January 10, 2018 Views

MRF – How Asset Managers can use strategic communications to cut through MRF hype…

Newgate Communication’s takes stock of the MRF hype to see if there is a way for Asset Managers to build bridges early on.

Hong Kong remains front-and-center in China’s capital markets expansion
The Mutual Recognition of Funds (MRF) scheme is another coordinated effort between securities regulators in Hong Kong and Beijing to globalise the mainland Chinese capital markets. Similar to the Hong Kong-Shanghai Stock Connect program launched in 2014, funds approved under the MRF scheme will for the first time be available to mainland Chinese and Hong Kong investors alike.

While certainly a milestone in the continued opening of China’s capital account, the timing for MRF’s launch could not have been worse for investors. The circular announcing details of the scheme was distributed on 22 May 2015 – since then global equity markets have dramatically fallen into (or nearly into) bear territory, with China’s slowing economy blamed as the primary catalyst.

Chinese fund products don’t have the same appeal to international investors as they did last spring, but tough market conditions haven’t stopped the MRF scheme from advancing. At latest count, seven Hong Kong domiciled funds have been approved by the scheme to sell in China (so-called “northbound” funds), while 32 China-domiciled funds have been approved for sale in Hong Kong (“southbound” funds).

Indeed there have been both more applications and more approvals for southbound funds than northbound, illustrating the importance of the scheme to Chinese asset managers looking to grow their asset base.

While the takeoff runway for MRF may be longer than expected, the scheme is another boon in Hong Kong’s continuing efforts to solidify its place at the center of China’s capital markets. It maintains the city’s attractiveness as the primary domicile for international asset managers to manage their Asian operations, while it also draws new Mainland Chinese asset managers to the market as a safe and transparent place to interact with western investors.

The funds universe is already crowded and set to become even more competitive – it’s more important than ever that asset managers think critically and urgently about their communications strategy.

Who can play in the sandbox?
The China Securities Regulatory Commission will approve northbound funds for sale in the mainland, while Hong Kong’s Securities & Futures Commission will approve Chinese funds for distribution in the SAR. Fund sales will have a quota of 300 billion RMB on both sides of the border. Most of the available products will be conventional in their asset class mix – equities, bonds, and index funds (including ETFs) will be on offer.

Both the mainland and Hong Kong regulators have agreed to eligibility requirements intended to comply broadly with international best practice in terms of governance, disclosure, liquidity and other metrics.

Mainland funds are expected to follow Hong Kong standards of distribution and disclosure (“complete, accurate, fair, clear, effective, and … capable of being easily understood by investors”). This may be the first experience Mainland asset managers have in dealing with Hong Kong’s SFC – understanding the expectations of the regulator is thus an immediate issue to resolve for Mainland funds entering the SAR.

Challenges for Global Asset Managers
Capital outflows from China in response to slowing economic growth may be a big bump in the road for MRF, but global asset managers would be wise to look at the scheme as a long-term game. Indeed, perhaps more than ever, mainland Chinese investors are hungry for global investment opportunities.

Foreign asset managers that were previously unrecognisable to the Chinese investing public will find themselves with a new task: branding themselves to one of the world’s most coveted investor bases. They will have to think differently about their Hong Kong business to stand out in a crowded market for new investment products.

How will these western funds attract capital away from the established Chinese brands? Indeed, the recent trend in Mainland consumer tastes show that Chinese consumers increasingly prefer Chinese brands. A few years ago, multinational luxury brands thought selling their products to China’s new billionaires and expanding middle class as shooting fish in a barrel, but sales haven’t lived up to the lofty expectations. Asset managers may face a similarly unwelcome response from Chinese investors.

With that in mind, those banks with a longstanding presence and a strong reputation in Asia, for example HSBC or Standard Chartered, have a clear advantage out of the gates. Over time, international players will need to carefully tailor their marketing efforts in China to gain genuine trust with the investing public. Diversification as a theme will likely be well-received by Mainland investors keen to minimize risks in their own unpredictable market.

Challenges for Chinese asset managers entering Hong Kong
Mainland asset managers face a different set of challenges competing in Hong Kong. They will need to quickly acquaint themselves with Hong Kong fund regulations, and market their brands to a western investor base they are not necessarily familiar with.

Governance will also be a key concern. Most of the regulatory detail around the MRF scheme concerns eligibility requirements for products from CSRC-regulated funds. It’s a clear move to give some assurance to international investors that mainland funds sold under MRF meet Hong Kong’s proud governance standards.

