Threadneedle eyes Asian equity, sharia buildout

UK-based asset manager Threadneedle is looking to add a core fund management capability in Asia, initially focused on equities, as it strives to build up its regional presence.

It comes as the firm, which sources around 10% of its £86 billion ($132 billion) in AUM from Asia, explores other opportunities, including potentially launching sharia products, a global thematic fund and an infrastructure product for retail investors.

Threadneedle has been seeking to build its Asia base, having hired Raymundo Yu in November 2010 as its Asia-Pacific chairman based in Singapore. He now oversees more than 40 investment and business development staff across Hong Kong, Singapore, Taiwan, Malaysia and Australia.

While the firm's growth ambitions chiefly remain organic, its parent company, Ameriprise Financial, was linked last year with the acquisition of ING Investment Management’s Asia business. It subsequently withdrew, and the ING IM’s Asia assets are now being sold piecemeal. But acquisitions likely remain on the agenda for Ameriprise.

“Asia is interesting for us because we would really like to get a bigger base there organically,” confirms Campbell Fleming, Threadneedle’s global CEO based in London and formerly its head of global distribution.

Threadneedle installed Gigi Chan as its first Asia-based fund manager in late 2011, relocating her from London to Singapore. She runs its China Opportunities equity fund. The firm followed that up mid-last year with the appointment of Clifford Lau from Prudential’s Pramerica in a new role as head of Asia fixed income.

But overall Threadneedle has just five of 165 investment professionals globally based in Asia. Asked how he plans to grow the Asian business, Fleming suggests it would be to install a core regional capability.

At present the firm is not seen as a go-to manager for Asian equities, and tends to promote its European and UK, as well as global, equity capabilities.

“Having a core allocation for Asia based in the region, that is something we have to fix,” says Fleming. “We do Asian equities out of London, so the potential would be to introduce that to Asia.”

He confirms that Threadneedle would look at a potential joint venture in China with the right partner. “I think anyone in my position would admit they want to enter the China market at the right time,” he notes.

However, in a mid-year market review published this week, Threadneedle CIO Mark Burgess voiced the view that China's investment boom has reached its limit and that it now needs consumption growth to rebalance its economy.

He highlights scope for disappointment in terms of 2014 China growth. As for recent changes to its asset allocation, Threadneedle has become more positive on UK property and Japanese equities, with potential for a significant rerating in the latter's equity market.

Separately, Fleming says Threadneedle was granted an Islamic finance licence in Malaysia earlier this year and is potentially looking at developing a range of sharia products.

“There is a crescent of Islamic investors from Scotland to Jakarta that are woefully underinvested by western financial institutions,” he observes. “We are having a serious look at sharia products.”

Further, Fleming is eager to create an infrastructure product that retail and/or small institutional investors can access, although there is no facility for that under current Ucits regulations.

However, he notes that the European parliament is starting to think about how to create a more long-term Ucits investment vehicle, with infrastructure one possibility. “That is encouraging, and it [infrastructure] would be a fascinating development,” he says. “We will watch this space.”

Threadneedle is also exploring the possibility of developing a product based on an unspecified global theme to target long-term, risk-adjusted returns.

“People might be concerned about national or regional economies, but they are not concerned about the global economy,” Fleming reflects.

“You can see a range of global building blocks [by asset class] being put together for people who might want to take advantage of certain segments or trends.

“Some global lifestyle funds and global water funds have done well, but they are facing capacity constraints, so clearly there is demand for this type of product.”