Pimco expands in Asian pensions market

The world's biggest bond fund is bolstering its presence in the region, keen to pitch a more diversified range of retirement products

PUBLISHED : Monday, 06 May, 2013, 12:00am
UPDATED : Monday, 06 May, 2013, 3:34am

Asia's expanding pool of private savings and a need to fund the retirement of the region's ageing population have prompted the world's biggest bond fund to expand its regional presence.

"The stock of savings in the region has become large and it continues to grow at a pace that is larger than the domestic capital market can accommodate," said Douglas Hodge, the chief operating officer of Pacific Investment Management Co (Pimco).

The number of elderly people in the region is expected to triple to more than 1.2 billion by 2050, when one in four people in Asia will be aged over 60. Moreover, China has one of the fastest-ageing populations in the region, with more than a quarter of the population projected to be over 65 by 2050.

These factors provided compelling reasons for expanding Pimco's presence in the region, Hodge told the South China Morning Post.

The Harvard-educated fund manager said that in the next 10 years, Pimco's client base would be very different from today, shifting more towards individual investors who would be seeking a wider range of products and services to protect their pension money.

"Asia is the future growth engine for Pimco," said Hodge, who also short-listed Taiwan and South Korea as two export-driven economies that will support a vibrant mutual fund market and that had a long history of investing outside the home market.

The growing number of aged people facing retirement in Asia has also attracted other global asset management firms to the region.

BlackRock, the world's largest asset manager with about US$3.8 trillion in assets, said it would add 500 people by the end of the year and 20 per cent of the enlarged staff complement would be in Asia, including Japan, and Australia.

The California-based fund manager will seek to distribute its products to a highly segmented individual client base through distribution partners such as private banks and other financial intermediaries such as independent financial advisers.

Hodge cautions, however, that the provision of retirement products in China would be challenging given capital controls and the slow pace of reform by Beijing.

"China is very complicated. They still have a managed capital account, currency controls, and regulated cross-border capital flows. Whether these are managed under QFII or QDII (qualified foreign or domestic institutional investor schemes), I'll say it has been inconsistent."

China allows its residents to open foreign-currency accounts and to convert yuan equivalent to US$50,000 annually into foreign currencies.

China launched its QDII scheme in 2007, allowing financial institutions to invest in overseas capital markets. At the end of last month, it had granted quotas under the programme totalling US$84.1 billion, the State Administration of Foreign Exchange said.

Pimco managed about US$2 trillion in assets at the end of last year.