2006 Asia 100

When you're on a roll, even bad news doesn't seem to hurt. Just ask an Asian fund manager. Most of the region's stock markets were hit by a broader emerging-markets sell-off in May and June. Rising U.S. interest rates and slower growth are clouding the economic outlook. Chinese authorities are increasingly voicing worries about an overheating economy. Yet investment assets continue to flow into Asia at an impressive pace.

The region is flush with cash, and investors are brimming with confidence. The buoyancy is reflected in the Asia 100, Institutional Investor's annual ranking of the region's biggest money managers. Assets under management at these firms climbed 8.3 percent in 2005, to $8.3 trillion, compared with a 4 percent increase the previous year. And fund managers say the trend looks set to continue.

"This year will be a good year, slightly better than last," predicts Hugh Young, managing director of Aberdeen Asset Management Asia in Singapore. Asia's economic growth story is still intact, he says, and corporate profits remain buoyant.

The hottest growth area, not surprisingly, was China. Money invested in Chinese assets at the biggest fund managers surged by 35 percent in 2005 - and that, it should be noted, was a year when the nation's domestic A-share market declined. That market is one of the world's strongest so far this year, posting a gain of roughly 27 percent through late August. South Korea also showed robust growth in assets, 16 percent, helped in part by the won's appreciation against the dollar last year. Most Southeast-Asian markets also turned in strong gains: Assets ballooned by 10 percent in Indonesia and 22 percent in the Philippines in 2005, for instance.

Perhaps the strongest indication of Asia's allure is the heady growth enjoyed by international money managers. These firms' Asian assets grew by a stunning 31 percent last year as investors in the rest of the world sought to increase their exposure to the region's dynamic economies. Barclays Global Investors and State Street Global Advisors retain the top two positions, with BGI enjoying a 24 percent increase in assets, to $237 billion, while State Street posted a 19 percent rise, to $192 billion. Fifth-ranked Fidelity Investments saw the strongest gain as its assets rose by 42 percent, to $137 billion.

The prevailing optimism is a remarkable turn of events for a region that was plunged into recession by a financial crisis only nine years ago. With growth running at a fast clip and trade surpluses generating massive increases in countries' foreign exchange reserves, Asia is well placed to ride out any trouble in the global economy, says Joel Kim, a fixed-income fund manager at ING Investment Management in Hong Kong. "The fundamentals of the region are so substantially different" than they were a decade ago, he says. "It's just very difficult to see where a crisis in Asia would come from."

The rapid development of Asian bond markets is contributing to the region's economic stability and to the growth of funds under management. Spreads on benchmark sovereign and corporate issues relative to U.S. Treasuries have held steady at record low levels despite rising U.S. interest rates and the emerging-markets turbulence in May and June, and mainstream investors are increasingly wading into local-currency bond markets that once were the domain solely of hedge funds and other more aggressive sorts.

"What we typically see is a shift from emerging-market debt as a playground of hedge funds and specialized investors to that debt ending up in portfolios of insurers and pension funds and institutions with much longer investment horizons," says Kim.

In Japan, Asia's biggest market, assets of the fund managers in II's ranking grew by just 1.4 percent last year. But that lackluster overall growth belied an increasingly heated struggle for market share - with traditional powerhouses like Kampo, Japan Post's life insurance arm and once again the top-ranked fund manager, losing ground to a number of leading banks, which have grown through mergers in recent years. Mitsubishi UFJ Financial Group, with $388 billion in assets, claims the No. 3 spot in this year's ranking, behind Nippon Life Insurance Group. It is the product of the October 2005 merger of Mitsubishi Tokyo Financial Group and UFJ Holdings, which ranked No. 5 and No. 14, respectively, a year earlier.

Kampo and other big Japanese insurers are looking to retain customers by increasing sales of mutual funds with the promise of higher returns. "They are trying to offer slightly more aggressive products," says Hideki Takayama, chief investment officer at State Street Global Advisors in Tokyo. At T&D Holdings, meanwhile, the group's three insurance subsidiaries turned a chunk of their funds over to the group's asset management unit, which helped its assets expand nearly fourfold, to $28 billion. "Last year was extraordinary," says Hiro Fujii, T&D Asset Management's senior international relations manager in Tokyo.

Of course, at the rate business is growing for Asian fund managers, the extraordinary is fast becoming ordinary. i