While weak governance is often forgiven during boom times, these same issues can become a critical priority for investors in down markets when good governance can mean the difference between gains and losses. Chinese asset managers in particular will need to bring their governance and sustainability policies to the forefront of their marketing and distribution efforts.

What to Expect in the Near Term
There will be winners and losers among asset managers participating in the MRF-scheme – competition for capital will be fierce, and marketing efforts could be at best ineffective or at worst value-destructive.

Furthermore, as the IMF noted in its annual country report on Hong Kong, the further intertwining of Hong Kong and China’s capital markets also increases the risk of financial shocks in China spreading to Hong Kong’s “small and open” economy. It will be important for market observers to watch closely the daily reporting of mutual fund redemptions as the MRF scheme progresses.

Inarguably though, the big winners will be Chinese investors, who will finally have access to global investment opportunities in a market that meets global best-practice in governance, transparency, disclosure and liquidity.

It is also a huge win for Hong Kong, which remains as relevant as ever in bridging Mainland and global capital. Just as luxury brands have long seen Hong Kong as a shop-front to brand themselves in the Asian consumer market, the Hong Kong cityscape itself will be the primary marketing platform for fund managers to promote themselves. Communications will be a critical component of these efforts.



CONTACT
Richard Barton

Managing Partner, Greater China

richard.barton@newgate.asia

(852) 3758 2680

 
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MRF – How Asset Managers can use strategic communications to cut through MRF hype…

June 17, 2017 Views

Why Private Firms Need to Communicate Through The Cycle

How the private equity sector can engage effective communications to build positive reputational value

The day-to-day changes in the private equity industry in Asia can sometimes go unnoticed after its rollercoaster ride since the global financial crisis. For one, there is now a lot more competition, as LP’s have become significantly more discerning about which funds get capital. Another difference is that funds are taking a more hands-on approach to enhancing operating performance, rather than trying to generate capital gains from IPO arbitrage plays or simply by trading assets.

One consequence of this is that the bar of sophistication has been raised for much of the industry, which is now increasingly judged on a far wider selection of benchmarks than just financial track record. This in turn has elevated the importance of a strong brand and profile as firms increasingly compete on everything from funding and deal flow to investee company mentoring and retaining talent.

It is here that a strategic communications strategy can help private equity firms move to the front of the pack by proactively building their brand profile. Firms that aim to be at the vanguard of their industry should be seen publicly as leaders with ambition and expertise.

Often, the first time PE firms engage in planned communications is in acquisitions, exits or fundraising where it is fairly widely understood that good PR can help drive value when there is a need to influence various stakeholders. And as PE has grown – with bigger deals that are often cross border – firms need to be prepared for the increased scrutiny that inevitably follows.

Building goodwill

But PR is not just about gaining publicity and shaping a story for the media and various stakeholders when there is a transaction. It is also about building a bank of goodwill for use on a rainy day – when there is an unexpected crisis or event that is outside your control. This is when building a respected company name – recognized for its positive record, understanding, and media profile can really show its value as a value protecting exercise.

This is as applicable to a hiccup during fundraising as it is to a crisis or a problem at an investee company. If the media does not know your company, its strategy or its executive team, often it is simply not equipped to put your side of the story and provide balanced coverage.

And today with a more informed, activist and connected public, a crisis can often come from more innocuous sources such as a disgruntled customer or ex-employee complaining on social media. Unanswered, this can escalate into a damaging smear on the company. In such instances, reactive crisis management will only achieve so much, given that it is now much easier for bad news to spread, and stick, in the public consciousness.

A common refrain from PE firms and even their portfolio companies is that they are consciously maintaining a low profile and plan not to engage with the media until they have reached a certain milestone or size. The assumption being that there is little downside from not being known by the public, media or other stakeholders, and often this is true. However, risk is everywhere, particularly in today’s volatile economy and an unknown entity – lacking relationships with editors and key writers – makes for a much softer target than one that is known and already understood.

An effective communications plan requires investment of time and effort in building a defined profile and in creating informed media relationships that will help weather the challenges thrown up by the PE rollercoaster cycle. While rewards are time and again seen on the upside, what is often ignored is the value preserved by limiting the fallout from the unexpected downside.



CONTACT
Richard Barton

Managing Partner, Greater China

richard.barton@newgate.asia

(852) 3758 2680

 
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Why Private Firms Need to Communicate Through The Cycle

October 25, 2016 Views

The great race to own the Fintech space….

Can Hong Kong leave its mark?

