Goldman Sachs AM strengthens its Asian business
Among Goldman Sachs Asset ManagementÆs key priorities is to get its operations and investment capabilities in Korea and India running smoothly.
Oliver Bolitho is head of Goldman Sachs Asset Management (GSAM) in Asia ex-Japan. He moved to Hong Kong from London in March 2007 and it is under his leadership that GSAM has seen its business in Asia expand aggressively. In September 2007, GSAM acquired Macquarie-IMM Investment Management. Earlier this month, it received regulatory approval for its operations in India. GSAMÆs preference is to have 100% ownership of its local operations, but thatÆs not stopping the firm from looking into deals in markets in Asia where that is not possible, such as China. Bolitho spoke to AsianInvestor about GSAMÆs business in Asia and plans to strengthen local operations and investment capabilities.
You moved from London to Hong Kong in March 2007 to head Goldman Sachs Asset Management in Asia-Pacific. What have been the firmÆs main priorities and key accomplishments these past 18 months?
Bolitho: The evolution of this business is an ongoing process. We are midway through a program of building out a significantly greater focus on Asia than we have had in the past. That process has two strands to it. The first is the development of additional investment capabilities in the region through building investment teams on the ground. The second is building our coverage capabilities to service our clients in the region. The big step there is the development and build-out of our local onshore capabilities.
GSAM acquired Macquarie-IMM in Korea in September 2007. What has GSAM been doing with that business since then?
Our number one priority has been to integrate this business into Goldman Sachs Asset Management. As an acquisition, many of the systems and controls needed to be æGoldmanisedÆ. We have made big investments in technology, in compliance systems, in oversight teams to help us to get comfortable with the platform and ready for our fund launch.
Who heads up your business in Korea?
The CEO of the business is Jay Lee. [Editor's note: Lee is responsible for the overall business of the company, focusing on sales and marketing. He is one of the founding partners of Macquarie-IMM, which was established in March 2000. He was president of Macquarie-IMM from September 2002 to September 2007, when the company was acquired by GSAM.]
What is the latest development with regard to your business in Korea?
We have already launched our onshore Korea Equity Fund and are planning to launch a series of international funds before the first quarter of 2009.We have strengthened the existing local team with some new hires to form a new Korean equity capability. They have taken on the management of the assets that have been there pre-acquisition and they are changing the investment philosophy of that capability to run funds that are more concentrated on the outperformance of the market. Our objective is to create funds that will be attractive in the long-term to retail investors. In order to do that, they would have to generate significant net returns.
We have a very strong fixed-income franchise today within that business. The core of the business that we bought is a domestic fixed-income capability. That was the majority of the assets. That team remains very strong, very stable, and they continue to deliver very attractive returns both relative to benchmark and relative to the competition.
Is your focus in Korea retail or institutional?
We have an institutional business in Korea, which is a legacy business offshore, that has been very successful. We also have an institutional business and third-party distribution business inside the onshore Korea platform. Because of our history of being institutionally focused, one of the gems inside the Korean business was that experience in the third-party space. The institutional business in Korea is very strong. It remains a very important focus for us.
What else have you been focusing on in Asia?
The team has been very busy with the build out of our Indian strategy. We received our asset management company approval in India in early September. Unlike Korea, India has been an entirely organic build that is the result of about 15 months of effort by a large group of people around the world, driven particularly by Adam Broder, who is our CEO in India. He has worked at Goldman since the late-1990s. He worked in New York for a while, in both Goldman Sachs Asset Management and Private Wealth Management. More recently, he was located in Hong Kong where he worked closely with me on building the broad Asia strategy. He has lived in Mumbai since February.
In a relatively short period of time, we have pulled together a team, hired a group of sales people, developed internal processes, infrastructure, and are in the process of putting in place a distribution structure.
Presently we have two mutual funds that are pending clearance. There is also an offshore fund for international investors who wish to invest in India, which is up and running. The research team is based in Mumbai. The lead portfolio manager of the domestic fund is based in Mumbai, Prashant Khemka.
