Simon Hopkins, former CEO of the Fortune Group, is a man on a mission – to connect western investors with emerging markets.
‘40 per cent of global GDP comes from the developing world,’ Hopkins says. ‘But emerging markets make up only 13 per cent of the major indices. And an even bigger shock is that western institutions’ pension funds are only invested to the tune of about 3 per cent to 4 per cent in the developing world.
‘Here, a bigger portion of companies is exposed to emerging markets because of the reliance on China. But western institutions are pitifully under-represented in terms of investment in the developing world.’
One key reason for this, Hopkins adds, is that western institutions are very nervous about investing with people they don’t know, in parts of the world they don’t understand and through structures they don’t control. The other reason is the fallout from the global financial crisis.
‘Formerly, offshore investments meant managers were putting full control of their clients’ money into the hands of offshore parties who weren’t regulated,’ explains Hopkins. ‘There were a lot of efficiencies and not enough control.’
The crisis, he continues, exposed so many issues with the structure of the offshore fund world that investors became very cautious about putting their money anywhere other than locally.
This flaw in the existing structure, and the gap it created, are why Hopkins relocated to Singapore in January to set up Milltrust International, a new global investment management house that focuses on emerging markets. The model he proposes is a single custodian platform that retains investors’ funds, but engages local investment managers in the relevant countries to serve as advisers on the assets.
Milltrust’s target destinations are Asia, South America and eventually India and Africa; for its initial foray into China, the group has already drawn in major players like Hong Kong-listed Value Partners, an award-winning fund manager with annualized returns of 19.3 per cent.
And if that still doesn’t reassure western investors, Milltrust has just concluded a deal with State Street, the world’s largest underwriter, to underwrite the group’s custody platform.
‘It’s all about bringing in the right infrastructure to connect the institutions in the West with those in the developing world,’ says Hopkins. ‘As someone who’s been focused on boutique asset managers for years, I can identify people who are under the radar and introduce them to the big institutions, and that’s exactly what Milltrust does: we identify top managers who can significantly raise the quality of business, take institutions up into the international space and endorse them.’
Over time, he feels, more asset managers will begin to view the investment landscape in the same way. The financial crisis has made investors far more risk-averse these days, and a very large proportion of global capital flows are going into passive investments such as exchange-traded funds.
Furthermore, the fund industry is gravitating toward large platforms that offer investors more choice, but at the expense of quality control ‒ so it makes sense, says Hopkins, that Milltrust’s method will eventually become the model of choice.
‘Once upon a time, putting together an asset management business was a huge, capital intensive undertaking,’ he notes. ‘Now more and more infrastructure is being built and it’s becoming easier and easier to get a business going – the speed of the advances is similar to the advances in computing.
‘And asset managers are the best qualified to step back, take a look at the current situation and ask, How can we best rectify this mess? How can we come up with something that’s cheaper, more transparent, more robust, more liquid and gives a better deal to the investor? After all, if you’re going to think about reinventing the wheel, you’ve got to come up with a better wheel.’
[Article by Mint Kang, IR magazine]