FEATURE ARTICLE
Evolving the asset management
industry in the Philippines
The Philippines’ asset management industry is being boosted by the country’s wealth
generation, booming stock market, and lack of penetration of financial products, but still
has hurdles to overcome if it is to truly flourish.
The Philippines asset management industry is a little discussed but increasingly important, and growing, market.
Participants believe it has huge potential, but at the same time is being held
“Cross selling regulation
has caused barriers to entry
to decline.”
back by a variety of factors from realising this.
Unit investment trust funds (UITFs) are
the main form of retail collective investment scheme in the Philippines.
Mario Miranda
BPI Asset Management
The schemes, which currently have a
combined AUM of PHP2.68 trillion
(US$60.5 billion), according to the Fund
Managers Association of the Philippines, are regulated by the Philippines
employee benefit schemes, founda-
The crisis came at a particularly bad
central bank (Bangko Sentral Ng Pilipi-
tions, schools and religious institutions
time for the fund management industry
nas [BSP].
as its main clients, but is increasingly
in the Philippines, although its economy
about retail business.
was relatively resilient, as the concept
of mark-to-market pricing for UITFs was
The UITF industry is represented by the
Trust Officers Association of the Philip-
This has been helped by renewed inter-
pines (TOAP).
est in investment funds, after a hiatus
only introduced in 2006.
due to the financial crisis, caused in part
Their resurgence was also helped by
The sector has evolved from institu-
by declines in both deposit and money
the removal of special deposit accounts
tional funds, including pension and
market rates.
from retail investment in May 2013.
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“We were already in both UITFs and
“Most people leave
their funds with the
banks in passsive
products.”
mutual funds but there were organisations that ran their UITFs under trust
departments and mutual funds that
were under their asset management
companies,” he says.
“The introduction of the cross-selling
regulation has caused the barriers to
Rizalina Mantaring
Sun Life
entry to products to decline.”
Another benefit of the changes is they
should encourage even more retail participation in investment funds, he believes, adding that he estimates the
market is currently split 60:40 in favour
These accounts, ostensibly established
set up costs as corporations registered
by the BSP to manage liquidity at a time
with the SEC.
of institutional investors.
VULPs are a relatively recent introduc-
of record money supply in 2007, and
paying high interest rates, had been
In distribution, bancassurance is the
tion and have led to several bank-in-
made available to retail investors via
most expansive model.
surance joint ventures.
This channel has expanded due to a
These include BPI-Philam Life Insur-
The BSP moved to limit individual inves-
number of recent developments, so that
ance, between Bank of the Philippine
tors’ access to such funds. On expiry,
now banks are able to sell UITFs, mutual
Islands and Philippine American Life &
trust entities.
those who hold the products with a
trust institution are now left to choose
either to put the money in time deposits or investment funds.
Mutual funds are the other main vehicle
“I would hope that some of the PHP10 trillion in passive
funds would move over to active portfolios”
available to Philippines retail investors.
These collective investment schemes
are listed on the country’s stock ex-
funds, and variable unit-linked insur-
General Insurance Company (a division
change and regulated by the Securities
ance policies (VULPs).
of AIA), and BDI-Generali.
& Exchange Commission (SEC).
A regulation came out in late 2014
Insurance is the other main means of
The funds take the form of listed com-
which ended the rule under which bank
selling wealth products.
panies with a finite number of shares.
branches had not been allowed to sell
UITFs, and insurance companies were
Currently, distribution in this segment
Any increase in the number of shares
the only institutions that could sell
is dominated by traditional sales agents,
requires two thirds of the shareholders
mutual funds.
although in some cases, such as Sun
to vote in favour of it.
Life, a large portion of the sales force
This has been welcomed by the indus-
is licensed to sell mutual funds.
