Hong Kong investors will be the first to have access to managed accounts, a product so far existing only in the United States. Citigroup Asset Management is extending its US equities Multiple Discipline Account to wealthy clients at Citibank. Members of the Citigold programme can access a managed account for a minimum of $100,000.
Managed accounts have become a huge business in the US, giving customers in the mass affluent segment (somewhere between ordinary retail depositors and private bank multi-millionaires) flexibility and tailored service. The private bank-like atmosphere has been enabled by information technology. Tech means customers with a certain amount of wealth can customize their securities portfolios and enjoy full transparency, but without the full service of a private bank.
Citigroup Asset Management claims to be the biggest player in this market, with $75.5 billion in assets under management in managed accounts, and more than 200,000 accounts, more than double its nearest competitor. The product it is now introducing to Hong Kong, which blends a quartet of US value and US growth stock portfolios, was launched in 1997 and now has $22.5 billion under management.
The product has struggled to go abroad, however, because of technology limitations. Already tech-intensive, to provide mass customization, managed account platforms have so far failed to evolve beyond a single currency. The scale required to run these programmes means no other market justifies the costs.
Citigroup has not overcome this obstacle, although it is working on it, says Denise Allen, managing director and Asia-Pacific head of Citicorp Asset Management. For now, the firm is offering its US product to Hong Kong investors.
This is the first time a managed account programme has been offered to non-US investors. When asked why begin in Hong Kong, Allen says, "Why not Hong Kong? It's a big market, it's an attractive market, and our partner [Citibank] is well established here."
She says the move has been made possible because the technology has evolved to the point where it can accept non-US customers, if not alternative currencies. But she says the firm is working on ways to allow international clients eventually have managed accounts in other currencies.
In managed accounts, a professional investment manager handles a customized portfolio but all the securities are in the client's name. An all-in wrap fee covers investment management, distribution and functions such as admin and custody; there are no additional subscription or redemption charges. Rather fees are based on the total value of the portfolio, not on individual transactions. Investors can specify the exclusion of particular stocks or industries from among the underlying portfolios. And unlike with mutual funds, which must maintain cash positions to meet redemptions, managed accounts can be fully invested.
"This product raises the benchmark in this market," Allen says. "We want long-term investors."
Citibank is confident there is demand in Hong Kong for this product. Ricky Lin, director of investment sales and marketing at the bank, says CitiGold customers' holdings in US securities have jumped by 60% in 2004, and that Hong Kong households' financial assets in equity funds have grown by a compounded annualized rate of 8% over the last three years. Adding up mutual funds, pensions and insurance, professionally managed assets in Asia have grown 13.6% per annum for the past three years.