Fidelity Changes Course in China
When Chris Ryan joined Fidelity in January, market observers speculated this meant Fidelity was reversing course on its refusal to enter a minority-owned joint venture in China. It looks like the scuttlebutt was on the mark. The firm has just hired Zhan Long, one of the most experienced managers of a Sino-foreign JV fund house, for a new role as China country head.
The move comes amid a number of strategic changes Fidelity is enacting in Asia, including the hire of Stuart Guinness from Prudential Asset Management to lead product development. "Other firms are freezing new hires but we don't need to," Fidelity says. "We're expanding and using this opportunity to hire."
Ryan had previously established one of the best-regarded Sino-foreign JVs in mutual funds as regional CEO at ING Investment Management. China Merchants Fund Management was founded in the first wave of fund JVs in 2003. He joined Fidelity in January 2008 in a new management role, reporting to Asia-Pacific CEO Brett Goodin.
Fidelity Investments had steadfastly refused to enter into such a deal. The privately owned company stuck to a policy of avoiding situations in which it lacked control. For several years, this policy looked wise, as a sagging A-share market and structural problems in local capital markets made the whole business a money-bleeding headache.
But the firm has also missed out on the funds industry's tremendous growth in 2006 and 2007. Assets under management among foreign-invested fund houses in China rose from about $100 billion, a little more than 20% of the domestic funds market, to around $450 billion, or 40% of the domestic market, by the end of 2007.
Fidelity has maintained a rep office in Shanghai for three years, led by Anne Lam, which has pursued international institutional business and QDII opportunities.
"We are reviewing the whole effort and stepping up our efforts in China," Ryan says. "We've had a rep office but the way we approach the market has to change. The rep office is still important but we're looking at our whole team objectively, based on what we want to do now. We are looking for ways to enter the market."
He says the possibility of doing a joint venture is "under investigation".
Zhan Long will start his new role on July 1, moving from Shenzhen to Hong Kong. He was previously executive deputy general manager at China Merchants Fund Management, which he joined when it was founded. Fidelity plans additional hires to support his effort, which could include investment or research capabilities; the firm has submitted a QFII application already.
"We're looking at all options," Ryan says, noting that Zhan's task is to put together a strategy.
This is only one of several areas where the firm is expanding or changing course. It has just hired Stuart Guinness from Pru in Singapore to lead product development. The current team is being restructured to go after opportunities in private banking, direct sales to high-net-worth individuals, and institutions, as well as to offer more innovative products to Fidelity's existing core clientele, the wholesale market.
"We have to sharpen our focus on product development beyond the things we're already good at," Ryan says. "We have to be more innovative and improve our time to market." This includes other types of asset classes for institutions or wholesale investors, not just equities, which is the firm's traditional strength, but asset-allocation mandates or real estate products.
One example—not cited by Ryan—is the Korean funds market, where Fidelity was by far the dominant provider of offshore products from its line of Sicav funds domiciled in Europe. The Korean authorities changed tax rules to favour locally domiciled, international products. Suddenly new sales evaporated and Fidelity had to scramble to keep up with other players that also had onshore funds. Taiwan is reportedly considering similar tax changes.
When asked about this example, Ryan says the firm agrees it needs to expand its product line beyond Sicavs (he wouldn't comment directly on the Korea episode).
Madeline Ho, managing director in Singapore, has been given an expanded role. Fidelity has mainly concentrated on its wholesale business in Southeast Asia but now wants to go after institutional investors as well. She has just hired Quah Chum-Yong from DBS Asset Management, where he had been director and head of client services. His focus will be on sales and marketing to private banks and Southeast Asian institutions.
And Evan Hale, who previously ran the Korea business and moved to Hong Kong last year as its new country head, will also take charge of a regional effort to win business among private banks and establish a direct sales effort for high-net-worth individuals. The firm has a modest capability already in Taiwan and Hong Kong, but has seen other fund managers expand aggressively in these areas.
"In the past few years, Fidelity's focus has been on its strong wholesale business," Ryan explains. "We had to cope with enormous growth. But we also realised the need to diversify—from being too focused on equities, too focused on wholesale, and into China and to the institutional business in Southeast Asia."
The firm intends to announce several more senior hires in the coming weeks, including one for product development aimed at insurance companies.