ING Grows Assets Using
Approach In Asia-Pacific Investment Management Business
Originally published January
Financial firms in the
Europe are witnessing the rapid
growth of the Asia-Pacific markets and looking to plant stakes in the
region. With China and India in
particular becoming global financial powerhouses, Western firms are
trying to overcome differences in the business culture and operations
practices to succeed in the region. Operating with a smaller staff than
other regional units of ING Investment Management, ING’s Asia-Pacific
division, with $150 billion in assets under management, has reported
growth of $30 billion AUM over the past 12 months. ING Investment
Management invests in all Asian credit markets, currencies, derivatives,
structured products, real estate securities and direct real estate
business. The asset management firm tries to take a ‘new world’ approach
to its activities in Asia.
Global Investment Technology spoke with Chris Ryan, Chief
Executive, Asia-Pacific, ING Investment Management.
GIT: What are some of the key
trends shaping the asset management business in
CR: First is the movement of
capital from West to East. Secondly, rapid economic growth is creating
three particular things: first, an investing middle class; a demand for
pension funds for retirement; and more rapid development of regulations.
Another key trend is bank-based distribution of mutual funds, which is
just exploding, replacing direct distribution of funds. In most
countries, bank-based distribution is about 85 to 90 percent of total
distribution. In many countries, regulation did not originally permit
banks to distribute funds. With bank-based distribution, it’s a
consolidated distribution chain for the consumer. Everyone goes to the
bank, and one way or another, funds are introduced to them. That’s not
better or worse, it’s just different. It means the distribution systems
are evolving differently from Western countries.
GIT: What are your biggest
challenges as chief executive officer for Asia-Pacific of a leading
global asset management firm?
CR: If the industry had more
experienced people than it does today, it would grow faster. That’s the
major constraint for every player. We need commitment to training and
development. In recent years, to supplement our recruitment of
experienced people, ING has been recruiting from the Indian Institute of
Management, as well as Beijing
University, and universities in the Philippines. We
need to bring them in young, spend three years educating them and then
put them into the business. At the other end, senior and experienced
management talent is difficult to find. It’s also surprisingly hard to
import from Western countries, for a number of demographic reasons.
Experienced managers often have children in school, social networks and
a good life in their home country. You can find returning expatriates –
Indians who have been in the US or the UK for 10 years who are willing to
go back now, but weren’t willing five years ago. You can find Filipinos
who have been working in the
US. But there’s still a limited supply
It’s a constant battle for talent. For someone
starting up a new organization or trying to expand rapidly in
Asia, that’s a major constraint. You have to calibrate
growth plans around the people that you can attract to the business.
Difficulties in outsourcing exacerbate the people problem. Operations
people may not always be exposed to trading in foreign securities. That
requires time and a lot of training. If, for example, we are launching a
global real estate fund, sub-advised in New York
but settled in India,
we have to find people in
whom we can teach how global real estate securities work. They must know
how to handle a failed trade, how to follow up on it and whom to call.
GIT: How does the IT support
environment differ in Asia from the
CR: The main challenge is multiple
currencies and multiple languages.
China, Japan, Korea,
and other places all require double-byte characters that have more
strokes in each letter space than Western characters. Western systems
aren’t built for these double-byte characters, and require a relatively
major modification to handle them. Double-byte characters could be built
in HTML, but HTML cannot be easily superimposed over older systems.
More broadly, the US and other mature markets operate
with an ‘old world’ way of thinking, while Asian countries have a ‘new
world’ way of thinking. The ‘old world’ way is when a corporation thinks
they’re simplifying things for the customer by reducing costs, but does
so without thinking about what the customer wants. ‘New world’ thinking
is customer focused, like Tata Motors developing the $2,500 car in India. When
entering Asian markets, Western firms should think about how to expand
what each of these local markets does rather than just putting those
countries’ customers into their systems, which can lose a lot of the
flexibility the local businesses have.