Is it a requirement for GSAM to expand in Asia only through a 100% acquisition or through an organic build-up of a company? Is this why you are not yet in China?
We have built our global business almost entirely organically, and we are comfortable doing so in Asia as well. That said, it is important that we look at all deals that may fit with our strategy. We will consider doing deals where we will have less than 100% ownership, where regulations require it to be the case. Our preference is 100% ownership, but there are a number of jurisdictions in Asia where a 100% ownership is not possible today or unlikely to be possible in the long-term and in those environments, we will still actively consider deals, subject to our setting higher expectations for businesses where we donÆt have complete control.
Are you still actively looking for a possible JV in China?
We are working with the regulators on the various required licence approaches. We are awaiting guidance on the ability to apply directly. We continue to look at opportunities across the spectrum.
Could you elaborate on your plans to strengthen your manufacturing capability on the ground?
With the increasing focus on the onshore businesses, we currently have investment/trading teams across Singapore, Hong Kong, India, and Korea. We have built the investment capabilities in India, acquired the investment capabilities in Korea, built a China investment capability based in Hong Kong and a China research capability in Shanghai. We are now in the process of building a new investment capability in the real estate space in Asia, which will be co-located in Hong Kong and Singapore.
Are you already setting your sights on building an onshore presence in other markets in Asia?
At this stage, the most important thing is to get the capabilities in Korea and India right and running smoothly. The regulatory environment in Asia is different in each jurisdiction and relatively strict when compared with Europe and even the US. The decision to add new resources in order to stretch the footprint is something that we look at consistently. We do continue to look at other Asian markets, but the likelihood of having a significant stretch from where we are today is small.
Which markets in Asia are you strongest at the moment?
The most important markets to us in terms of size of the asset potential are China, India and Korea. Obviously, our ability to penetrate the China market is going to be determined by the licenses that we are able to receive. [EditorÆs note: At present, GSAM has a QFII licence in China.]
How big is the investment team in Singapore at the moment, and do you have any plans of expanding that?
The Singapore team today is our regional Asian equity business which has slimmed down over the past year as we have shifted capability to local, onshore platforms. However, research coverage in Asia is now four times what it was. The most important addition to our investment capability in the region is in the area of real estate û one person is based in Hong Kong the rest will be in Singapore.
How big is your investment team in Asia?
We currently have investment teams across Hong Kong, India, Korea and a research team in China.
Looking ahead, is all the manufacturing of Asian-related products going to be done locally in this region?
We believe that there is an informational advantage to being local. You have a better understanding of how the local market is working. You have better access to the management teams and the players in the market in which you are investing. ThatÆs why we have established our investment teams in each of the markets in which we are investing.
What are your main distribution channels in Asia?
Historically, we have always been an institutionally focused organization because our best and most productive client relationships are the ones where we are working with the largest institutions in the world to bring them the highest quality products that we can find. That philosophy continues to apply even where we are moving into third party distribution standards. In both Korea and India, we have developed a relatively small list of distributor relationships because we would rather have deep relationships with a smaller number of clients than to be spread very broadly across the market.
Does this mean we will not see GSAM active in the retail market?
ThatÆs not the core strategy. Our business is historically focused on the largest institutions and the wealthiest individuals in our private wealth management business. The core strength of Goldman Sachs is managing the biggest relationships as best we can.
What have been the main challenges that you have faced over the past 18 months?
Our asset management business has been historically under resourced. More focus was put on the build out of the US and European businesses. Clearly, we are now shining a light on Asia and looking to build significantly our investment in the client base here. When starting from a relatively low base, the big challenge is to secure resources in a reasonably constrained environment. [EditorÆs note: Prior to assuming his current role, Bolitho was head of GSAMÆs UK and Irish business from 2001 to 2006.]
What is your AUM from Asian clients?
The dominant share of most of the assets in Asia ex-Japan û more than $30 billion û are in offshore products sold here. These are Asian clientsÆ assets invested through GSAM capabilities in international markets.