The NexChange Fintech O2O Meetup hosted its 6th event at the Cyberport in HK for Fintech and VC firms. From humble beginnings, the monthly Nexchange meetups are at near full capacity with hopeful startups, financiers and interested onlookers eager to find out more about Hong Kong’s burgeoning start-up space.

At the event, guest speaker Mr. Gordon Yen of Radiant Venture Capital said: “Hong Kong is currently less attractive fundraising market for fintech startups in Asia than China or Singapore.”  He notes the trillions of dollars under management in the city are generally not considering venture capital-style investments.

“There is a perception that there is so much money in Hong Kong and if you come here as an entrepreneur, you’re bound to get funded.  But it’s much harder than people think.”

By comparison, Singapore is throwing both public and private money to spur the development of startups and a venture capital ecosystem in the city-state.  It’s a strategy that has worked marvelously for Singapore over its 50 year history – mobilize resources into sectors where Singapore can compete aggressively throughout the region.

And…regulators in Western markets are taking notice of Singapore’s development.  This month, the UK Treasury formally announced a “fintech bridge” between both countries that allows regulators to “refer fintech firms to its counterpart… making it easier for fintechs to scale between countries.”  Essentially, fintech startups in the UK can enjoy easy access to Asia via Singapore.

Hong Kong has always taken a more laissez-faire approach, enshrined in the “positive non-interventionism” approach that has guided economic management in the city for decades.  But professional advisers are increasingly sounding the alarm that Hong Kong is rapidly falling behind  when it comes to developing a fintech ecosystem.

According to Yen, China is in a category of its own and notes that typically startups are much better funded, because they have the attitude of ‘spend first’ to gain customers and market share, all the while continuing to gain value.

Despite Hong Kong’s proximity to China, Yen hasn’t seen too many fintech startups trying to tackle the Chinese market.  “Perhaps this is due to differences in culture and regulation, but I think the business approach is also very different.”  He said.


Why should Hong Kong win the race

Certainly there are reasonable steps that the Hong Kong government will need to consider and implement, quickly, in order to attract entrepreneurs and risk-loving venture capital to the city.

Yen goes on to say: “There are many things the government can do to further support start-ups, such as developing a comprehensive register of VC investment and funding.  The Hong Kong regulatory approach is currently too basic; we recognise the public equity markets and then ‘everything else’.  There needs to be a more distinct set of regulations here.”

And Newgate Communications sees no reason why Hong Kong can’t quickly get up to speed after all Hong Kong has a critical mass in asset managementAccording to the HK Trade Development Council, total assets under management in Hong Kong reached US$2.27 trillion as at the end of 2014, while Singapore held about US$1.75 trillion.  Hong Kong’s advantage in private equity is even more pronounced: US$110bn in assets under management versus about US$68bn in Singapore.  If your start-up is for the asset management or private equity community, chances are you have many more customers in HK than in Singapore.

The other is open and independent mediaThe city is Asia’s unrivaled media center with an institutionalized commitment to press freedom.  There has always been more local and international media based in Hong Kong producing more regionally relevant content.  As a result, the region’s media industry and related technological developments are likely to stay concentrated in Hong Kong; meanwhile, entrepreneurs and investors seeking to reach the global investment community will likely need to speak with Hong Kong-based journalists.

Hong Kong is less centralized and more markets-driven in its economic development than Singapore, and this has worked to the city’s great advantage in the past and contributes to Hong Kong’s unique cultural vibrancy.

Regulators, entrepreneurs and investors will need to build on these strengths if they are to carve out a niche in Asia’s developing technology scene.



CONTACT
Richard Barton

Managing Partner, Greater China

richard.barton@newgate.asia

(852) 3758 2680

 
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The great race to own the Fintech space….

June 17, 2016 Views

Unlocking M&A Success

Effective Communications is a critical component in ensuring post-merger integration is a success!

After the global financial crisis many in the West were writing with anticipation about the expected wave of investment from companies across Asia. The argument quite rightly went that these companies were ideally placed to take advantage of weak western markets to grow and diversify their asset and investment base, in the face of stagnant domestic markets and the need to acquire skills and technology that would otherwise take years to emulate.

At that time though, many Asian corporations complained that they were not understood by Western stakeholders, who in turn complained that Asian companies did not take the time to understand how it works “over there”.

The reality was that while the markets favoured and sometimes craved investment from overseas companies, other issues, including transparency and perception, posed significant challenges to their success. Recent history shows that these communication issues were as influential on the outcome of deals in the past few years as any of the legal or financial aspects.