Also, trading systems and standards vary. That’s
mostly an issue in
China, but there are other issues in
other countries. China operates on a virtual
real-time settlement basis, so you can’t have a failed trade. You really
know whether your trade has settled or not, because they leapfrogged and
started on a paperless system. So while we’re all focusing on getting to
T+1 or STP, they have STP. They started with it. When we serve Chinese
funds investing abroad, they say, ‘What you’re asking us to do is less
efficient. Why?’ T+1 or T+2 sounds like a joke to them. They ask why
there’s this risk in the system. We’re used to failed trades and know
what to do with them, but to them it’s like buying a car and saying,
‘This car is just the same, except occasionally one of the wheels will
fall off … without warning.’
GIT: What is the state of
direct market access and electronic trading in the Asia-Pacific region?
CR: In most cases, there is remote
direct market access available. It varies by country, but for a large
proportion of trades you can do that. There are issues in the
fixed-income markets. Illiquidity issues pop up more often in
Asia because turnover is lower relative to the market size
and the credit markets aren’t as efficient, so pricing of fixed-income
securities to value a portfolio can be manual. Sometimes you have to
encourage a broker to price something they weren’t before, so there’s
enough triangulation in the pricing.
GIT: Can you describe ING
Asset Management’s Asia-Pacific operations?
CR: Broadly, we use three main
systems. In the front office, we’re moving toward Charles River, and I
think we have Charles River in more
locations than anyone else. We are moving away from Bloomberg PTS, which
doesn’t provide the pre- and post-trade compliance that we need to meet
our global standards. Charles River
is still undergoing development and doesn’t cover all the securities we
need, particularly on the fixed-income side. That’s as much a global
issue as it is an Asian issue, but it actually does a pretty good job on
the equities side. Middle office at the moment is Thomson Financial’s
PORTIA system, which we use in a number of locations. We also use DST
HiPortfolio in several locations. We use two systems because of
Both have their advantages and disadvantages, and
both are reasonably well supported across Asia.
We still think we should be outsourcing more. No matter how big we are,
we still will be sub-scale in managing that kind of technology
efficiently. We use Omgeo and other trade-support services. We use
global standard systems to connect as much as we can. We don’t run
things on spreadsheets, unless there’s no other way. Everyone runs some
spreadsheets somewhere, but we’ve minimized the use and maximized the
use of applications that have global standards.
GIT: Are custodians meeting
the needs of asset managers in the Asia-Pacific region? To what extent
does ING utilize outsourcing?
CR: Performance measurement and
attribution is a big gap. They either don’t do it or don’t do it well.
In mature markets, custodians are offering that kind of service. It’s in
very few markets and if they do have it, they’re not doing it with
sufficient conviction. We’re happy to pay for it and I’m sure many of
our competitors would, too. We use Thomson PORTIA for performance
measurement and risk reporting because there’s no one else who can take
it on. Everyone tells us they want to partner with us on it, but it’s a
big bite. If they don’t believe that one-third of global assets will be
in Asia in 10 years, then they may not make the investment
that’s required to get this done. No one is obviously stepping up to do
that at the present moment.
GIT: Rudyard Kipling claimed
East is East and West is West and never the twain shall meet. What are
the prospects for marketplace convergence, at least in asset management
and securities trading practices?
CR: Kipling meant that if you
think like the West in the East, you will fail. The opposite is also
true. If you’re going to operate in the East, you need to think like the
East. Kipling didn’t mean that they wouldn’t touch each other. He meant
if you think from a Western perspective in the East, you will become
frustrated and won’t succeed. That’s absolutely correct. That’s thinking
about the customer. The customers are in the East. They aren’t budding
American, Australian or English consumers. They’re Chinese, Vietnamese
or Koreans. It doesn’t mean you have to re-design everything, but it
does mean that you have to start from what’s important there and maybe
take a different business strategy to solve the problem.
GIT: Has any custodian been
able to accommodate all Asia-Pacific countries on one platform?
CR: No one else has. We’re an asset manager and are in
all these markets and had to do it. I don’t think it’s that hard. It
can’t be that difficult, because we do it in all these locations. From a
global custody point of view, we want to see greater coverage, better
quality relationship management in these countries – it varies a lot; a
better measurement and attribution analysis right across the regions;
and the ability to outsource more of our operations, even portfolio
accounting and things we can’t necessarily do. When we can, it’s very
expensive. Portfolio accounting is the big opportunity as the industry