Will the prevailing uncertainty about the financial sector in the US and its broader implications on markets and economies worldwide have an impact on GSAMÆs business in Asia?
While the current environment will have global ramifications for some time to come, it remains likely that Asia will be the principle driver of global growth over the long-term. With that growth comes increased local wealth and affluence so we remain very positive about our asset management business here and intend to continue to invest.
You moved from London to Hong Kong in March 2007 to head Goldman Sachs Asset Management in Asia-Pacific. What have been the firmÆs main priorities and key accomplishments these past 18 months?
Bolitho: The evolution of this business is an ongoing process. We are midway through a program of building out a significantly greater focus on Asia than we have had in the past. That process has two strands to it. The first is the development of additional investment capabilities in the region through building investment teams on the ground. The second is building our coverage capabilities to service our clients in the region. The big step there is the development and build-out of our local onshore capabilities.
GSAM acquired Macquarie-IMM in Korea in September 2007. What has GSAM been doing with that business since then?
Our number one priority has been to integrate this business into Goldman Sachs Asset Management. As an acquisition, many of the systems and controls needed to be æGoldmanisedÆ. We have made big investments in technology, in compliance systems, in oversight teams to help us to get comfortable with the platform and ready for our fund launch.
Who heads up your business in Korea?
The CEO of the business is Jay Lee. [Editor's note: Lee is responsible for the overall business of the company, focusing on sales and marketing. He is one of the founding partners of Macquarie-IMM, which was established in March 2000. He was president of Macquarie-IMM from September 2002 to September 2007, when the company was acquired by GSAM.]
What is the latest development with regard to your business in Korea?
We have already launched our onshore Korea Equity Fund and are planning to launch a series of international funds before the first quarter of 2009.We have strengthened the existing local team with some new hires to form a new Korean equity capability. They have taken on the management of the assets that have been there pre-acquisition and they are changing the investment philosophy of that capability to run funds that are more concentrated on the outperformance of the market. Our objective is to create funds that will be attractive in the long-term to retail investors. In order to do that, they would have to generate significant net returns.
We have a very strong fixed-income franchise today within that business. The core of the business that we bought is a domestic fixed-income capability. That was the majority of the assets. That team remains very strong, very stable, and they continue to deliver very attractive returns both relative to benchmark and relative to the competition.
Is your focus in Korea retail or institutional?
We have an institutional business in Korea, which is a legacy business offshore, that has been very successful. We also have an institutional business and third-party distribution business inside the onshore Korea platform. Because of our history of being institutionally focused, one of the gems inside the Korean business was that experience in the third-party space. The institutional business in Korea is very strong. It remains a very important focus for us.
What else have you been focusing on in Asia?
The team has been very busy with the build out of our Indian strategy. We received our asset management company approval in India in early September. Unlike Korea, India has been an entirely organic build that is the result of about 15 months of effort by a large group of people around the world, driven particularly by Adam Broder, who is our CEO in India. He has worked at Goldman since the late-1990s. He worked in New York for a while, in both Goldman Sachs Asset Management and Private Wealth Management. More recently, he was located in Hong Kong where he worked closely with me on building the broad Asia strategy. He has lived in Mumbai since February.
In a relatively short period of time, we have pulled together a team, hired a group of sales people, developed internal processes, infrastructure, and are in the process of putting in place a distribution structure.
Presently we have two mutual funds that are pending clearance. There is also an offshore fund for international investors who wish to invest in India, which is up and running. The research team is based in Mumbai. The lead portfolio manager of the domestic fund is based in Mumbai, Prashant Khemka.
Is it a requirement for GSAM to expand in Asia only through a 100% acquisition or through an organic build-up of a company? Is this why you are not yet in China?
