Funds scramble to satiate SWFs’ appetite

Funds scramble to satiate SWFs’ appetite

London: Emerging market sovereign wealth funds (SWFs) and other government institutions are raising their exposure to developing economies, prompting a rush by fund firms to beef up their local presence and grab a piece of the pie.

Interest is particularly strong among institutions diversifying out of fixed income —mainly US treasurys—into equities, who see no reason to restrict themselves to developed markets given better growth in emerging markets. But fund firms have traditionally channelled cash from Western clients to emerging markets (EMs), or from EMs to Western fixed income and equities, so are having to reposition and staff up, as well as shaking up their product range to meet the more targeted demands of the new breed of clients.

“The big question is whether you redeploy people from your organisation in London or take local people on board," said Michael Power, chief strategist at Investec Asset Management. “We will probably see the industry do a bit of both."

He said Anthony Bolton’s move to Hong Kong to manage a China equity fund for Fidelity was a classic example of positioning for where flows are expected to go.

Guy Henriques, head of official institutions at Schroders, transferred to Hong Kong in mid-2009 to take up an additional role as head of institutional business in Asia. “An awful lot of institutional business in Asia is government-related so there is a natural overlap," he said. “More and more senior executives are moving to Asia because of the enormous growth potential."

Big mainstream players such as Schroders and specialist emerging market managers such as Ashmore have had local EM presences for some time, but in the last 12 months the industry has stepped up its on-the-ground commitment.

US firm T. Rowe Price plans to add about 25 staff across Asia in 2010, and build a larger hub in Hong Kong, while Allianz Global Investors wants to get its India joint venture going by year-end.

The pie is certainly big enough for every decent manager to get a slice.

Recent data from IFSL estimate that West Asian and Asian sovereign wealth funds (SWFs) now have some $2.97 trillion (Rs267.6 trillion) in assets, with the non-commodity-driven SWFs growing at a faster pace in recent years.