Prudential works hard on acquisitions and alliances
Prudential Financial, the US insurance and investment group, is committed to growing its asset management business in Asia, one of the fastest-growing markets in the world, through organic growth and acquisitions.
Prudential has continued to build its presence outside the US through acquisitions and alliances with local companies. It has bought local asset managers in Taiwan and Mexico and has joint ventures in China and Europe.
It has also rehabilitated Kyoei Life, a failed Japanese insurer, which was renamed Gibraltar Life after it was taken over by Prudential in 2001. More recently, it bought Hyundai Investment & Securities, a big Korean asset manager, and its subsidiary Hyundai Investment Trust Management for about $300m last year to become the largest foreign asset manager in the country.
"Asia drives the majority of our revenue. It is our most important region as a company outside the US. In terms of growth, Asia is Prudential's most important region anywhere in the world," says Christopher Cooper, chief executive of Prudential's international investment business.
Prudential's non-US businesses take up slightly less than 20 per cent of the investment group's $511bn total assets under management. But the $45bn-$50bn of assets in its Asian funds make up half of the non-US segment.
Prudential sees growing business opportunities in Asia as investable assets increase and demand for long-term investment products rises with pension reforms under way.
"Whether it's further expansion through organic growth, for example, taking this business and growing it, or further acquisition, we look at both in terms of our strategy," says Mr Cooper.
To tap some of Asia's huge accumulation of savings, the international investment group plans to open its regional headquarters in Seoul, which will begin operations next year.
"There is a lot of leverage we can obtain out of creating a regional headquarters here. Korea has made a huge amount of progress in the last four to five years in terms of the regulatory environment, in terms of its open market policies, that really attracts us to this market," says Mr Cooper.
Prudential's biggest Asian presence is in Korea, where is has a profitable insurance business and growing asset management operations. Unlike its troubled business in China, Prudential's acquisition of Hyundai Investment has proven successful. Its Chinese joint venture has suffered from poor investment performance of its mutual fund, forcing the head of the joint venture to step down.
"Before we acquired this company [Hyundai Investment], it was in financial distress for almost five years. There was no investment, people, technology, anything," Mr Cooper says, adding that he has spent the last 18 months upgrading its systems and offering basic training to its local employees. Prudential now manages about $12bn in Korea with 70 branches and more than 500 sales people.
With the expanded network, it is trying to strengthen the retail side of the business, by focusing on the growing popularity of regular savings funds. Korean retail investors have returned to the market, by opening regular savings accounts for equity investment, pushing the Kospi to all-time highs.
"Our strategy in Korea is focused on the massive affluent market. It is the upper middle class, the top 5.0 per cent of the population" says Mr Cooper. He predicts that Korea will become one of the biggest asset management markets in Asia, as investors, especially the younger generation, become more sophisticated.
Prudential is also gajning a foothold on the institutional side through its cooperation with Korea Investment Corp, a state-run investment agency set up to manage part of Korea's huge international reserves. Prudential has become the first asset manager entrusted to manage some of KIC's $20bn funds. "They really needed some help in terms of establishing their process, procedures and investment capabilities because most of their investments are in dollar-denominated assets," says Mr Cooper. Prudential will transfer investment know how and offer personnel training to KIC in return for running part of the agency's funds.
The US asset manager is also keen to enter South Korea's corporate pension market, as the country is set to reform the corporate pension system. Under the new scheme, which will come into effect in December Korean companies can launch either defined contribution or defined benefit pension plans, which will prompt them to buy investment products and services from fund managers. Fidelity Investments, Prudentials arch rival, launched a local operation earlier this year. reflecting the pulling power of the country's growing pension market.
Prudential is closely monitoring the development. It has set up an internal task force and is consulting external experts on how to enter the market. "I'm hopeful the government will introduce a defined contribution plan similar to the 401K plan in the US, because I think that will be a great benefit for Korea and that's a very big target for us," said Mr Cooper.
Under syndication arrangement with FE