Credit Suisse AM outlines EM push with HDFC, alternatives

Credit Suisse Asset Management is leveraging the affiliated securities company’s deep presence in many emerging markets to create a diverse platform of local and niche products for global clients, with India about to join the fray, says Robert Shafir, New York-based CEO.

CS has recently signed an agreement with Mumbai-based HDFC Asset Management to package and sell HDFC’s Indian equities and fixed-income capabilities to global investors.

It was the first deal for Hong Kong-based Neil Harvey, who joined CS last year as managing director and head of asset management for Asia-Pacific, who is in charge of the firm’s global EM business.

Shafir acknowledges that most of CS’s local presence in big emerging markets is related to investment banking and brokerage, but he says those presences highlight the firm’s brand and local commitment, which is helping his asset-management business to open doors.

CS is keen to develop a range of relationships in large emerging markets, big enough to ‘move the dial’.

Its first landmark deal was its 2006 acquisition of a majority stake in Hedging-Griffo, a large Brazilian asset and wealth manager. In 2005, CS became the first foreigner to set up an asset management JV with a Chinese bank, ICBC (in which CS is a minority stakeholder).

It also has smaller arrangements in the Middle East, including a private-equity JV with Gulf Capital in Abu Dhabi; an infrastructure partnership with Abu Dhabi sovereign wealth fund Mubadala Investment Company and GE Capital; and has partnered a group of Chinese individuals to launch private-equity firm China Renaissance Capital Investment.

“The key to our business is to be flexible with regard to ownership structure,” says Shafir. That can run from outright ownership to minority stakes to alliances. “We control asset allocation, multi-manager structures and portfolio construction, but at the single-manager level, it depends on what we can do in-house. I’d rather we have a minority interest in a great asset manager than have 100% ownership of a mediocre one.”

There is no ownership arrangement with HDFC. Harvey says as soon as he joined he met all of the players in India. Many already had existing partnerships with foreigners but HDFC had preferred to remain independent.

It is India’s second-largest fund house, according to AsianInvestor magazine research, with over $20 billion of AUM. It runs strategies in equities, fixed income and real estate, all domestic.

CS will package its capabilities, beginning with equities, with the aim to start marketing in the second quarter as ‘Credit Suisse HDFC’; the firm’s executives declined to describe the nature of these product structures.

Like with Hedging-Griffo, HDFC Asset Management is affiliated to a bank with many high-net-worth customers, and Credit Suisse hopes to leverage that with its own wealth-management arm to build an onshore business.

“The trend we see is ‘local to global’,” says Shafir. “We want to plug these local managers into our global network.”

Ultimately this should lead to both getting local players such as ICBC and HDFC to sell Credit Suisse strategies onshore, as well as to foster more intra-EM business. These are early days, particularly in India, but Shafir says that Hedging-Griffo’s clients are now keen investors in Asia, and the firm runs its own macro hedge portfolio that includes Asia exposures.

“If we get this right we can create two-way flows of information and of product,” Shafir notes.

CS Asset Management is pursuing a similar strategy for alternative investments. Worldwide, CS AM manages around $100 billion in alternative assets. In addition to its Asia relationships, it has taken a minority stake in York Capital, partnered with GE Capital to set up Global Infrastructure Partners, and pursued similar deals in Latin America.

CS is keen to build, buy or partner its way into Asian hedge-fund strategies, including macro, fixed income and equity long/short, says Harvey.

In addition to building investment blocks through these deals, CS is also finding emerging markets an important source of new assets. Shafir says in 2010, about 10-15% of new assets raised came from Asia, including a third from ICBC Credit Suisse Fund Management, a third from institutions and a third from wealthy individuals.

“The demand for alternative investments among Asian institutions is huge,” Shafir says. “It’s not just from the big names in China and Korea, but also pension funds from Southeast Asia.”

The firm is also looking to find partners in Russia and Southeast Asia to fill out its emerging-markets map and to expand its presence in Latin America.

Meanwhile, as it develops a range of alternative and emerging-market teams, Credit Suisse is building the beta side of asset management as well. Last year it hired Joseph Ho in Hong Kong from Lyxor Asset Management to spearhead its drive into Asia’s exchange-traded fund space.