Although Asian corporations have now successfully completed a multitude of major overseas deals, and have learned a lot about managing their reputations, reports show that the issue has not fully gone away. Many situations have revealed a second and potentially more damaging communications-related weakness, namely the difficulties experienced in successfully implementing post-merger integration strategies. And this is precisely where the true value of an acquisition should be generated.

Like the deal itself, post merger integration has its hard and soft issues. New sales strategies, production synergies, channel development and the reduction of duplicate costs are all fine on paper, but mastery of the communications, cultural and social issues that impact the efficacy of these exercises is critical. Misalignment doesn’t just prevent the benefits from being unlocked; it will negatively impact the entire business.

Employees want certainty, especially in their prospects, reporting lines, roles, salaries and benefits. To unlock fully the potential benefits of an acquisition companies need to retain and attract proven management. But in the absence of a well thought out and coordinated approach, talent will remain skeptical.

Engage employees always

Real employee engagement is a vital component to achieving success. Companies should use research as a tool to find out what employees really think. Only then can they effectively promote the objectives of the new company, explain the responsibilities and roles of those who have to deliver the merger benefits, and demonstrate why supporting the deal is in everyone’s interest.

The need for this level of awareness of the issues is as critical with external stakeholders as it is internally. Wherever the deal, foreign investment attracts scrutiny. Whether engaging with management, unions, politicians, media or regulators, acquirers should be prepared to argue the soft as well as the hard values of their deal. Acquirers will be judged not only on their products or services, but also as corporate citizens and employers. Poor preparation risks failure.

Timing is not always on the side of an acquirer, but ideally a positioning campaign with stakeholders would take place prior to any investment. Here companies should research how they are perceived and identify stakeholder concerns.

Having understood the issues, they should agree the positioning messages required to close the gaps between current external perceptions and the desired positioning. As the process unfolds the company will benefit from further research to measure the success of its campaign, enabling changes to be made as necessary.

Prior to a deal, senior spokespeople should be trained, in order to effectively sell the financial, management, strategic and growth aspects of the deal, as well as how value is to be created and shared.

With ever-increasing regulatory approvals required around the world, investments can often take several months to complete. Any communications campaign must therefore be well paced if it is not to run out of steam and news flow that reinforces the desired outcome must be carefully managed.

Companies must also accept that media styles and practices are not consistent globally. The media team should comprise internal staff who fully understand their business, alongside external advisors who fully understand the rules and nuanced customs in their local market, as well as the media and other stakeholders with whom they will engage.

Doubt or ignorance about an acquirer often leads by default to negative perceptions. Engaging stakeholders with a structured programme removes the inevitable question marks and helps foreign buyers build a much stronger base on which to build a positive reputation locally and globally. After all, they may well want to do further deals.



CONTACT
Richard Barton

Managing Partner, Greater China

richard.barton@newgate.asia

(852) 3758 2680

 
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Unlocking M&A Success

June 17, 2016 Views

How Asset Managers Can Cut Through the Hype Surrounding Mutual Recognition of Funds

Newgate Communications’ Dan Billings takes stock of the MRF hype to see if there is a way for Asset Managers to build bridges early on

The Mutual Recognition of Funds (MRF) scheme is another coordinated effort between securities regulators in Hong Kong and Beijing to globalise the mainland Chinese capital markets.  Similar to the Hong Kong-Shanghai Stock Connect program launched in 2014, funds approved under the MRF scheme will for the first time be available to mainland Chinese and Hong Kong investors alike.

While certainly a milestone in the continued opening of China’s capital account, the timing for MRF’s launch could not have been worse for investors.  The circular announcing details of the scheme was distributed on 22 May 2015 – since then global equity markets have dramatically fallen into (or nearly into) bear territory, with China’s slowing economy blamed as the primary catalyst.

Chinese fund products don’t have the same appeal to international investors as they did last spring, but tough market conditions haven’t  stopped the MRF scheme from advancing.  At latest count, seven Hong Kong domiciled funds have been approved by the scheme to sell in China (so-called “northbound” funds), while 32 China-domiciled funds have been approved for sale in Hong Kong (“southbound” funds).

Indeed there have been both more applications and more approvals for southbound funds than northbound, illustrating the importance of the scheme to Chinese asset managers looking to grow their asset base.

