Standard Life Investment to enter MPF market in three years

The UK manager will focus on winning institutional mandates in Hong Kong''s pensions market instead of becoming a full service provider with a costly distribution network.

Standard Life Investment (SLI), the fund management arm of UK group Standard Life Assurance, is opening a regional head office in Hong Kong early next year with the hope of raising one billion pounds ($1.44 billion) in Asia within five years.

A "significant portion" of the company's 1.5 billion pound Asian investment portfolio, currently managed out of Edinburgh, will be moved to Hong Kong, according to Kevin Smith, the company's chief executive officer in Asia. Three managers will also be transferred to the new office from its Asian investment team in Edinburgh, with seven more to be hired locally. Smith expects the office will have a staff of 18 by the end of next year. The Edinburgh office will retain an Asian investment team of four to ensure continuity and stability of client services.

Smith says the Asian investment office will be used as a base to enter the markets in Korea, Taiwan and China in the next few years. Although its first priority will be to win over institutional mandates in Hong Kong, Smith says the company will not be entering the territory's newly introduced Mandatory Provident Fund (MPF) market for at least three years, citing uncertainties in the market as a major concern.

"At the moment providers are spending too much money to build up their distribution network. It's inevitable that some of them will fail," he says. "As an established UK institutional fund manager, we're more interested in managing balanced pension funds for institutional investors in Hong Kong. In the long term, MPF will be fantastic business for managers here. But for the moment, we'll wait and see."

And when it enters the MPF market in three years' time, Smith says it is unlikely the company will seek to become a full service provider, but will continue to focus on winning mandates from institutions instead.

"By setting up an office in Hong Kong, we hope to achieve two goals. First is to establish a presence in Asia to cover the Asian region ex-Japan. As we have no significant investment presence in Asia at the moment we believe this arrangement will enhance our global investment process. Secondly, we want to build a client base in Asia. At the moment, most of our clients are in Europe and North America; we have no clients in Asia," says Smith. He expects the Asian operation will break even in five years' time.

By using its Hong Kong office as a base, the manager also plans to enter the Taiwan and Korean markets next year, initially by selling offshore funds. "In both markets we look to do similar things, which is to get institutional money. In both cases the institutional market is much less established than Hong Kong's but they are developing rapidly. In those markets no one really has a strong established position so we'll be competing on level grounds," says Smith. He adds that the company will be looking for distribution arrangements with private banks as well as insurance companies and banks.

Smith says Standard Life Insurance's recent failure to win an insurance license in China will not affect the fund manager's plans in China. "The insurance business is quite separate from our plans on the fund management side. Having said that, Standard Life Insurance winning a license would help our investment business because we could manage the money they raise. But winning of an insurance license or not is not going to stop us from looking for a means to enter the Chinese market," he says.

Standard Life Insurance, a sister company of SLI, opened its first Asian office in Hong Kong last month under a joint venture with Australian insurer, HIH, and Chinese financial conglomerate, China Everbright. Premium raised by the insurer will be managed by SLI. The manager's application for an investment adviser license in Hong Kong is pending for approval by the local regulator. SLI uses Chase as its global custodian and does the bulk of its fund administration work in-house.

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