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Next stop, the world

Every three months, the Chartered Institute of Securities & Investment, of which I am a Fellow, publishes a most interesting report into the investment management industry. It is a review of the latest developments and, most importantly, offers a commentary on what is happening in this huge business that touches us all.

The most recent edition highlighted the rise of the Asian fund manager. This was a story I could not ignore.

While the established Western fund management groups have built significant resources in the fast-expanding Asian region, they are finding it difficult to break into the domestic markets of the very countries in which they are investing.

Of course, these markets are still small in comparison with the developed world but they seem set to enjoy the same growth as the manufacturing and service industries that have brought such prosperity to the region.

Take South Korea, for example. Its stockmarket seems likely to be promoted from emerging to developed before too long and the strength of the domestic fund management market bears testament to the way in which it has advanced in recent years.

There are a staggering 10,000 mutual funds in that country – twice as many as exist in the US and 10 times the number on a per capita basis. Moreover, one firm, Mirae Asset, has a 25 per cent domestic market share.

Not content with dominating the home market, Mirae is expanding abroad and now has bases in India, Brazil, Luxembourg and the UK.

This is not the only Asian company to set up abroad.

Others are already establishing operations aimed at exporting their expertise. Given that Asia ex Japan is the region with the highest growth rate in terms of funds under management, you might wonder why they are taking all this trouble.

The answer lies, of course, in the rapid expansion of both GDP and stockmarket capitalisation in the region. This is leading to global benchmarks steadily increasing their weighting to Asia, with the result that more money is being invested there by necessity. If ever an argument for paying more attention to this part of the world in your own investment portfolio existed, this is surely it.

But how will these fund management firms get on when they try to establish themselves outside their home region?

The Investment Man-agement Review suggests that while they may have difficulty in creating distribution channels in the West, the fact they have so successfully built networks on home turf means they should not be ignored.

Indeed, we could see new names from Asia offering funds alongside the established names here.

In case there is any belief that this might simply be part of the opportunity for Western firms to continue to sell their expertise into Asia, it is worth looking at the experience within the institutional investment market.

Asian institutions own $5,000bn of assets, of which just 12.5 per cent is outsourced to external managers. The corresponding figures for the US and Europe are 80 per cent and 50 per cent respectively. We may yet see Asian fund managers developing in the way their manufacturing businesses have and become world leaders.

Brian Tora is a consultant to investment managers, JM Finn & Co


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