Standard Life focuses on Hong Kong, Korea

The Scottish fund manager will only bite what it can chew.

Kevin Smith, CEO at Standard Life Investments in Hong Kong, speaks with FinanceAsia about the firm's new presence in Asia and its ambitions.

FinanceAsia: So. You have been in Hong Kong now for about one year.

Kevin Smith: That's right. This year has been about hiring the right people. We have hired 10 people locally in addition to the six original expats here in January. The second thing we did this year was put in place a global investment platform. Standard Life Investments is only three years old - of course our parent, Standard Life Insurance, has been around for 176 years, but the investment division had always been part of the insurance group. We separated it in November, 1998 in order to build an external client base.

All investment is done from Edinburgh, but we have added Montreal to cover North America. We chose Montreal because of a strong existing business in Canada. But saying you're in Edinburgh and Montreal doesn't sound like you have a global investment platform, so in 2001 we opened Hong Kong, and next year we will open an office in Boston, and that completes our four global money management centres. Having Hong Kong is an important part of the jigsaw.

A lot of houses in Edinburgh don't see the need for having offices out here. Why the change?

Yes. There is no real difference in performance, whether you manage money from Asia or from Europe. But our ambition as a business is to build an international client base. If you say to people in Asia, "We've got a great investment process in Edinburgh," it doesn't carry as much weight as saying you have a great process right here. I broached this idea in mid-1999 when Standard Life Investments was looking for its next step. We were the largest European fund manager without a presence in Asia. But if Standard Life decides something we stick at it for 10, 20 years. We see it through to success. We have the stomach to take a long-term view. I came out here with the commitment to spend the rest of my career here building this business - not for three years or five years. This is it for me. I'm 38 years old.

What is the first priority for 2002?

Our focus will be on institutional pension money in Hong Kong, and we hired Miranda Poon from Dresdner RCM in September to run that. This will be our sole focus for the next two or three years. The retail business, including MPF, can come later. Hong Kong is a competitive market but the incumbents are suffering loss of market share to newcomers. We have a strong track record and are prepared to be competitive on price. Our parent has a AAA balance sheet, one of only six companies globally that can make that boast. We don't expect immediate results; this is a five to 10 year plan.

What made you choose Hong Kong over Singapore?

That was a tough decision. Half the market in Singapore is government and you close that door by coming here for the short term. Initially I favoured setting up in Singapore but decided that despite the extra costs of coming to Hong Kong, it boiled down to access to other markets. We want a significant presence in one other market. Had Malaysia developed along the track it was on five years ago, Singapore would have remained our choice. But Malaysia instead implemented capital controls and has kept its pension market closed.

Where did that leave you?

Now we have been looking at Taiwan and Korea, and we have made an explicit choice to go into Korea first. Both markets have a decent size of assets and of population. Korea has a lower per capita income but more people, so its savings pool is larger. Korea has been closed so there is less competition. Taiwan on the other hand is a well-trod path. It is a slow process. We won't sell anything in Korea before 2005. We will look for opportunities to make a small acquisition - we've looked at some options and so far we've said no. We prefer a distribution arm, not a local ITMC [fund manager], which have poor balance sheets. We have looked at boutique fund managers. But we do not need an acquisition to make Korea work for us; as a group, Standard Life usually does not make them.

The institutional market in Korea practically doesn't exist. Is there enough for you?

Right now the institutional market in Korea is not viable but the government is thinking carefully about reform, and in five to 10 years there will be a market. We will be ready for when the market really opens. James Cooper, whom we hired from State Street, is doing the groundwork for us.

Other markets?

We're flexible. We're small and aren't burdened by infrastructure. If there should be a major change in, say, Malaysia, if the pension market opens, we can focus on it. But I feel Taiwan will probably be next, sometime after 2005.

You mentioned you chose to start in Hong Kong because of its neighbours. What is your strategy toward China?

China can be all-encompassing or marginal. Our business plan for China assumes zero projected revenue. We, like others, are in discussions with existing fund management companies there about technical agreements, but have no plans in the short run for signing any. I am somewhat sceptical about deals that require a huge commitment in people and knowledge transfer before any joint venture is signed.

Our experience in India, however, suggests a huge advancement in China over the long term. We have a joint venture with HDFC in India that became active a year ago. It shows we have a long-term commitment to India and China. The success of our business in India is indicative of what we can do in China. HDFC is a strong name and shows that your choice of a joint-venture partner is crucial. In China, we're in no hurry whatsoever.

Japan. You continue to manage money from Edinburgh. Why?

What's the advantage of managing Japanese money from Hong Kong? None. Could we manage Japanese money in Japan? That would require a business rationale similar to why we entered Hong Kong, and currently there is none.

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