Taipei Times: As an asset management company official, what's your view on Taiwan's asset management market after discretionary managed accounts (代客操作) have been deregulated?
Linda Lue (呂美瑩): We are very interested in developing institutional clients such as the pension funds, postal savings fund and insurance companies in Taiwan, especially since the authorities deregulated discretionary managed accounts. Since 91 percent of Baring's business is already concentrated on institutional clients, we would like to attract more clients to use our service in investing in global markets. We are optimistic with regards to the institutional clients market in Taiwan, although it's still at early stage compared with other more developed markets like Japan and Hong Kong.
PHOTO: CHIANG YING-YING, TAIPEI TIMES
TT: Is there any difference between retail clients and institutional clients toward asset management in Taiwan?
Lue: Normally we define an investment mandate of US$25 million from an institutional client in UK, and set up a segregated portfolio (or discretionary managed account) for such clients, if requested. But in Taiwan, some clients consider US$5 million as an institutional mandate. From an economic scale, it's not enough to cover the cost of managing such an account. However, the field is still in the early stages for Taiwan. I believe in the future, institutional clients will gradually understand their different needs from retail investors.
One major difference between Taiwan and other markets has been that local investors like to operate their own money, including institutional investors. In foreign markets, institutional investors might consider a 10 percent annual return is good enough, or they would choose a benchmark, say MSCI index for instance, to evaluate their investment return.
But in Taiwan, many institutional investors would consider such a return to be poor, because they could manage to achieve it on a monthly or even weekly return. Such a concept, of course, came from their personal experience in investing in Taiwan's stock market, but it could seriously endanger the safety of the assets they manage for institutions.
One good example is that the government ordered the four government funds to invest heavily in Taiwan's stock market last year, and generated tremendous losses. Institutions' assets are not supposed to take such risk.
TT: Taiwan's mutual fund market has been booming in recent years. What's your view on the mutual fund industry in Taiwan?
Lue: Taiwan's banking sector had sold an estimated US$6 billion of overseas mutual funds in 2000 alone. The total assets of the domestic mutual fund industry also exceeded NT$1 trillion last year. These figures show that Taiwan's asset management market has been growing fast. However, a number of problems exist in the market.
One major problem I see is that currently we have as many as 38 domestic fund companies, and the number is increasing rapidly. We could see it reaches 50 in a year or two from now. That could pose the same problem as over-banking in the banking sector. Furthermore, almost all the domestic mutual fund companies provide very similar products and lack diversification. What they provide are Taiwan stock funds, mostly concentrated in electronics shares, and bond funds, which are actually money market funds. A small number of overseas funds are also available, but most of them are poorly managed. It means that Taiwan's mutual fund industry needs to be enhanced in product side in order to meet the competition, especially when Taiwan is going to enter the WTO in the near term.
TT: If Taiwan's fund industry is so vulnerable, how can it be improved?
Lue: There are two perspectives, one is from the government, and the other one is the fund industry. First, the government should change its view on foreign investment by domestic investors. An interesting aspect is that although Taiwan's government has been discouraging local investors to hold assets in foreign currencies for decades, they have failed. One major reason is that the political uncertainty between China and Taiwan has motivated local investors to hold handsome assets in US dollars or other currencies.
Last year when Taiwan stock market collapsed, as much as US$10 billion moved to overseas market through fund investments, as mentioned earlier. The government should realize that deregulation and liberalization is the best way to manage capital flow, almost all the effort to control capital flow would be in vain, just like the "no haste, be patient" (
Secondly, the local fund industry should diversify their products into international equity and bond markets as soon as possible in order to cope with Taiwan's entry into WTO. One of the ways is to invite investment advisor to assist them to develop overseas investment vehicles. Another way is to have a joint venture with foreign partners. Both ways could provide know-how to the domestic fund industry and improve their competitiveness in the coming decades. Without diversification, many fund companies will not survive when foreign competitors flood the market.
TT: What's your view on the over-banking problem in Taiwan?
Lue: Taiwan's banking industry is currently in a merger trend. From the point of view of equity-value's fundamental analysis, companies have to be evaluated by their growth and management. It means that unless the banks close down their unproductive branches, lay off redundant staff and reorganize their businesses after the merger has taken place, it will be meaningless to have merged in the first place.
The authorities must change their attitude on the lay-off issue or else the competitiveness of the banking industry will hardly be improved. The only thing I can see for now is they are trying to get rid of the bad loans through merging small banks with big banks and shift the problem to the big banks.
TT: Baring Asset Management held its 2001 Taipei road show last week, could you give us a summary of its prospective on the global market for this year?
Lue: Although the economic growth will slow down this year, we do not expect an economic recession, especially when the US is taking the loose monetary policy of Federal Reserve Chairman Alan Greenspan.
Therefore, we are still upbeat about investing in a number of stock markets. We are quite positive with regards to the Asian market, especially Northern Asian markets like China, Hong Kong and Taiwan, but Japan is not recommended.
From the global assets allocation, we are positive on stock markets including Southeast Asia and Australia, the UK and emerging markets.
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