The new head of Northern Trust Asset Management in Asia hopes regional institutions will lose their home bias and begin to invest more overseas. He speaks to George Mitton.
“What I love about Hong Kong is the diversity, not only of people and cultures, but of topography. You have the urban landscape offset by the mountains, the hiking trails, the beaches and all the history that goes with it.”
So says John McCareins, the newly appointed managing director of Northern Trust’s asset management business in the Asia-Pacific region.
He’s excited about his new overseas posting. And well he should be.
As an access point to Asia, Hong Kong has few parallels, which is why Northern Trust Asset Management, like many other international financial services, has its regional headquarters there.
The firm has an equity management and dealing desk in Hong Kong to support its network of sales and relationship management teams in Japan, Singapore and Australia.
McCareins begins his stint in Hong Kong in June, taking on a role that had been left empty when Bo Kratz left the firm in July 2015. (Kratz was announced as chief executive for the Asia-Pacific region for Connecticut-based asset manager Conning in December.)
But aside from Hong Kong’s admittedly lovely scenery, what does McCareins expect will occupy his time in his new abode?
One thing, of course, is growth.Asia-Pacific is the fastest-growing region for Northern Trust Asset Management, a company that had $875 billion under management at the end of last year. McCareins hopes the good times will continue under his watch.
Further growth in assets may come by broadening the firm’s client base. In its Asian expansion, Northern Trust Asset Management has focused until now on institutional investors in Greater China, Japan and Singapore. But as other regional markets develop, and as regulation of institutional investors becomes looser, other markets are becoming more accessible too.
“In my new role, we’re taking a fresh look at the region and asking, are there any additional markets that maybe weren’t open to us three to four years ago where there are opportunities?”
McCareins hopes that smart beta, a $40 billion business for Northern Trust, can be popular in Asia.
Asian investors are beginning to recognise the benefits of this style of investing, which can realise some of the benefits of active management at the cost of passive strategies.
The company’s multi-asset investment capability, which accounts for about $100 billion of its assets, is also a good candidate to achieve further flows from Asia, he says.
What about the retail market in Asia, which the firm has not yet entered? McCareins says the question of reaching retail customers in Asia raises questions internally. “Do you go it alone or find a partner, a joint venture or distributor arrangement?” he asks.
As part of the fresh look, he will consider whether deals with existing financial partners in the region could allow the firm to distribute its funds to retail investors. The growth of fund passporting initiatives could provide an impetus to this. “We’re continuing to evaluate the opportunity,” he says.
McCareins has experience dealing with institutional investors. For the past ten years he has worked in a department that offers outsourced investment services to retirement funds. A unit of Northern Trust’s multi-manager solutions group, this department helps pension funds with their asset allocation and has clients all over the world.
The experience of travelling to a large number of different countries has given him a perspective of how institutional investors around the world differ. In the Asia-Pacific region, he has noticed there is often a lack of familiarity with asset classes outside Asia.
“While we have some very sophisticated investors in Asia, I can cite examples of investors who have contacted us because they want to invest in European credit and have no experience of investing in European credit before,” he says.
“Another example is alternatives. This has long been embraced in North America and is a mature trend in Europe, but within Asia we get a lot of enquires around hedge funds, private equity and real assets.”
As well as lacking experience with certain asset classes, McCareins has observed a high “home bias” among certain Asian institutions.
In other words, these investors have nearly all their assets invested in local markets, which means they are not benefiting from the advantages a globally diversified portfolio can offer.
“I’ve seen that the home country bias still exists in North America and Europe, but the magnitude is lower in some of those developed markets relative to what you see in Asia-Pacific.”
In some cases in Asia, home bias is a result of restrictive regulation which forces certain investors to allocate all or most of their money to their home market. The trend is towards more openness, however. McCareins says regulation is changing and in many cases, this is encouraging Asian institutions to look abroad. The growth in overseas allocations from Asian investors is a key reason why the region is the fastest-growing for Northern Trust.
Macroeconomic factors may be aiding the trend for more globally diverse portfolios in Asia. In Japan, for instance, quantitative easing has led to negative interest rates on government bonds, causing many Japanese investors to shift their allocations outside of Japan to government bonds in Europe, the US or elsewhere. This trend supports international asset managers that can advise and allocate for Japanese investors.
In all, there is plenty to do as McCareins takes over in Hong Kong and seeks to build the Northern Trust business. With any luck, he will find some time after work to explore those mountain trails and beaches.
©2016 funds global asia