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Enoch Yiu

Skandia Investment Group (SIG), a European fund company that outsources investment decisions to other fund managers rather than hiring its own teams, wants to introduce its business model to Asia.
SIG manages US$20 billion  for European and Latin American clients, but its Asia business is small, with assets of about US$1 billion. 
Adam Smears, SIG's head of investment research and portfolio management, has been in Hong Kong and Singapore recently, meeting fund managers.
'We consider it is more cost effective to have a team to pick fund managers instead of picking stocks,' Smears said. 'The managers are good at picking stocks and we are good at picking the managers.'
Smears said the firm now has 17 specialists to check on fund managers - their background, past performance and investment strategies. It then packages them into different fund of fund products or single fund-manager products and sells them to clients in the UK, Germany, France, Scandinavia, Spain, Portugal and other parts of Europe.
The firm wants to hire additional Asian fund managers and sell more funds here. It has about 20 funds authorised to sell in Hong Kong.
 'Many European clients want to invest in the Asia market,' Smears said. 'There are also increasing numbers of Asian customers who could be our potential customers.' 
Smears said SIG's clients, including insurance companies, pension funds, private banks and retail investors, would want access to a diversified pool of 200 fund managers.  
Bernard Chan, president of  Asia Financial Holdings, said he  would not use fund houses with such an outsourcing model .
'I can choose my own fund managers, so why should I pay for others to do the job for me?' he said. 'My company also has its own managers who know Asia well.'
But Chan said he has found the model useful on other occasions, such as at Pomona College in California, where he is a trustee.  
'Pomona College has only 1,400 students but the endowment fund of the college is above US$1.7 billion. As such, we hire professional consultants to recommend to the board of trustees who we should give the money to invest,' he said. 'And quite often, we go to fund managers who in turn will pick the best manager of that particular sector, such as the tech sector or emerging markets.'
Timothy Lo, managing director of French private bank CIC Investor Services, said that if his firm lacked its own experts to pick good third-party funds for clients, then it must rely on a company that can choose for them.
 'The great advantage to this approach is that you can easily and quickly build up your own asset management capabilities,' he said. 'By selecting different managers' styles, you can also diversify your risks and use different approaches for different kinds of markets. However, if the bank already has a strong analyst team, which can do its own research and select funds, having a company do it for them is not that attractive.' 
 Mark Konyn, Asia Pacific CEO for asset management firm RCM, which uses its own fund managers, said that for a while  in Europe, some institutional investors have out-sourced fund manager selection and asset allocation. 
'In Asia there have been a few attempts by various consultants using this approach with only very limited success,' he said. 'In Asia, institutions tend to be more hands-on and want to be involved more directly in the various aspects of the decision making.'
 Even in Europe,  the outsourcing model has yet to prove successful and sustainable, Konyn said, adding that this is more about governance and fiduciary responsibility rather than performance.  
'Consultants themselves have proven that clients globally are not willing to pay much or, in some cases, anything for manager selection anymore,' Konyn said.
 Hong Kong Investment Funds Association chief executive Sally Wong Chi-ming said that as the local fund market develops, there are bound to be more business models and specialisation. 
'From a client's perspective, what is important is to understand the core competence of the firm and its key strengths,' she said. 'Customers need to understand if the fund is more about manager selection or stock picking, its long term track record, the value it provides and the costs you are paying for it.'



Skandia in bid to bring fund outsourcing to Asia