Mirae’s HomeGrown Quest for Regional Domination

Euromoney, May 2014

It is a little over 10 years since the Korea-based asset manager Mirae Asset opened a Hong Kong office and set upon a new and bold strategy: to be a regional, and later global, fund manager based in Asia, offering Asian product to the region and the world. It might not sound such a visionary position, but even today, there are few truly regional home-grown Asian asset managers. For a pan-Asian equity fund one is still likely to go to an American or European fund manager rather than one that has grown up in the region.

So with a decade of effort under its belt, Euromoney spoke with Jung Ho Rhee, CEO of Mirae Asset Hong Kong – the office from which the global strategy is coordinated – to check on progress.

At the end of February, group assets under management were $57.3 billion, of which roughly half was outside Korea, and of which $8.1 billion was in 144 ETFs.

The Mirae model is interesting in that it doesn’t just distribute internationally but seeks a Fidelity-style commitment to investment managers on the ground. It has a presence in Korea, Japan, China, Taiwan, India, Vietnam and Australia in its home time zone, plus the UK, Canada, US, Brazil and (through the Horizons ETFs business Mirae acquired in Canada) Colombia. It claims 122 investment professionals focusing on emerging markets.

The approach is best illustrated by its flagship equity strategy, Great Consumer, sold in Asia, GEM and global forms. The theme – to invest in companies that can capitalize on growing consumption in emerging markets – is the sort that requires bottom-up research rather than just an index-hugging play on big market cap stocks. The Asia version, for example, looks at gaming, internet, healthcare, rising Asean income, luxury goods, local food tastes and modern retail, and comes up with a portfolio quite different to the usual pan-Asian equity products. The top holding in February was Chinese internet play Tencent, followed by Korea’s Hotel Shilla and the Philippines’ Universal Robina Corp.

“We are very active in providing ETF products, but on the other hand we are very keen to provide differentiated, concentrated funds based on fundamental, on-the-ground research,” says Rhee. “We have a bar-bell strategy, extremes.”

The fund, like many, is available in UCIT/SICAV form, which allows for its distribution both within Asia and further afield. Indeed, Mirae is surely the best placed Asian fund manager to comment on the various moves for an Asian passport scheme. Is one needed, or does UCIT serve the purpose already?

“UCIT is the most acceptable at the moment in Asia, and for Korea is the most identifiable regulatory family,” Rhee says. Of 12 UCIT funds, six now have general authorisation by Hong Kong’s SEC, for example, and they are also easily sold in Singapore and southeast Asia, though not yet straightforwardly in China. So where would an Asian passport fit? “A UCIT cannot provide all the various corners of investor appetite, especially for retail. I think plain vanilla funds strategies can be provided by the UCIT schemes, but very specific investment vehicles tailored to local appetite could be easily transferred to other countries, so a mutual recognition fund passport could provide additional value in addition to the SICAV ones. We complete each other.”

The problem, he says, is the challenge of doing anything regional in Asia. “We don’t have any unified body like an EU. In order to have an Asia-based fund passport we need to have unified jurisdiction, which is very difficult. That is why so far we have only seen bilateral things: mutual recognition between Australia and Korea, for example.”

So why have so few others in Asia taken the Mirae approach? “The disparity between the countries in Asia is much bigger than the disparity between the countries in Europe,” he says. “It is hard to develop on-the-ground research capability in various countries. Number two, maybe the potential demand from each of the countries is still limited.” But he believes flows around Asia – inbound, outbound and within – are all increasing, “providing more opportunities to do something in Asian asset management.”

Although Mirae reaches a lot of retail in Korea and Japan, and also globally through the ETFs, in most of the world its priority remains institutional, and in this respect its success will rest partly on changing global attitudes towards allocation. “Emerging market allocation in the US is very low. It has huge potential to reallocate,” he says. “

Flows have been impeded by the relative outperformance of developed markets in recent years, but to Rhee, this just underlines the importance of a considered, concentrated approach. “If you look at the performance of individual names in Asia, in tourism, e-commerce, healthcare, consumer, those names have performed very well versus global names,” he says. “Do not just talk about the general indices. You can capture the growth through specific sectors and names instead.” Apart from sectors, he also highlights the merits of looking on a single-country basis, notably Korean consumer this year.

Now one of the world’s major players in ETFs, Mirae is having an influence on that market’s evolution. Korea has long been a willing home for more complicated ETFs, such as inverse, leveraged or synthetic structures, which until recently had been shunned in other regional markets such as Australia and Hong Kong. Some are still resistant – “Hong Kong regulators are fairly conservative about inverse and leverage”, he says – but Mirae’s BetaShares subsidiary in Australia is bringing complex products to that market for the first time. But should it? Is this what ETFs are meant to be, rather than simple, low-cost, passive building blocks? “Leverage is a bit of a concern for regulators,” Rhee concedes. “But inverse is good for hedging.”

Asked to describe the Mirae he envisages five years down the track, Rhee speaks of cementing what is already there: “Our strong position as an Asia-born, Asia-based asset manager, managing Asian product.” It is still, after all, a rare proposition.