Global Shift Will Alter Asset Management
By DAISY MAXEY
A DOW JONES NEWSWIRES COLUMN
NEW YORK -- The rapid rise of a middle class in developing nations is set to shake up the asset-management industry.
The number of global investors is projected to rise to up to 2.2 billion from about 500 million over the next decade or so, and asset managers will have to adapt within the next few years or be left behind, says Daniel Enskat, head of global consulting at Strategic Insight, a fund research and consulting firm.
This anticipated growth presents hurdles in the form of different languages, regulatory environments and investment outlooks. Enskat says mutual-fund providers and other asset managers will need to innovate to succeed in responding to more than a billion investors whose investment culture, knowledge base and asset-allocation preferences may differ widely from investors in developed nations.
Christopher Hyzy, chief investment officer at U.S. Trust Bank of America Private Wealth Management, said emerging markets in the Far East -- Southeast Asia, in particular -- and Latin America are key anchors in the change. Non-U.S. clients now make up a small portion of U.S. Trust Bank of America Private Wealth Management's nearly $200 billion in assets under management, but that will grow, Hyzy says. The importance of these emerging markets will grow even more quickly because of the ongoing deleveraging in the U.S., he said.
In some ways, the U.S. mutual fund industry is not set up to compete internationally. For example, U.S. fund companies that want to sell investments overseas have to create investment vehicles known as Undertakings for Collective Investments in Transferable Securities, or UCITS, and other vehicles in global financial hubs, such as Dublin or Luxembourg, then offer them for sale in Asia or Latin America.
Currently, many U.S. asset managers view asset allocation as a division between domestic and international investments. But many Brazilian investors view Brazil as its own market and Latin America as their home region, with the U.S. "not much on their radar," Enskat said.
Each country presents unique hurdles
India, for example, while attractive in terms of educational resources and expected population growth, is "tricky to operate in" because there are many different languages and numerous competing regulators, Enskat says. In addition, large networks of independent financial advisers play an important role in connecting investors with fund houses, which makes operating there extremely costly for international firms.
Already, some U.S. asset managers are reconsidering where their office headquarters are located, and whether they'll need new offices to serve these emerging investors.
The Vanguard Group recently opened offices in the U.K., for example, and is working with independent financial advisers to distribute its funds there. Its U.K.-domiciled funds are listed on some fund supermarkets and could be made available to some self-directed retail investors, but the asset manager is primarily focused on supporting the independent advisers.
The shift will also lead to the emergence of new leaders in the global asset-management business. Enskat cites investment boutique Carmignac Gestion, run by French investment banker and fund manger Edouard Carmignac. After many years of managing assets of less than $1 billion, Carmignac in 2009 alone gathered $23 billion in net cash flows, overwhelmingly to its three flagship funds, he says.
London-based Schroders PLC and New York-based BlackRock Inc. (BLK) are two firms that appear to understand the intricacies and peculiarities of Asian markets and to be well-positioned for growth there, Enskat says.
Some U.S. asset managers have already made missteps. Some pulled representatives who worked with international product distributors, such as big banks, out of various countries during the downturn to focus on their home markets, Enskat says, adding that those firms have been essentially blacklisted by professional fund buyers who lost experienced contacts when it counted most.
More Case Press...