Starting a pure retail mutual fund business in Southeast Asia requires a highly localized approach. Each country has a unique distribution landscape and penetrating their markets demands comprehensive on-the-ground knowledge.
This is one of Cerulli Associates' findings in the latest iteration of its annual publication, Asset Management In Southeast Asia 2015. The countries in Cerulli's coverage were Malaysia, Thailand, Indonesia, the Philippines, and Vietnam.
"Barriers to entry for foreign managers have historically been high, not only from cost and revenue standpoints, but also because of restrictions on overseas investment and foreign ownership to varying degrees across each country," says Evonne Gan, an analyst with Cerulli, who led the report.
But she notes that changes are afoot, from allowing feeder Unit Investment Trust Funds (UITFs) in the Philippines to loosening foreign ownership restrictions in Malaysia. "Most importantly, there have been positive developments on the distribution front. These events have revived the interest of foreign managers in the region," Gan adds.
For instance, foreign managers with a local presence can look to foreign banks for distribution in Indonesia. To cover all wealth tiers, new entrants use both local and foreign banks in the country.
Ashmore Asset Management started distributing its products through Bank Permata and subsequently added several foreign banks to its distributor list. Meanwhile, Eastspring Investments first entered the Indonesian market in May 2012 and appointed Standard Chartered Bank as its first fund distributor. More recently, it has tied up with HSBC Bank and Bank Permata.
"However, selling through banks is not easy in Indonesia. Local banks, in particular will much rather push sales of other products which offer them higher fee income," notes Yoon Ng, Cerulli's Singapore-based head of Asia research. Still, the fact that three out of the top five managers in Indonesia are non-local means there is huge potential for growth.
Another strategy for asset managers is to adopt a feeder fund approach or work with an insurer to wrap their funds in the latter's investment-linked products. Large managers like BlackRock, State Street Global Advisors (SSgA), and J.P. Morgan Asset Management have seen success in Thailand and Malaysia with feeder funds.
"With the likes of BlackRock and SSgA gathering more assets than some of the onshore managers, it has given conviction to foreign managers without a local presence to start looking closer at the region. Demand for foreign investments is increasing and will continue to grow," added Ng.
