Vanguard targets institutional build-out in HK, Asia

US-based indexing specialist Vanguard Investments is focused on building its business out of Hong Kong and Asia as it sets out to explore sales and product opportunities in the region.

Just this February the firm received authorisation from Hong Kong’s Securities and Futures Commission (SFC) to deal in and advise on securities.

The same month it hired Jackson Loi from SYZ & Company in Hong Kong as associate director for institutional sales (it lost Yew Weng Ho to Acadian last year). Loi reports to Charles Lin, managing director of institutional sales with responsibility for North Asia ex-Japan, while its Hong Kong office is under regional head Shelly Painter.

Since its founding in 1975 by index fund management champion John Bogle, Vanguard has become one of the world’s largest fund firms with $1.9 trillion under management.

It is primarily known for its low-cost index funds and exchange-traded funds, although almost half of its assets in the US are now accounted for by third-party active mutual funds, largely sourced via a multi-manager approach.

Its biggest operation outside of the US is in Australia where it has about 275 staff including around 30 investment professionals and approximately A$62 billion under management. There it deals exclusively in index funds and exchange-traded funds for institutional investors.

But over the past 10 years Vanguard has been striving to build its presence in Asia, and it now has offices and sales teams in Singapore, Japan and Hong Kong.

Robin Bowerman, Vanguard’s head of market development and corporate affairs in Australia, confirms that its dealings in Asia are largely focused on attracting institutional assets.

With regard to the firm’s intentions for its fledgling Hong Kong operation, he says: “We have been servicing the institutional market, including pension funds, government agencies and large firms that fit the Vanguard proposition around low-cost funds and ETFs for almost a decade, so the next step is to build the sales and marketing office in Hong Kong.

“We think there is an opportunity to build our presence. We regard the Asia region as a long-term growth story and that lines up with the Vanguard approach because we take a long-term view.”

He describes Vanguard as the sort of group that establishes a presence, listens and learns from the market and then tries to build from there.

“We see Asia as a pretty exciting part of the world to be an investment manager in, and hopefully what we have managed to do in the US we can begin to offer to Asian institutions.

“Institutional investors will be the main focus for our team in the immediate future. After that we will look to see what happens in the advisory and direct space.”

Asked how adaptable Vanguard is in its indexing approach and whether it intends to address demand for fundamentally weighted indices over market-cap weighted, Bowerman is unequivocal.

“We are strong advocates of market-cap indices,” he states. “In terms of fundamental indexing, if people want to take bets against the market, that is a perfectly legitimate investment approach. But we just don’t think it should be called indexing, we see it as a style of active quant investing.

“In the US we have value and growth funds which allow investors to track value and growth indices. But essentially if you want to buy the market, to us that is done through a market-cap index.”

He argues that a low-cost indexing approach will always be attractive to sophisticated investors, who understand the value of true market exposure. “To us the low-cost indexing proposition has as much relevance in the large institutional world as it does in the retail investor space,” he says.

Asked whether Vanguard will eventually base investment professionals in Asia and look to introduce active funds management in the region, Bowerman says it is not planned at this stage.

“We are a global investment company and we have a team of professionals in the region on the ground in Australia,” he notes. “What we want to do is build the sales, product and marketing opportunities up from the presence we have today.”