HSBC Global Asset Management (HSBC AMG) has three key objectives in its quest to build up its footprint in South-east Asia.
The first of these, according to Puneet Chaddha, head of South-east Asia, and Singapore chief executive at the firm, is bulking up the team’s strength and expertise.
“In keeping with our ambitions for expansion in [the region], we had to expand and upskill our team,” he explains. “In 2016, we sat down and figured out the kind of talent we needed and that has filtered through in our recent hiring.”
He believes the team is now of an optimal size to harness growth opportunities in the region.
The second goal, adds Chaddha, is making meaningful investments to engage clients with suitable products.
“We are working to broaden our fund range to meet our client’s various wealth goals and investment risk appetites,” he adds.
Last but not least is inorganic growth. “We are open to opportunities that fit our strategy,” he explains.
Driving sustainable growth
Being responsible for driving the growth of HSBC’s asset management business in the ASEAN region, means that Chaddha’s role includes supporting the wealth and investment needs of the group’s key clients across retail, commercial, corporate, institutional and private banking – primarily in Indonesia, Singapore, Malaysia, Thailand and the Philippines.
Apart from Singapore, the rest of the regional markets’ asset management sectors are still at a nascent stage.
But Chaddha notes there are two key reasons why a global firm such as HSBC AMG would be interested in these markets. “First, we have a real opportunity to build on HSBC’s long history and strong brand in Asia. Second, there are growing wealth management needs across retail, corporate and institutional customers in this region as savers diversify and as ageing becomes an issue, that we as a global asset management can meet.”
Indeed, South-east Asia comprises a block of economies that most experts believe will grow faster than most other developing regions, particularly in the wealth space.
According to a McKinsey report, the number of middle class households in ASEAN will top 120 million by 2025, almost doubling compared with 2010. As such, global pension fund assets are expected to grow by 10% by 2020, according to PwC report, “Asset Management 2020 - A Brave New World”.
HSBC is clear about its strategy as the leading asset manager for the bank’s clients. “The question we ask ourselves is how relevant are we to [our clients]?” asks Chaddha. “Do we have a deep banking relationship with them? Can we use it to complement their capabilities? Are the clients transactional or do we have long-term relationships with them? Our approach is very focused.”
When it comes to conceiving and creating products, Chaddha says the fund house is focused on building products that are sustainable and long-term.
“We won’t launch funds because there is a current flavour of the month and we want to capitalise on that…. We like to engage with customers with a long-term view and our product shelf reflects that,” he adds.
He notes that the fund house is not big on thematic funds as a result. “[Our approach] allows us to be more stable. We also have an equal mix of equities and fixed income. Plus, we are a big believer in asset allocation and funds that bring different asset classes together.”
This is helped by having an investment capability that transcends cycles.
However, unlike some fund houses, Chaddha doesn’t believe that the success of an asset manager is solely dependent on performance.
“A conversation about performance is what clients will have with asset managers by default when the latter do not communicate effectively what they bring to the relationship,” he says.
What many large distributors look for, he adds, is education of their relationship managers (RMs), so that they, in turn, can have meaningful conversations with their clients. “As an asset manager, you need to explain how you are managing money, how your fund is different from those of rivals.”
Investor education rising
Indeed, education is an important tool for distributors in Asia, given the relatively low financial literacy levels of investors across the region.
“In the US, you have the 401k plan, which encourages every new employee to think about long-term investments. There is no similar system in place in Asia,” notes Chaddha. “But attitudes are changing. Investors are becoming more aware about the importance of having long-term financial goals and of investment planning.”
Another big driver of change, he believes, will be the next generation.
Although it might not be easy to introduce new concepts to people who are more experienced or have certain investment habits, in much of developing Asia there is a vast majority of first-time earners who are starting to have a completely different perspective on investing.
“They are more digitally savvy, and open to researching investment options both online and offline,” Chaddha points out.
In addition, when they make decisions, they are likely to seek out advisers as they might not have the expertise or time to analyse and understand all their options.
Another key driver is regulatory change. “We are seeing securities regulations starting to converge to a global standard,” says Chaddha.
As the playing field level up, it will drive up fund penetration rates in Asia in the long run, he predicts.