French investment manager Comgest is well known among private banks in Asia but wants to boost its retail and institutional presence. Hong Kong-based CIO Chakara Sisowath discusses the firm's strategy.
What's the firm's investment style?
Sisowath: We're boring; that's why we're different. We don't have a lot of turnover in staff and our style hasn't changed. We are independent and we emphasize product integrity. The firm was founded in 1985 in Paris by two fund managers who had been at big financial institutions in Europe. They wanted to work at an asset management company run by asset managers, whose sole objective was fund management. At insurance companies or banks, the asset management division was just one of several businesses, and it faced competition for resources and conflicts of interest. Clients were not the priority. For example, bank distributors would charge foreign exchange fees at retail, not corporate rates.
Comgest is 100% employee-owned. Everyone has shares, right down to the lady at the reception desk. It's a very European firm. In the group there are people of a dozen nationalities and it is common to hear six or seven languages being spoken at the office. These people are brought together by a commitment to the same investment style.
What is that?
Purely stock selection. We do not follow benchmarks, we have no country or sector allocations. During the bubble years we did not own any TMT stocks because they didn't fit our criteria. We missed the ups of the 1990s but today we don't suffer as much. Clients give us money for a certain purpose and know we won't change. We find companies with visible and stable earnings growth; I guess you could call our style ‘growth at a reasonable price'. We evaluate the business model, the company's market share, the franchise that creates barriers to entry. Once we like a business, we visit to learn about its management, see how they treat minority shareholders and whether they have a record of delivering promises. Last is the financial side and a five-year forecast of earnings.
How big are your portfolios?
We have about 40 stocks in Japan and another 40 in Asia. That's our universe from this region. Whether you invest in our Asia ex-Japan portfolio, or Asia and Japan, or Japan-only, it's the same set of stocks, although the weightings may vary. We also have several regulatory constraints. Our C-CALF funds mustn't allow one issuer to comprise more than 10% of a portfolio, for example.
How much does the firm manage?
The group manages $2.4 billion. About 60% is invested in Europe and 40% in the rest of the world, which is mostly Japan and Asia. Of that, $2.2 billion is managed in Paris and only $100 million in Hong Kong. We've had an office here since 1993, but our biggest funds pre-date that, which is why most of the money is managed in Paris.
What are your Asia business development plans?
First we have a joint venture with a US fund manager, Yeager Wood Marshall, and we hope later to own 100%. That lets us offer US products. Yeager has a similar investment style, but specializes in US large-cap stocks. Eventually, however, we want a global product. We have a strong business among Swiss private banks, German pensions and French retail and institutional investors. Asia is the next spurt of growth.
What are you doing specifically?
We are now registering our first two funds in Hong Kong. I can't tell you more about them because they're with the Securities and Futures Commission. We're now in the process of determining who would be interested in these funds. We've been successful with Swiss private bankers who want a non-benchmark, defensive allocation, and one of our funds has a top-10 track record in France for investing in Asia.
So are you planning to sell Asian products here?
We want to provide our European expertise to Asia and hope investors here see our performance and believe our strategy also works in Asia. We're not yet sure if our products will appeal to an institutional or retail public. We're organizing investment seminars to figure that out.
Do you have distributors lined up?
Once we get registered, anyone can buy us via a custodian, but that's not enough. We've talked to local institutions with sales forces. Everyone has a JF or HSBC fund offering, so we'll have to see if they want something different like us.
What about Japan, do you want to launch an onshore business there too?
We've been looking at it. Our firm visits regularly, not just companies but potential partners. It's difficult to attack the Japanese market without a presence there. We need a partner for marketing, preferably an institution with distribution but without asset management expertise in Europe or Asia ex-Japan. We could be a sub-adviser and not have to establish an office there.
Hong Kong is better suited for now because we're already here, and the European private banks here already know us.
Where do you see the growth opportunities in Asia?
The asset numbers in Japan are huge but meaningless, you can't reach it. But in Korea and Taiwan, there is an emerging middle class that has growing savings and insurance needs. We see growth in assets under management.
China?
China is the next big story. The coastal region's GDP per head is close to Thailand or even parts of Hong Kong, and the authorities are developing a fund management industry. But I think any JV there is something for the future. You have to commit capital and transfer technology, and at best you'd get only 49% of the return on that. We lack the deep pockets and worry the JV relationships are asymmetric. If we found a partner interested in our European expertise and wanted us to sub-advise them, that would be our preferred way.
