Credit Agricole looks to Korea, China for growth

Thierry Mesquillet, CEO at Credit Agricole Asset Management Hong Kong, talks about his strategy to double assets under management.

Credit Agricole Asset Management, known as Indocam prior to April 2001, is an old-timer on the Asian equities scene, having managed specialist Asian mandates since 1984, and has just won PensionsAsia magazine's Achievement Award in Hong Kong equities. CEO Thierry Mesquillet speaks about the firm's strategy to double assets under management in the next two years.

FinanceAsia: How will you meet this ambitious target?

Thierry Mesquillet: We're still very much Asia specialists as most our money comes from European pension funds that give us the Asian portion of their portfolio. Out of the $149 billion managed globally, $2.1 billion is in Asian assets but only 30% of the assets are sourced from Asia. Our strategy is to bring more diversified products into this market and diversify our client base by sourcing more assets from Asia.

Demographics is the main driver of our business so for significant growth we will be looking to Korea and for the longer term China, but China is still trying to find the way to open up. We are starting to talk to people in China and looking for possible partners but it is still very early.

How are you going to increase the Asian client base?

We are concentrating on leveraging products that we already have within the global organization to our Asian clients. Currently we are focusing on alternative products. For example, we have one of the longest established funds of hedge funds in the industry, which is managed by Credit Agricole Alternative Investments. We are planning to sell this to institutions and high net worth individuals when the regulatory issues are resolved.

We have also imported someone from the structured group in Paris - where we have a lot of expertise - who is proposing new products for this market. Guaranteed products are very popular which is a reflection of the current market conditions.

You are an institutional player. Are you going to develop a retail business in Asia?

We are looking at the retail market in Hong Kong and Korea and someway down the road in China. Although the Hong Kong market is quite small in terms of assets it's important to help build our brand and name awareness because we feel that Hong Kong is a window for China. Last year we launched our first retail fund, which was a guaranteed product, through Standard Chartered under our own brand.

Our retail distribution strategy is to pursue joint ventures and third-party distributors. We have just signed an agreement with the National Agriculture Cooperative Federation (NACF) in Korea, which is a top rated company holding the same BBB rating as the government and has the largest distribution network in Korea. We intend to form a joint investment trust management company, in which we will initially have a minority stake.

We haven't built an MPF platform as we took the view that we had no experience in that field and our brand was as an Asian specialist. We hope we can be a product provider of specialist mandates to MPF.

What do both parties get out of the partnership in Korea?

NACF are conservative, solid and traditional and provide the best distribution capability in Korea; one out of two Koreans is a customer. We provide expertise in asset management, compliance, risk control and in structuring guaranteed product. We have been talking to them for a long time and it is a good match as we both share a mutual structure so we have similar cultures. The client base will be conservative and risk averse so we expect to sell mostly fixed income but we are not trying to push anything, we are interested in what the market wants. In mutual funds Koreans tastes are fairly conservative.

We are still in discussions on the branding of the joint venture. It won't be exclusive. NACF will distribute other products but we will start out with an 80-90% share, expecting it to gradually become more balanced between different providers.

What are the hurdles to growing your business?

Our growth relies very much on the regulatory framework, which can be a big hurdle in Asia. Our industry has been confined by regulations in the past and it took the Asian crisis to precipitate the opening of Asia's finance industry. The crisis made people realize the importance of diversifying their investments.

How are you planning to maximize assets in China?

We do already have some institutional money from China and do some sub-advisory work sharing our experience with local fund management operations. We are talking to companies in China about a joint venture mostly focusing on distribution. We do have a history in China through Bank Indochine in Shanghai, a name that is known to regulators, which is an advantage, and we have a dormant Chinese brand name. We are considering using this brand to go into China and weighing up the advantages of a Chinese brand versus raising the Credit Agricole brand awareness.

China is very risk adverse so we need to develop our risk preservation products and would expect to sell fixed income over equities.

Are you looking at any other markets for growth?

We looked at Taiwan two years ago and I thought that it was too expensive to enter and to buy. There are too many other things to do at this stage.

We had a joint venture in Thailand, which was closed in 1998 after the Asian crisis, so this market for time being is not priority; our focus is on North Asia.

Will fund managers in Asia consolidate?

I expect to see some consolidation, as markets are not being very supportive. We are looking for acquisition opportunities but currently there are very few transactions of this sort. If you look from a buyer's perspective, most houses are part of a larger group or the big decisions are taken outside of Asia. We may see people closing down and others acquiring to keep or grow market share.

I think, however, there is a limit on consolidation, which is the people themselves and the kind of working environment they are happy to accept. At some stage companies will over-consolidate and will get too large and the people will start looking for smaller, more dynamic companies to work for. I found it interesting that after the massive consolidation of the 1990s, so many people seemed to want to jump ship at the first opportunity in the dot-com era. They seemed to be desperate to get out and to try something else.

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