2016. Depending on whom you ask, you might get varied responses from people. Ranging from “What a year! It was great!” or “Fantastic overall” to “Lacklustre, not ideal” or “absolutely terrible”. What most people would agree on is that it was most certainly eventful. The entire funds industry in general tends to be quite averse and reasonably well-cushioned to external shocks. Through the developments of the past year a lot can be said about the investment climate in the region and how these will likely influence the trends new year ahead.
While the year started on a relatively positive note, there were instances in between that tested the general momentum of the markets. The Brexit vote and the success of Trump in the US Presidential election certainly shook things up and had some significant impact on the overall sentiment and activity as markets drew to a close towards the end of the year, taking a toll on expansion plans for many Chinese and Asian businesses. The industry itself ran wild with instances of mergers, takeovers, closures, expansions, and redundancies.
Opinions for the year saw results split down the middle. On the positive side were the Chinese asset managers, some of who saw solid gains and double digit growths in both returns and AUM. Asia-based (specifically China-origin) fund management setups, generated record numbers based on both assets sourced to overall investment returns. According to AsianInvestor, well-established names like China Universal, EFund, Harvest, Yinhua, and Rongtong led the way with large rises.
Others that shared upsides included global names like AB, Allianz, JPMorgan, Franklin Templeton, and Schroders, who benefitted from their early exposure to Taiwan, having their efforts pay off with the local funds authority giving them due recognition and awards for the “deep cultivation plans” and granting them the ability to introduce new products to the local Taiwanese markets, improving their bottom line and their overall presence.
Consolidation was another driver for the markets, with two global giants coming together to join forces and cut costs. The news of Janus Capital and Henderson Global merging only validated what many people saw as being the inevitable norm in today’s hyper-competitive environment. Other regions where strong demand was displayed were Korea, where after falling behind in comparison to their Chinese and Japanese counterparts, prompted their concerted push into diversifying with more alternative strategies. Hong Kong stalwart Value Partners also saw management changes and a move to develop and expand their coverage regionally.
As for the other end of the spectrum, Private Banks and Wealth Management firms led the naysayers. Compliance issues forced the censure, shakeup, and closure of BSI and Falcon in Singapore. Whereas in Hong Kong, sluggish activity saw the exit of Edmond de Rothschild, and the eventual takeover of ABN-AMRO’s business by LGT. Hedge Funds led the chorus, with top regional names unable to deliver on benchmarked returns and suffering redemptions as a result. Only a handful of firms managed to post some consistent yields, that too by doubling down on credit-oriented strategies.
Some bright sparks remain for the year ahead, Fidelity is looking forward to tapping into Chinese domestic audiences with a range of offerings, having been the first of a few firms to be granted the approval from the Chinese authorities to do so. Other major names associated with Chinese investments appear bullish on the market aided by the recent drop in the currency and the perception of value. Private Equity (specifically Real Estate) is expected to make a huge comeback after a sluggish year where pipeline development dominated the past year and with more money being allocated to the sector overall. Family offices continue to outperform and lead the way with selective, value-seeking initiatives and investments that will improve their returns and reveal niche areas for the rest of the market to exploit.
2017, according to the Chinese zodiac is the year of the Rooster. Traditionally it signifies a focus on effort and diligence, leading to a deserved reward. If the conditions are ripe for growth, increased activity will lead to some positive results. So what will 2017 bring? It remains to be seen. Most will agree that after the ups and downs experienced the year before, consistency is going to be prominent, with some anticipation on either a ‘soft’ Brexit, and the ‘Trump-factor’ can influence and lead the industry on the road to recovery. Traditional funds will continue to seek value – with certain regions outperforming the others, credits will likely play a large role in generating sizeable returns, and overall sentiment is expected to improve once the markets settle after the inauguration. One thing is for certain, there will be a lot more news to look forward to for the year ahead. Let’s hope that 2017 settles us into some consistency and stability than the monkey that was 2016.
Author: Max Alwani, Principal Consultant, Funds Partnership Hong Kong