ABN Amro weighs options in China

Frank Kusse, Asia-Pacific CEO at ABN Amro Asset Management, spoke with FinanceAsia in the wake of the firm's announced joint venture plans with Beijing-based Changsheng Fund Management.

FinanceAsia: Under China's agreement with the World Trade Organization, foreign fund managers will initially be allowed to take a 33% stake in a fund management joint venture. Is this the stake ABN Amro will take?

Frank Kusse: It is not 33% per se, but the maximum extent allowed. The regulators may allow more over a series of stages.

When will the JV go live?

No later than three months after China establishes the regulations to govern these agreements. But we do not know when that will be. CSRC (China Securities Regulatory Commission) and the ministerial departments are trying to come up with these regulations as soon as possible. We hear a lot about how China may be forced to slow down some of these changes, but if that does happen it will not be in regard to Sino-foreign asset management JVs. This is the least worrisome area from a country management point of view.

What will ABN Amro bring to the deal?

We will have to determine that. We have already put in a substantial effort. We have 30 people involved to different degrees in helping Changsheng's first open-ended mutual fund launch.

When is that likely to take place?

Just last week, the CSRC visited Changsheng to inspect its readiness for open-ended mutual funds. We know Changsheng well and have come to know a lot about them in the course of this project. We are ready. The CSRC is visiting five companies preparing open-ended mutual funds, but may not grant permission to all of them, or may do so only in stages. We have very high expectations because we are prepared. If we are chosen, we can go ahead in January. We expect to hear by the 18th of December.

As you've come to know Changsheng, have there been any...interesting surprises?

Nothing negative. The biggest challenge they face is human resources. It's an interesting market but there are few experienced people. Also, Chinese fund managers have yet to fully understand the concept of management style. There's not really any such thing as a value or growth fund. And on the operations side there is still a lot that has to be established. We expect millions of transactions in funds, and we need to make sure the administration systems can accommodate that.

What bank is handling distribution and custody for Changsheng's open-ended funds?

The Bank of Agriculture, based on a decision made by Changsheng with some advice from us after due diligence. The bank made, I must say, a damn good presentation. And we felt the other banks were just not ready.

What parts of the JV will ABN Amro contribute personnel?

Portfolio management, operations and the commercial side û we will put people into all levels. On the portfolio management side, we want to connect it to ABN Amro's way of thinking and bring in best practices. We will not have the CIO role, that's for Changsheng, but we will provide senior portfolio managers from our people with Hong Kong and Taiwan experience. Likewise we will not provide the most senior people in operations, although compliance is an important issue. But in terms of business development, our people will be quite senior. We understand marketing quite well.

Will this JV be a separate entity from Changsheng, or will Changsheng's present operations fold into it?

The present company will be wrapped inside it, that's our understanding. Now one point is that one of Changsheng's shareholders, Changjiang Securities, have also asked us to help out with technical support for their own ambition to start a mutual fund company. This is welcome in China, and the other shareholders have agreed.

So would you buy out Changjiang's stake in Changsheng?

That is one possibility, and I stress it is only one option, for us to take over their stake in Changsheng. Of course this depends on CSRC, and it has not said what our rights are, or described the capital transaction process.

Thank you. Can we talk a little about the rest of the region? What are your business priorities for the coming year?

They are the same as in 2001, really. We are neither extending nor decreasing our business development staff. Australia continues to be a market where we see a lot of new inflows and new mandates. The challenge there is also to grow on the pension side, and improve our balanced and Australian equity performance; the consultants want to see more of an effort. Also in Indonesia, it is of course very small, but we have doubled our asset size there through money market funds, to $25 million. We are signing with a third-party distributor to offer for the first time guaranteed funds in that market. Again as I say it is a small market, but we have gotten our act together there.

Singapore?

This is a market where we have had difficulties. Our Asian fixed-income team left last year and we had to hire new people. Now I am happy to say we are back, we have gotten a team in place, and we have hired Margaret Ang from Batterymarch to head up business development. This follows bringing in Bo Kratz in August as the office's managing director, and we have brought Robert Andrew from London to run fixed income. We now have better communication with the authorities and our institutional clients, and from there we are improving our service to institutions in markets such as Thailand and Vietnam.

Things are the same in Hong Kong. We have, if I may say so, a damn good pensions and institutional team. We have been invited to eight finals this past year. We have been unlucky with our hit ratio, we've only won two - the competition is very stiff. But we have been there to the end. We are also trying to break into the balanced mandate market, which is controlled by a handful of existing players such as Schroders and HSBC. We have already a large balanced business, it is E40 billion of the E170 billion we manage, but it is for Dutch and other European clients and not directly applicable to Hong Kong. But the approach is there, and we are a AA-rated institution. We are being very aggressive on the mutual fund side and have a lot of products in the pipeline, and are working on exclusive distribution arrangements.

Now in Taiwan it's been over a year since you acquired Kwang Hwa's funds business. How is that progressing?

Kwang Hwa is going very well. The market has been difficult but our operations have kept up well. We have done so, however, by becoming a bond house - it's an almost 90/10 ratio of bonds to equities under management. We need to move back into equities and will be offering more equities funds. We have an almost entirely new management there. Frances Chang is still there as president, but David Lee, the chairman, is now heading our China operation. In September we hired Thomas Liu from JF Securities as our new CEO. David moves to Shanghai as of January 1st, he's now in transition. We also hired Lawrence Tsai two weeks ago as our new CIO in Taiwan, and he will help boost our long-term performance. I think for Taiwan, 2002 will be the real breakthrough in terms of profitability and success, and gains in performance will let us go for winning government money in 2003.

Your remit includes Japan as well, I believe.

That is a difficult market. In just the past month we have had some success, however. We hired Takashi Kato from Schroders to manage our funds, as well as a self-employed specialist, Hideo "David" Ando, to sell alternative products. It's a beginning only but we already have some mandates. For example we have just won our first global equities mandate from a pension fund just a few weeks ago. It's only $40 million but it is a start. We are also taking measures to reduce costs.

Korea...you have not mentioned this intriguing market.

We are not on the ground there, although we do marketing there from Hong Kong. We have just been appointed by Chohung Bank, along with Fidelity, as a funds provider. Chohung was looking for mutual funds to sell its clients, and conducted due diligence on five to 10 fund providers. It has an impressive branch network and ambitions to grow its funds sales with both retail and preferred clients. It has its own asset managers for local funds, but wanted around four international ones. We are working with them to develop a guaranteed product.