The much-touted "great rotation" from debt to equity markets should have happened a year earlier, a top Asia-based executive at M&G Investments has told this publication.

The "great rotation" from fixed income to equities, particularly European, should have happened a year ago, says Andrew Hendry, managing director for Asia at M & G Investments.

What was an argument 12 months ago is now a “plain vanilla” discussion between the asset manager and its private banking clients.

M & G Investments globally manages over $350 billion in assets. One year ago Andrew Hendry set up the 10-strong Asia team (between Hong Kong and Singapore) in response to its private banking clients in Europe, like UBS, Credit Suisse and HSBC, asking the firm to “come out here”, to Asia.

“So don’t think of me as an asset manager, think of me as part of the wealth management industry, for 15 years, within four regions,” Hendry said in an exclusive interview with WealthBriefingAsia.

Equities all the way

While Hendry said that fixed income has had traction because of its record returns and low risk nature appealing to Asia’s investors, he said it is time to “shop in a new section”. And if one looks at how European equities performed last year, Hendry said a person would wonder why M & G had such a hard time convincing clients that its high dividend strategy was, and still is, the way forward.

“European equities, which had gone to the dogs perception-wise, in fact did fantastically well - they returned 19 to 20 per cent last year. So if you’re not in equities, then there’s something wrong,” he said.

These days, Hendry said conversations with private bankers about equities are much easier to have, but he claims to have been pushing the concept since March last year, which was an unpleasant time in Europe. “You had to be a little bit ballsy - you had to have had a strong stomach to be in equities in early 2012. But they [equities] returned a lot, and as of January (2013), all the private banks, all the wealth managers, are very, very firmly into equities,” he said.

Asian Investors

However, the high net worth individuals themselves will still need some time to process this movement. “They’ll take a couple of months,” Hendry said.

Having grown up in Indonesia with an Indian mother, Hendry feels he closely understands the needs and expectations of Asian investors, which he said, are often unrealistic. 

“The concept of maintaining and protecting wealth is ‘non-existent’ - you see it a little bit, depending on the generation but it’s non-existent, because unfortunately, none of the Asian countries have ever lost real wealth over the long term.”

Instead, expectations for returns are sky-high, he said: “The private banker meetings tell the same story - recently, a private banker jokingly said, ‘my client from mainland China wants 20 per cent annualised return with low risk’.”

High dividend strategy

While Hendry laughed, he said he believes that through the firm’s high divided strategy, these objectives of returns and safety are not necessarily mutually exclusive.

“We think that’s fine to some extent, in this environment you can do that because dividend stocks give you the safety - you’re getting stocks with bubble wrap,” he said.

He explained: “Think of safety as ‘bubble wrap’ - the 4, 5, 6 per cent dividend is the bubble wrap - that’s nice because that protects you against down markets and it pays you that every year.”

“The second element of the bubble wrap is that when markets go up, you participate in the growth of the economy - which is very close to the hearts of Asian investors as you’re looking at 8, 9 per cent GDP growth in China, Indonesia and India, for example,” Hendry continued.

European high dividend stocks are the favoured picks by this manager. As for Asia - “the valuations are not as attractive - they’re not as beaten down as US and European equities,” he said.

However, he has no preference with regards to sectors: “All equities – you can do whatever you want,” he said bullishly.

Part of the private banking industry

What’s the secret to keeping the private banks happy? Thinking like one, according to Hendry.

“The better way to look at us is we’re an asset manager, but we’re also - myself, definitely - part of the private banking industry,” he said.

“A lot of asset managers have now woken up to the type of dialogue they need to have with private bankers. 2001 - that’s when I was talking to these private banks - I saw that they faced challenges which are very different to us on the asset management side,” he added.

All of M & G’s clients in Asia are distributional, over 20 per cent of which are private banks. According to Hendry, any assets manager just entering the private banking field is “10 years too late”.

“If you look at other asset managers’ channels and they have private banking, plus retail plus insurance, they typically treat these three very different channels as one,” he said.

In contrast, Hendry said M & G is dedicated to private banking clients. This focus of experience also prompts him to make some bold observations in the wealth management space.

The future

While many of the private banks will try to say that discretionary portfolio management is catching on in Asia, Hendry thinks it is a long way off.

“I think about my parents’ neighbours in Indonesia, they don’t adopt the whole discretionary approach because there’s this different concept in Asia that you can make more money than professional asset managers,” he said.

According to Hendry, this way of thinking will take many generations to transform, which is a shame since “the second generation (Asia, currently) have very little concept of what to do with wealth in terms of growing it”.

“Here in Asia, when I talk to people they say ‘why do I need to save for the long term?’ – say you have $60 million - $60 million (from a high net worth perspective) is not a lot of money – you’ve got eight kids, $60million divided by eight is not a lot of money in this context,” Hendry argued.

After a convincing discussion on how Hendry is at one with the private banking space in Asia, one might assume he has set some ambitious growth targets.

“Targets can be very unhealthy. Typically what Anglo-Saxon firms did in the past was to look at Asia as a kind of money pot - it’s a very unhealthy view of the world,” said Hendry.

“M & G started in Europe in 2001 and didn’t make a cent - for four years, it was totally loss making. I love that because it shows long term commitment. And it’s not looking out for numbers,” he continued.

“M&G’s legacy in Europe is being very, very patient, and now they’re the number two net new money-taker in continental Europe. And they’ve been number one in the UK for four years.”

“For me the targets are the quality of my people and how long they’re going to stay there,” Hendry added.