We hear all the time about how lucky we are, as Australians, to be ‘plugged into’ Asia. It’s the one part of the world where most things seem to be going right – banking systems already toughened by a previous crisis and standing strong, low levels of consumer and government debt, demographic outlook containing an increasing number of wage earners/ tax payers/conspicuous consumers. One might think that our institutional investors would be responding in kind, handing out ‘Asia’ specialist mandates like so many fortune cookies. But with a few exceptions – the Future Fund’s $1 billion allocation to Treasury Asia Asset Management springs to mind – they are sticking to the old global equities/emerging markets way of looking at the world.
MICHAEL BAILEY reports on what this approach may be missing out on, hears a few war stories from investors about Asian regulation and corporate governance, and checks in with the growing Sydney-Melbourne community of Asian specialist equity managers who are keen to change perceptions. Meanwhile GREG BRIGHT reports from a Beijing conference of the Chinese funds management industry, which has grown from zero to US$300 billion under management in just 10 years, but still looks to the likes of Australia for inspiration.
Kerry Series has been waiting 15 years for institutional investors to discover Asia. He formed Pacific Road with Mike Crivelli in the mid-1990s, a Sydney-based Asian equity boutique before anybody had thought of the idea, save perhaps for Kerr Neilson with what was then known as the Platinum Professional Fund. (Crivelli and Neilson had worked at BT during its golden age, when it was just about the only global equity manager in town.) Back then, an Asian equity boutique based in Australia faced three major headwinds. There was the much-maligned foreign investment funds tax, which forced Australian investors to “bed and breakfast” their positions in Asian financial stocks just before every June 30, or else be exposed to punitive levels of tax. Potential offshore investors in a Pacific Road unit trust also faced a big withholding tax bill. The second headwind blew across the Singapore Strait, reminding everybody that Australia is in fact quite a long way from Asia proper, and making them furrow their brows at the thought of an Aussie-based manager of Asian assets.
“If a European or US investor had flown to Singapore to check out Asian funds managers, it was pretty rare for them to get on another plane and come down to Sydney to look at us,” Series remembers. There was a third thing getting in the way. Australian institutional investors, only then beginning to unwind their heavy domestic bias, refused to look at the world in terms other than “local” and “international”, with the concept of regional specialisation not really getting a look in. Fast-forward 15 years, Kerry Series is up to his third try at a Sydney-based Asian equity boutique [Eight Investment Partners backed by South Africa’s Sanlam], but finally the conditions look a little clearer. The withholding tax rate has been slashed, and foreign investment funds’ tax relief has been promised, if not quite yet delivered. Just as importantly, the perseverance of Series and the phenomenal fundraising success of Kerr Neilson have helped to grow Sydney as one of the world’s major centres for managers of Asia-Pacific equities.