New sauce in assets

IN its heyday, the asset management business of banks was a much valued one.

Its mainstay was creating investment products and selling them to a ready base of clients of the bank.

That lucrative fee-based income led almost all big banks to have their own asset management divisions. Those days, however, seem to be over.

The reasoning is simple – banks are now focused on wealth management, giving the clients everything they need, including investment products.

But rather than their own in-house products, banks are realising that they need to bring the best-of-breed global investment products to their clients, instead of stuffing them with in-house ones.

Wouldn’t it just make more sense to offer your clients something from sexy names such as BlackRock, Fidelity or Schroders?

The global boys themselves are just as keen for such partnerships, sharing a decent client finding fee with the local banks.

Local banks then focus on keeping the customer in house, advising and serving them across investments, deposits, lending, estate planning, and other financial needs.

Hence the term “wealth management”, that almost every bank, Malaysia included, is diving into, without the need for the traditional structure of their own asset management business.

In Malaysia, asset management firms compete among themselves, against global fund management companies, as well as against state-owned Permodalan Nasional Bhd, which has a massive asset under management (AUM) figure of RM364bil.

One could argue they also compete against the Employees Provident Fund (EPF), but the latter works on a different model due to its statutory-backed forced savings mechanism, which naturally puts it in a class on its own and gives it that outlier AUM level of some RM1.4 trillion.

True, these very institutional funds could also be a client of a local asset management firm, more so with Malaysia having a relatively high number of government-linked investment corporations (GLICs).

But winning and maintaining such business is also increasingly difficult. These funds have their own in-house investment teams and are also being wooed by the global asset managers. A local asset manager has to be better than all that to get and maintain the business of a GLIC or other institutional funds in Malaysia.

In Singapore, DBS hived off its asset management some 15 years ago to Japan’s Nikko Asset Management. DBS is known to be ahead of the banking pack in this part of the world, having back then already realised that wealth management, sans in-house asset management, is the way to go.

Singapore’s United Overseas Bank Ltd has been rumoured to be looking to hive off its asset management division for some time now, with the latest buyer likely to be Allianz Global Investors.

In Malaysia, CIMB Bank Bhd first inked a joint venture with US giant Principal Financial Group some 20 years ago. By 2023, CIMB whittled down its ownership and today retains a minority stake in the since renamed Principal Asset Management Bhd.

Perhaps the most spectacular sale of an asset management arm by a Malaysian bank in recent memory was the 2022 sale by Affin Bank Bhd of its 63% stake in Affin Hwang Asset Management Bhd (AHAM) to global private equity group CVC Capital Partners for RM1.42bil.

In hindsight, that exit was rightly timed, in the context of the challenging business that home-grown asset managers today face.

CVC has been in talks to divest its stake for about a year now, but in all likelihood, it is not going to be a home run deal for the private equity giant.

Subsequent deals in the local asset management scene pique interest.

If indeed asset management is a struggling business, why did Affin Bank, after selling AHAM (since renamed AHAM Asset Management), fork out RM50mil to buy Pheim Asset Management Sdn Bhd?

The latter is a tiny manager with an AUM of just under RM900mil compared with AHAM’s RM100bil. And why now is there a plan for a management buyout of MBSB Bhd’s MIDF Amanah Asset Management?

In Affin Bank’s case, a plausible explanation is their Sarawak connection – with the state now owning 31.25% of the bank, a low hanging fruit of management fees surfaces.

The state has an estimated cash pile RM26bil now – and growing. Why give that management fee to someone else?

In fact, could the Sarawak connection also explain Affin Bank’s recent pronouncement that they are going to get into the private equity space?

Analysing that is for another day, but do recall that Malaysian banks’ past direct dabbles into private equity didn’t end well.

Incidentally, the price tag paid of RM50mil is not that high, when you consider that Pheim had RM21.6mil in cash at the point of the sale.

So, the ex-cash price of some RM28mil is possibly just for the licences and systems in place that Pheim has.

The million dollar question now is, what are the plans of the management team of MIDF Amanah Asset Management that want to buy out this business?

Can they pull together and execute a formidable plan to turn around the loss-making business, considering all the challenges the industry faces?

Do they have the equivalent to Affin Bank’s Sarawak connection secret sauce to make this business work?