The Philippines is preparing for the arrival of funds of funds, feeder funds and exchange-traded funds. Maria Theresa Marcial-Javier talks to Stefanie Eschenbacher about BPI Asset Management’s plans.

Maria Theresa Marcial-Javier, head of BPI Asset Management at Bank of Philippine Islands, has ambitious plans, almost all of which depend on impending changes of regulation.

Some of her plans will focus on providing retirement solutions for an emerging middle class, others on attracting money from wealthy Filipinos that is held offshore.

BPI Asset Management is developing life cycle-based investment funds aimed at individuals who want to augment their existing pension plans. In addition, it plans to launch a personal equity retirement account to promote capital market development and savings mobilisation in the Philippines.

Marcial-Javier says funds of fund structures, feeder funds and exchange-traded funds (ETFs) are also in the pipelines. “There has been considerable headway in the development of ETFs and funds of funds lately,” she says. “This is the best time to launch new products, considering the robust economy of the country and the Asian region.”

Marcial-Javier says ETFs and feeder funds have become attractive investments in more mature markets and could further develop the capital market in the country. ETFs, she adds, could give local investors access to markets that are not available.

As is the case elsewhere in the asset management industry, Marcial-Javier says this will happen as soon as “the enabling regulations are in place”.

“In the past months, regulators as well as the stock exchange, have issued rules and regulations and implementing guidelines that cover these fund structures,” she says. “We view these as catalysts for the market as they would increase the number of product offerings that can be made available to clients.”

Real estate investment trusts have, however, hit a road block. The value-added tax on the sale of properties from companies to special purchase vehicles has made them unattractive to potential investors.

“In regard to high-net-worth Filipinos, they still get the widest array of peso investment outlets in the domestic market,” she says.

EXPANSION
“Furthermore, given the relative strength of the local currency and the recent strong performance of the local equity and fixed income markets, there are many investors who prefer to keep their funds in the home market.”

When it comes to expansion beyond the home market, Marcial-Javier says she would prefer to establish BPI Asset Management’s presence where its brand is already known. This group includes, for example, overseas Filipino workers.

“In the future, we would like to work with international distributors to help market our fund products overseas to a broader investor base,” she says.

The regional integration of the stock exchanges of the Association of Southeast Asian Nations (Asean) stock exchanges could be a stepping stone for overseas expansion. In April 2011, seven countries signed an agreement and Marcial-Javier says she expects further developments this year.

It is also likely that the integration of Asean stock exchanges will enable back-office linkages, including clearing and settlement, and depositary arrangements across the continent.

“The initiative, if successful, would revolutionise the market infrastructure and create regionally focused products which would in turn promote Asean as an asset class,” says Marcial-Javier. “More importantly, it would allow foreign investors easier access to Philippine-domiciled investments.”

She says local asset management received a boost in recent years when the central bank decided to free the industry from tough regulations designed for deposit-taking banks.

There are new rules and ongoing industry discussions to put in place an enabling framework for operating standalone trust corporations. Under the current proposals, those would have a different set of rules and capital requirements that cater to the nature of the business exposed only to operational and business risks.

Marcial-Javier says these schemes attempt to “properly emphasise” the difference between the trust or investment management business and the banking business.

Industry organisations, such as the Trust Officers Association of the Philippines and the Fund Managers Association of the Philippines, have been pushing policy and legislative reforms toward the development of capital markets.

“We have regular dialogue and  feedback where regulators ask market players, through their respective associations, for comments on new or changes to existing rules and regulations prior to its final approval,” she says. She adds that this ensures there is mutual benefit to the investing public, the market players, and capital markets as a whole.

BPI Asset Management’s parent, the Bank of the Philippine Islands, has a distribution network of more than 800 bank branches across the country.

Marcial-Javier says despite having such an extensive distribution network, she is “vigilantly and continuously” improving the distribution network through various means. The funds are also available through third-party bank partners, online and, more recently, through a mobile investment app.

Based in the City of Makati, the financial centre of the country, BPI Asset Management has been growing organically and through acquisition. Three years ago it bought the trust and investment management business and other related assets of ING Bank Manila Branch.

Marcial-Javier says the move complemented the existing strategy, emphasising that she is continually on the look out for opportunities to grow the business inorganically, either through acquisition or joint ventures with other firms.

Although this may prove to be more expensive it would take far less time to reach growth targets. “The acquisition enabled us to reach a previously untapped customer base and increased our product offerings, allowing us to strengthen our strategy of a multi-brand investment platform, with the addition of what we now call Odyssey Funds,” she says.

SEGREGATION
In the Philippines, most of the state-owned pension funds are self-managed by the Social Security System and Government Insurance System. But Marcial-Javier says her aim is to cater to both institutions, which prefer segregated portfolios, and various investment funds sold to the retail market.

“Over time, we would like to focus on pooled funds and have institutional and retail share classes, similar to those of funds overseas,” she adds.

BPI Asset Management manages more than 3,000 institutional accounts, including several government institutions and large corporations, and 94,000 individual clients.

Institutional portfolios are employee retirement funds, provident funds, “pre-need” funds, insurance, and funds of religious groups, educational institutions and foundations.

Individual clients are high-net-worth individuals, middle-income families and the emerging mass market, including overseas Filipinos.

Such individual accounts include living trusts and investment management accounts, segregated accounts, securities custodianship accounts and pooled investment funds.

Marcial-Javier says: “We are focused on developing the Philippine market as we feel there are still plenty of unallocated funds, especially since the low-interest rate environment has flushed the system with liquidity.”

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