Mutual Funds Growth Opportunities in Asia

Ajay Srinivasan

What I would really like to do in this last session before lunch is to set out what we see as the drivers for the growth of funds in Asia, and how we see ourselves positioned against some of these. We believe there are several good reasons for the growth of Mutual funds in Asia.

This slide just lists seven of them. First is the large population, second; the growing wealth as a result of growing economies, third the high propensity to save in Asia, fourth; the very low penetration of mutual funds, fifth; the continued trend towards professional wealth management, sixth; regularity reform and I’ll talk to you about some of those and seventh; the economics of the market. Let me run through each of these drivers and show you what they mean. You’ve seen this data before, maybe no this exact chart but Asia has a lot of people, three billion people, half the world’s population and growing, and therefore I think, a lot of potential customers for a retail financial services company like ours.

This chart is one Kelvin has shown. Not only do we have a lot of people, they generate a lot of wealth and a lot of income, and therefore there is increasing amount of wealth that is available and that is being created across Asia. Not only are there large numbers of people and increasing wealth. These people also save a lot. In fact, much more than people in the US and UK. You probably sick of this chart so I’m not going to talk in a great deal about this but all I’m going to say is link this back to a point that Thomas made, is if you look at what the numbers mean 800 – 900 billion sterling in bank deposits in China compared to £16 billion pounds in mutual funds, I think that just brings to light what opportunities we are talking about. There is also already a foot with people looking for professional management of their wealth and this chart just looks at some of that data, and of the last decade. Over the decade 1991 and 2001, there is an increase percentage of assets that goes to professional managers. This includes asset managers, insurance companies and pension funds, but this is so much less than the US. Again, it gives you a great idea of what this number could look like as the market develop, as customers get more sophisticated.

I talked earlier about regulatory reform and I want to pick up two issues here. The first one is this whole concept of off-shore fund markets, that is funds that are sold in multiple jurisdictions across Asia. This is now opening up at a fairly rapid pace and we think we will continue to grow at a fairly rapid pace as China opens up it’s markets, as India opens up it’s markets, as Malaysia opens up it’s markets, and as Korea kind of makes it more easier for people to sell off-shore funds into their markets. So, this is a huge opportunity and we estimate that the current size of this market alone is close to £100 billion. A huge opportunity for someone like ourselves. The second opportunity is in the area of pensions. Given the demographics of Asia, and you’ve had some sense of that, given the current pension schemes which don’t do very much, and the fact that replacement rates are set to fall, a fair amount of government policy attention is focusing on the area of pension reform. We therefore expect this to open a huge amount of opportunities for us across the region.

This chart looks at the gross management fees for our various asset classes across Asia, just to give you a sense of what the economics look like. These are gross management fees and I think it is safe to say they’ve stayed reasonably stable over the last few years, and are fairly attractive when you look at the cost structure we have out here in Asia. As you would expect the red, which is the equities is clearly the highest in any market and roughly in the same range across Asia. I don’t think that number is too far off from the US/UK. Balance type funds that we run across our businesses which have both equity and debt, they are marked out in blue, there not sop far behind in terms of fees because they have a large equity component. The fixed income component really has two components here. There is one which is purely local fixed incomes, so that is governed by local interest rates and returns but then you have off-shore fixed as well and that I’ve added on in the brown to give a you a sense of what the rates are. So again, as you can see, across all these charts that the attractiveness of the fees in an absolute sense, but also in a relative sense given the cost structures here in Asia. The fact that this trend is already playing out – this chart looks at the fund growth over the last few years, and if you look at the growth in the three big areas in the world, the Americas, Europe, and Asia, you can see the Asian region grew the fastest. I don’t think I would be alone in predicting that this trend will only continue.

All that is well, you might say, so why will you succeed? Again, funnily seven reasons. First; our geographic spread. As I showed to you earlier we have a business in eight countries and we are looking to enter our ninth, which is China. So we have an established presence across the wide geography of Asia. Second; our customer centric approach, and we talked about some examples of this and how we respond to customer needs by creating products. Felix talks about our success in Japan, and how we’ve created a business of scale and materiality in such a short period of time. Third; the range of products we are building, and John gave you an example of some of the successful products we have listed and launched in a fairly short period of time. Fourth; our distribution and you have Mark and Pankaj talk about our different distribution approaches in different markets. We tailor distribution to local markets and clearly that’s a big advantage. Fifth; our brand and we have a tremendous brand pedigree and awareness. Mina showed you what those numbers are in Kuala Lumpur. It’s a great ability and a great asset to leverage off so the brand is a great advantage as we build this business. Sixth; we talk about our proven track record in fund management, we talked our numbers on the life side, I showed you the numbers on the life side, and seventh and by no means least important, clearly we believe we have the best people in the business, and when you have the best people in the business you end up with the best business.

So to sum us let me end up with my key messages. I spoke about this in my first slide and I want to leave you with this at the end, mutual funds in Asia have grown strongly but you haven’t seen anything yet. We have a very strong track record of delivery and you’ve seen that right across our slides in terms of the business we’ve built in the relatively short period of time. We have added a lot of value to the life business through the fund management of the life funds and we provide a great amount of support in terms of Linked Funds. Our goal is to be big and successful and I think we’re on the way to get there and last we believe we have the strategy, the people, and the brand to succeed. Our geographic spread, scale, market leadership I think puts us in a completely unique position in Asia, and I hope you get a sense of that. So I would just like to leave you with one more slide - before one thought before I move on to my last slide, which is: what could this business look like in four years time?

[MUSIC]

In the world of executive summaries that’s a two minute version of our seventy minute pitch so I would just like to leave you with some house keeping announcements for the rest of this afternoon. One; I believe you have the opportunities to ask us questions as we do the Q&A with Dan and the team later, so you will have your chance. Two; lunch is at reflections on this floor so as you turn and get out of the door on your left, lunch is served. We like you to be back here by 12:45 so that we can start the next session. If you are leaving this afternoon I understand you have to check out by lunch time so you have time to eat your lunch and check out in the one hour you have and the mini-bus are available for those leaving right after the conclusion of the meeting. So at three o’clock there will be a mini-bus downstairs to take you to the air port so thank you for your attention and enjoy lunch.

Close this window