomo, are most likely going to follow in the footsteps of Nikko Asset Management, who acquired DBS AM in Singapore to grow its Asian ex Japan franchise, having tried to grow it organically with no success for the past 20 years, says Mr Lee.

The Chinese and Indian firms are also on the attack. The top firms with good balance sheets, after experimenting with organic growth, will probably want to make some acquisitions, if they cannot made inroads, he predicts.

“This means that the truly indigenous Asian asset management companies that have been around for long time will be under a lot of pressure.”

Expanding reach

• Lion Global Investors is a wholly owned subsidiary of the Overseas-Chinese Banking Corporation.

• Firm targets high-level distributors to break into new markets across Asia and in the West.

• Lion sees its biggest competitors being European and American companies looking to expand into Asia.

Cultural differences

Cultural barriers may prove an obstacle to European and American fund management firms hoping to set up their operations in Asia. On the contrary, adapting to the Western culture will not prove as difficult for Asian firms, as most of the managers have been educated in schools teaching UK or US values and culture, believes Mr Lee.

There are some sensitive points that Western fund managers coming to Asia have not got yet. For example, in the West people invest for their retirement and when investing in funds they know which ones to buy at which age, following a lifecycle type of investment. But Asia is different.

In Singapore, for instance, people are very prepared to trade funds as well as stocks. US professionals believe this is absurd and often embark in a crusade aimed at educating their clients. But they do not understand that their clients do not need the money for their retirement, because that is already well taken care of by the government. “Asian asset management companies just live with and accept Asians’ trading mentality,” he says.

Similarly, London or New York headquartered fund management companies look for scale. They believe that launching a fund that is never going to reach the $1bn mark is just a waste of time. “But here in Asia, we will be very happy to launch a $100 to $200m fund. If the lifetime size of that fund is so small, so be it,” says Mr Lee.

“The fund management business was invented in the West, we take Western concepts as a given, but because we grew up in Asia, we also know the idiosyncrasies of this region.”

Gerard Lee, Lion Global Investors