Ho: Unveiling second fund on back of regional expansion

RHB Asset Management (RHBAM), a wholly-owned subsidiary of the Kuala Lumpur-based RHB Investment Bank, could be dubbed the most aggressive regional fund manager when it comes to manufacturing cross-border funds to invest in the Asean region.

RHBAM has leap-frogged the Asean Fund Passporting scheme by introducing its first Asean-focused cross-border fund three weeks ahead of the scheme’s long-awaited launch. The firm’s fund was unveiled on August 5, or before the scheme guidelines were announced by regulators from Malaysia, Singapore and Thailand on August 25.

With 47 billion ringgit (US$15.5 billion) in assets under management, RHBAM is one of a few Asean headquartered regional fund managers which focuses exclusively on the regional markets. Apart from Kuala Lumpur, it also operates in Indonesia, Singapore and Hong Kong.

RHBAM has launched two components of the RHB-OSK Pre-IPO & Special Situation Fund 2. The first component is a Singapore-registered, US-dollar denominated master fund designed for non-Malaysian investors while the second component is a Kuala Lumpur-registered, ringgit denominated feeder fund designed for Malaysian investors.

The RHBAM fund is probably the type of fund that will be most suitable for cross-border distribution under the Asean fund passport scheme as this targets high net worth investors. These are the type of investors likely to benefit from the wider array of fund choices expected to come up as more fund managers market regionally-focused funds under the new scheme.

In an interview with The Asset, Ho Seng Yee, CEO and regional head of group retail distribution of RHB Asset Management, says the fund aims to provide long-term capital appreciation by investing in the US dollar-denominated shares of RHB-OSK Pre-IPO & Special Situation 2 fund, a Cayman Island incorporated exempted company.

It is structured as a close-ended fund where its shares subscription is open for a limited period. Once this period is over, it will commence business as a private equity investment holding company.

There is an earlier version of the fund known as RHB-OSK Pre-IPO & Special Situation 1 that was launched in February 2011 and scheduled for redemption for February 2015. “Because of the good performance of the first fund and strong demand from our investors for this private equity product, we had established the second fund,” Ho shares.

Tapping cross-border investors

The difference between the two funds is that the first was established solely in Malaysia and approved by the country’s Securities Commission while the second fund has both Singapore and Malaysian components.

Ong: Leading market and asset allocation strategies

The first fund, with a 33 million ringgit AUM, is externally managed by RHBAM’s private equity team located in Singapore although the fund is based in Malaysia. Also, this fund was marketed exclusively to Malaysian investors, thus there is no cross- border distribution.

“With our strong regional expertise, we have incorporated the master fund in the Cayman Islands and established it in Singapore as a Singapore-registered MAS (Monetary Authority of Singapore) investment scheme for accredited investors while in Malaysia, we have established a wholesale feeder fund,” Ho explains.

The second fund has a pipeline of 100 million ringgit as of August 25, indicating strong investor interest. The feeder fund will close on September 4 while the master fund, on September 15.

Cross-border investors, particularly from Singapore and Hong Kong, as well as those from Taiwan and the Middle East, can invest in the fund by buying the US dollar-denominated asset class.

With access to Hong Kong, Taiwan, and Middle East investors, the RHBAM fund covers a wider investor base than the Asean fund passport which is technically limited to investors in Malaysia, Singapore and Thailand.

The fund will invest in well-established but still developing private companies that are about two to three years from listing. The special situation type of investment will offer investors income by investing in a company via exchangeable notes or bonds.
“We can collect interest on the bonds over the period of investment and at the end of the period, or after two years or two-and-a-half years. We could structure in such a way that we have upside potential and convert that to equity at a good income to the IPO (initial public offering) price. In times of weak market, the coupon tends to be higher between 12%-15% per annum. In terms of a good equity market, the coupon that we are getting is a bit lower, but there is more upside because of the equity pick up and equity performance when we convert that into IPO shares,” says Eliza Ong, Singapore-based managing director/regional head of RHBAM Group Asset Management.

She explains that the investment team is structured under a pillar that includes an investment executive committee she chairs comprising of all the chief investment officers (CIOs) in their respective countries, the regional head of equity research and the regional head of credit research.

“This committee is chaired by myself to work on the direction and strategy of the investment pillar. Once a month, the investment personnel meet together in what we call the regional asset allocation committee. This will deliberate on market strategy and asset allocation strategy which will then be taken by their respective country CIOs to be implemented in the funds under management in their respective countries,” Ong describes.

The investment team is also structured by specialist teams on Asean, the Islamic community and North Asia.

Apart from its own distribution network, Ong says RHBAM will also use third party distributors such as banks, insurance companies and agency networks to market its products in the region.