BPI AM flags issues for Philippine funds industry

The Philippines’ mutual funds market has always been small; today’s industry manages about $74 billion. But that is set to change, says Theresa Marcial-Javier of Bank of the Philippine Islands.

AUM growth will be in the high double digits for the next decade, perhaps averaging 15% on an annualised basis.

The expansion of the economy over the past 15 years and the increasing size of Philippine companies are leading to new demands among the workforce for pensions. There is still time to put in place a better framework, given that the average age of the population is just 22. “The challenge is how to increase investor appetite for risk,” says Marcial-Javier.

Local investor allocation to equities is unusually low for an emerging market. Both retail and institutional investors would regard a 25% allocation as aggressive; the norm is around 10%, and many investors have no exposure at all. This contrasts with other Asian markets where equity allocations are typically 40% or more.

Nor is there enough supply in the Philippines. Despite the growing size of its companies, they remain in family hands, with little free float available to minority investors. The country needs to see more companies issue stock, and more families allow a greater free-float as well as spur interest in owning shares.

Marcial-Javier believes the transition is starting to happen. Earlier this year the government issued a 10-year treasury bond at a 3.25% yield, an all-time low and a far cry from the 8% yields investors had been getting from government debt.

The biggest growth opportunity for fund managers is in retail wealth management, she says. The fastest growing segment, at least at BPI, is the emerging middle class, people able to put P250,000 to P25 million (about $5,800 to $580,000) to work in investment products.

The leading banks, including BDO Unibank, MetroBank and BPI, are positioning their branch networks to cater to this nascent demand. They are also developing online and mobile capabilities to sell funds and other services and products digitally. Although they all face the same set of challenges – from volatile markets to the vagaries of domestic politics – Marcial-Javier says tapping the mass-affluent segment is just a matter of execution and time.

“Retail is about distribution and availability of product,” she says. “The variable is private banking and institutional business.”