Fidelity seeks to grow institutional client base

Fidelity Worldwide Investment says it will be making selective hires in the coming months as it strives to position itself to tap Asia’s swelling pool of institutional assets.

Some 70% of Fidelity’s Asian and European clients are retail investors and 30% are institutional at present. But Chris McNickle, its global head of institutional business based in London, anticipates  the institutional segment will accelerate faster.

“We expect both businesses to grow, but institutional has the potential to grow faster than retail,”  McNickle tells AsianInvestor on a trip to Hong Kong. “Government institutions, pension funds and insurance companies across Asia continue to accumulate large pools of assets, and they will want to diversify investments. They will look to global asset managers to provide the strategies they need.”

Fidelity’s global AUM stood at $305.5 billion as of June 30, with about $90 billion invested into Asia Pacific. A spokeswoman declined to offer how much investor money is sourced from the region, although according to AsianInvestor's estimates, the firm had $22.1 billion sourced from Asia Pacific investors at year-end last year.

While the firm is eager to increase its institutional investor base across the region, Japan is one market of particular interest, both for investment and fundraising.

Optimism spurred by Abenomics – the government’s three-pronged initiative to stimulate growth – has not only boosted the local economy, but has also encouraged Japanese institutional investors to invest in new products and geographies.

For example, Japanese institutions are expected to lead regional allocations to hedge funds on a global basis, according to a Preqin survey.

And Japan’s $1.2 trillion Government Pension Investment Fund (GPIF) recently awarded new active foreign equity mandates to eight fund management houses.  

“There is growth amongst institutional investors across the region and recent policy decisions in Tokyo have accentuated the potential we see in Japan," McNickle says. The firm has about 40 investment professionals in Tokyo.

Although the first two initiatives of Abenomics – monetary easing and fiscal stimulus – have benefited Japan’s economy near-term, uncertainty remains on the neccessary structural reforms.

“There are still questions on how the government will actually implement these changes,” McNickle says. This doesn’t change the positive sentiment that’s occurring in the country now, with McNickle saying Japanese institutions are keen on tailor-made segregated accounts.

He adds that as Fidelity's regional institutional client-base increases, its personnel will as well. “We will hire selectively in Asia Pacific,” he says. “As [investors’] wealth grows, we’ll be hiring more.”

He declined to offer more detail on the firm's hiring plans. Fidelity already has 150 investment professionals and 400 institutional and retail distribution staff in the region.

On investor behaviour, McNickle notes that “we’re in the next stage of the financial crisis. We seem to have gotten through the worst, but we’re still living with the consequences.”

These include record-low interest rates and volatile equity markets. There has been anticipation of a ‘great rotation’ out of fixed income and into equities, with one strategist making the bold statement that bonds are dead.

But McNickle notes that investors haven’t shifted out of fixed income entirely, but rather reallocated out of sovereign debt into corporate bonds and mortgage-backed securities.

The anticipated rise in interest rates – spurred after the US Fed announced plans to taper its quantitative easing programme – has also led to institutional investors shortening bond duration.

“I don’t believe bonds are dead,” McNickle says. “Long-duration sovereign debt may be risky. But institutional investors are much more comfortable with credit now, especially shorter-term paper.”

The Fed’s comments also spurred an exodus out of emerging market equities into developed markets. That said, there is a small group of European and Middle Eastern institutional investors who view the sell-off in EM equities as a buying opportunity, he adds.

Fidelity is also eagerly awaiting news of the cross-border mutual recognition scheme between Hong Kong and China which, when launched, will allow RMB mutual funds in Hong Kong and China to be sold in each others’ markets. The firm has received $300 million in qualified foreign institutional investor (QFII) quota so far.