We have built our global business almost entirely organically, and we are comfortable doing so in Asia as well. That said, it is important that we look at all deals that may fit with our strategy. We will consider doing deals where we will have less than 100% ownership, where regulations require it to be the case. Our preference is 100% ownership, but there are a number of jurisdictions in Asia where a 100% ownership is not possible today or unlikely to be possible in the long-term and in those environments, we will still actively consider deals, subject to our setting higher expectations for businesses where we donÆt have complete control.
Are you still actively looking for a possible JV in China?
We are working with the regulators on the various required licence approaches. We are awaiting guidance on the ability to apply directly. We continue to look at opportunities across the spectrum.
Could you elaborate on your plans to strengthen your manufacturing capability on the ground?
With the increasing focus on the onshore businesses, we currently have investment/trading teams across Singapore, Hong Kong, India, and Korea. We have built the investment capabilities in India, acquired the investment capabilities in Korea, built a China investment capability based in Hong Kong and a China research capability in Shanghai. We are now in the process of building a new investment capability in the real estate space in Asia, which will be co-located in Hong Kong and Singapore.
Are you already setting your sights on building an onshore presence in other markets in Asia?
At this stage, the most important thing is to get the capabilities in Korea and India right and running smoothly. The regulatory environment in Asia is different in each jurisdiction and relatively strict when compared with Europe and even the US. The decision to add new resources in order to stretch the footprint is something that we look at consistently. We do continue to look at other Asian markets, but the likelihood of having a significant stretch from where we are today is small.
Which markets in Asia are you strongest at the moment?
The most important markets to us in terms of size of the asset potential are China, India and Korea. Obviously, our ability to penetrate the China market is going to be determined by the licenses that we are able to receive. [EditorÆs note: At present, GSAM has a QFII licence in China.]
How big is the investment team in Singapore at the moment, and do you have any plans of expanding that?
The Singapore team today is our regional Asian equity business which has slimmed down over the past year as we have shifted capability to local, onshore platforms. However, research coverage in Asia is now four times what it was. The most important addition to our investment capability in the region is in the area of real estate û one person is based in Hong Kong the rest will be in Singapore.
How big is your investment team in Asia?
We currently have investment teams across Hong Kong, India, Korea and a research team in China.
Looking ahead, is all the manufacturing of Asian-related products going to be done locally in this region?
We believe that there is an informational advantage to being local. You have a better understanding of how the local market is working. You have better access to the management teams and the players in the market in which you are investing. ThatÆs why we have established our investment teams in each of the markets in which we are investing.
What are your main distribution channels in Asia?
Historically, we have always been an institutionally focused organization because our best and most productive client relationships are the ones where we are working with the largest institutions in the world to bring them the highest quality products that we can find. That philosophy continues to apply even where we are moving into third party distribution standards. In both Korea and India, we have developed a relatively small list of distributor relationships because we would rather have deep relationships with a smaller number of clients than to be spread very broadly across the market.
Does this mean we will not see GSAM active in the retail market?
ThatÆs not the core strategy. Our business is historically focused on the largest institutions and the wealthiest individuals in our private wealth management business. The core strength of Goldman Sachs is managing the biggest relationships as best we can.
What have been the main challenges that you have faced over the past 18 months?
Our asset management business has been historically under resourced. More focus was put on the build out of the US and European businesses. Clearly, we are now shining a light on Asia and looking to build significantly our investment in the client base here. When starting from a relatively low base, the big challenge is to secure resources in a reasonably constrained environment. [EditorÆs note: Prior to assuming his current role, Bolitho was head of GSAMÆs UK and Irish business from 2001 to 2006.]
What is your AUM from Asian clients?
The dominant share of most of the assets in Asia ex-Japan û more than $30 billion û are in offshore products sold here. These are Asian clientsÆ assets invested through GSAM capabilities in international markets.
Will the prevailing uncertainty about the financial sector in the US and its broader implications on markets and economies worldwide have an impact on GSAMÆs business in Asia?
While the current environment will have global ramifications for some time to come, it remains likely that Asia will be the principle driver of global growth over the long-term. With that growth comes increased local wealth and affluence so we remain very positive about our asset management business here and intend to continue to invest.
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