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PRIVATE EQUITY | , Singapore
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Threading funds for Asia through the needle’s eye

After opening its office in Hong Kong, Threadneedle has its eyes on Singapore. Isaac Stewart speaks to James Campion, Head of Asia Distribution.

Q. Templeton is known for its emerging market funds and Henderson is trying to establish itself as a leader in the 130/30 field. What is the one flagship product that you want Threadneedle to be known for?
I think right now I would probably say our global equity is our flagship product; this demonstrates that we are a global investment house. To get a global equity product right you’ve got to have the systems in place and the infrastructure to screen and research companies across multiple markets. I think in four to five years’ time we’re going to be known for probably the alternative side more than anything because there seems to be a demand in the market for alternative products.

The question is how long can this commodity thing go on for? You want to participate in it but you don’t want to be caught out if it falls. I think what’s important is that we continue to develop products which are highly relevant in the marketplace for investors utilising our core strengths. I think there are too may fund houses with too many lackluster products and I think that one of the good disciplines that we started in this industry is where fund managers go around closing funds (even some of the bigger ones) if they’re not performing well or their resources inhouse are not sufficient to compete at the top end.

Q. Most investors say they have never heard of Threadneedle, so how will you cope with that lack of recognition? What difficulties do you face in terms of acceptance of your products in Hong Kong?
We haven’t had time to go banging on doors. But, what I can say is that when we’ve had meetings, I’ve had no difficulties getting in and no difficulty in terms of receptiveness.  With all the companies that I am looking at, there’s one exception. If I was to look at a list of 20 private banks, there’s probably one on there that is significant where we don’t have agreements in place on a global basis.

So, that would suggest it shouldn’t be too difficult, we’re not looking to deal with all 20. It’s a matter of saying we’re looking at smaller numbers, be it nine, ten or twelve where we’ll focus our attention. It’s probably too early to have faced many difficulties, but I must say it’s a lot easier than I first thought it was going to be. If you’re doing a great job in Europe there’s no reason why that shouldn’t be a starting point to do a great job in Asia.

Q. Threadneedle’s £450m Money Securities fund was the worst affected by the credit crunch, losing pots of investor cash monthly and dropping 4% in value over the past 12 months. Why did this happen?
I think the important thing to note is that it is the only fund in the sector that is not a cash fund. By the name of the fund it is very clear it is not a cash fund, it was never meant to be. However, I’m told that it has been top quartile prior to this for ten years straight so you’d expect it to outperform and go into instruments, but there is a limit to what you can do with cash.

It has been caught up in the sub-prime but none of the holdings are in anyway directly related to the US so they’re not being down-priced because of the sub-prime issues, but due to the lack of liquidity in the sector. The performance in the last month has picked up significantly as the market starts to re-evaluate because when you get a lack of liquidity the pricing disappears. Our fund management team is of the view that it bottomed out last month and what you’ll see now is a fairly steady recovery.

Q. Fund managers had 40% of their funds in floating notes last year, but as the credit crunch took hold, many of these notes were downgraded, causing the asset value of the funds to fall. How have asset-backed floating rate notes affected Threadneedle?
Liquidity, they’re not being sold off. It’s like with any asset when a market dries up it falls in price, that’s how it is. The fund manager’s view however is that all of these notes will come back to a more reasonable value over time.

There is nobody in the market that can really guess as to when the complete fallout of the sub-prime issue will end; when the last banks say ‘ok that’s it we can’t lose any more money.’ So, I guess until we get to that point we’re not going to see a genuine valuation on any of these assets; they will improve as the market improves and they are improving as we speak, it’s getting better and better as more transactions go through.The governments of both the US and the UK have actually done quite a good job dealing with the liquidity issue. They’ve probably saved us from a much worse catastrophe.

Q. Is it too late for equity, should investors stick to bonds instead?   
I would probably be looking at emerging market debt which is an asset class, which has been very, very popular across the majority of bear markets in Asia. It’s one of those areas you can invest in, where it is not directly correlated to equity markets. It gives you an alternative to cash deposits and gives you a greater yield.

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