While the takeoff runway for MRF may be longer than expected, the scheme is another boon in Hong Kong’s continuing efforts to solidify its place at the center of China’s capital markets.  It maintains the city’s attractiveness as the primary domicile for international asset managers to manage their Asian operations, while it also draws new Mainland Chinese asset managers to the market as a safe and transparent place to interact with western investors.

The funds universe is already crowded and set to become even more competitive – it’s more important than ever that asset managers think critically and urgently about their communications strategy.

 

Who can play in the sandbox?  

The China Securities Regulatory Commission will approve northbound funds for sale in the mainland, while Hong Kong’s Securities & Futures Commission will approve Chinese funds for distribution in the SAR.  Fund sales will have a quota of 300 billion RMB on both sides of the border.  Most of the available products will be conventional in their asset class mix – equities, bonds, and index funds (including ETFs) will be on offer.

Both the mainland and Hong Kong regulators have agreed to eligibility requirements intended to comply broadly with international best practice in terms of governance, disclosure, liquidity and other metrics.

Mainland funds are expected to follow Hong Kong standards of distribution and disclosure (“complete, accurate, fair, clear, effective, and … capable of being easily understood by investors”).  This may be the first experience Mainland asset managers have in dealing with Hong Kong’s SFC – understanding the expectations of the regulator is thus an immediate issue to resolve for Mainland funds entering the SAR.

 

Challenges for Global Asset Managers

Capital outflows from China in response to slowing economic growth may be a big bump in the road for MRF, but global asset managers would be wise to look at the scheme as a long-term game.  Indeed, perhaps more than ever, mainland Chinese investors are hungry for global investment opportunities.

Foreign asset managers that were previously unrecognisable to the Chinese investing public will find themselves with a new task: branding themselves to one of the world’s most coveted investor bases.  They will have to think differently about their Hong Kong business to stand out in a crowded market for new investment products.

How will these western funds attract capital away from the established Chinese brands?    Indeed, the recent trend in Mainland consumer tastes show that Chinese consumers increasingly prefer Chinese brands.  A few years ago, multinational luxury brands thought selling their products to China’s new billionaires and expanding middle class as shooting fish in a barrel, but sales haven’t lived up to the lofty expectations.  Asset managers may face a similarly unwelcome response from Chinese investors.

With that in mind, those banks with a longstanding presence and a strong reputation in Asia, for example HSBC or Standard Chartered, have a clear advantage out of the gates.  Over time, international players will need to carefully tailor their marketing efforts in China to gain genuine trust with the investing public.  Diversification as a theme will likely be well-received by Mainland investors keen to minimize risks in their own unpredictable market.

 

Challenges for Chinese asset managers entering Hong Kong

Mainland asset managers face a different set of challenges competing in Hong Kong.  They will need to quickly acquaint themselves with Hong Kong fund regulations, and market their brands to a western investor base they are not necessarily familiar with.

Governance will also be a key concern.  Most of the regulatory detail around the MRF scheme concerns eligibility requirements for products from CSRC-regulated funds. It’s a clear move to give some assurance to international investors that mainland funds sold under MRF meet Hong Kong’s proud governance standards.

While weak governance is often forgiven during boom times, these same issues can become a critical priority for investors in down markets when good governance can mean the difference between gains and losses.  Chinese asset managers in particular will need to bring their governance and sustainability policies to the forefront of their marketing and distribution efforts.

 

What to Expect in the Near Term

There will be winners and losers among asset managers participating in the MRF-scheme – competition for capital will be fierce, and marketing efforts could be at best ineffective or at worst value-destructive.

Furthermore, as the IMF noted in its annual country report on Hong Kong, the further intertwining of Hong Kong and China’s capital markets also increases the risk of financial shocks in China spreading to Hong Kong’s “small and open” economy.  It will be important for market observers to watch closely the daily reporting of mutual fund redemptions as the MRF scheme progresses.

Inarguably though, the big winners will be Chinese investors, who will finally have access to global investment opportunities in a market that meets global best-practice in governance, transparency, disclosure and liquidity.

It is also a huge win for Hong Kong, which remains as relevant as ever in bridging Mainland and global capital.  Just as luxury brands have long seen Hong Kong as a shop-front to brand themselves in the Asian consumer market, the Hong Kong cityscape itself will be the primary marketing platform for fund managers to promote themselves.  Communications will be a critical component of these efforts.



CONTACT
Richard Barton

Managing Partner, Greater China

richard.barton@newgate.asia

(852) 3758 2680

 
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How Asset Managers Can Cut Through the Hype Surrounding Mutual Recognition of Funds