Arguably, the nature of mutual funds
try, according to Mario Miranda, head
puts them at a disadvantage compared
of BPI Asset Management’s asset man-
In fees, mutual funds in the Philippines
with UITFs, particularly in the area of
agement & Trust Group.
tend to charge a sales load on the place-
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ment of the investment, annual management charges that are taken from the
NAV of the fund, or exit fees.
There has been one recent sign of disruption on this front, with stock broker
COL Financial Group creating a mutual
“The market is limited to
fixed income and equities
and there is little in
sophisticated products.”
fund supermarket which will allow investors to access the funds of six domestic asset managers with no frontend load.
Noel AndradA
BDO-TIG
Lack of variety
Although the fund management industry in the Philippines, especially UITFs,
is a growing business, it invests in a
relatively limited range of assets.
“The UITF product of the banks is
to invest online and move from current
almost exactly the same [as mutual
accounts to investment accounts, and
Among the country’s 55 registered,
funds] and has practically double the
aims to roll out a service in the next few
active mutual fund companies, 16 are
AUM, but half of that is in money
months allowing them to do just that.
“balanced” portfolios, 23 invest in
market funds,” she adds.
bonds, five in money markets, and only
10 in equities.
Sun Life, meanwhile, has been launchThere is no doubt that the funds indus-
ing communication campaigns focused
try is growing. According to Sun Life,
on financial literacy, including one for
There is somewhat more variety in the
the industry (including both UITFs and
young people called ‘Challenging the
UITF segment.
mutual funds) has expanded at 20% to
YOLO Mindset to Raise a Financially
25% over the past few years due to its
Prepared Generation’.
According to uitf.com, which is spon-
low market penetration, which is only
sored by TOAP and only details the 66
about 1%.
trusts of its 24 member banks, 16 of
In addition, the Bankers Association of
the Philippines holds an investment
the schemes invest in money markets,
From the demand perspective, there
course that covers subjects such as how
with 22 in bonds, eight “balanced” funds
are only a few real hurdles to the growth
to pick a fund manager, and how to
and 20 investing in equities.
of the industry. The first is its current
invest in ETFs and UITFs.
lack of adviser and client education.
According to Rizalina Mantaring, pres-
Rather than the demand front, most
ident and chief executive of Sun Life
Unlike in India, for example, sellers of
participants believe the main barriers
Philippines Group, investors’ mind-sets
investment funds in the Philippines are
to developing the industry is on the
are a large factor in the limited variety
not required to devote any AUM to
supply side, where there are a wide
of funds on offer.
education, although the BSP has re-
variety of structural issues that need to
cently introduced rules on “key informa-
be overcome.
“Most people leave their funds with the
tion and investment disclosure” state-
banks in passive products, not realising
ments for UITFs. This leaves the private
“We sell the products because we
the money is losing value and should
sector responsible for providing educa-
believe people will eventually see that
be invested,” she says.
tion, and it is a responsibility they are
it is a necessity for them to invest rather
taking on.
than keep their money in a savings
“I would hope that some of the PHP10
account,” says Ador Abrogena, executive
trillion in passive funds would move
BDO-TIG, for example, is actively in-
vice president and head of BDO Trust
over [to active portfolios.”
volved in efforts to encourage people
& Investments Group (BDO-TIG).
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“We pursue the market because we
understand that if we don’t do it
someone else will.”
Regulatory arbitrage
“People will eventually
see it is a necessity for
them to invest.”
There is a degree of regulatory arbitrage
in the market. For example, when one
fund house wanted to introduce a
tracker product under the UITF regime,
it was stymied by the BSP’s rule that
these funds should have no more than
15% exposure to a single security. The
Ador Abrogena
BDO-TIG
company then went to the SEC and was
told it could create an index tracker
under the mutual fund regime.
There were signs of a move towards
This is not only the case for collective
liberalisation in 2009, when a law was
investment schemes. Discretionary ac-
jurisdictions who are able to provide a
introduced allowing personal pension
counts are also particularly difficult to
wider range of investments, with less
contributions, including a tax exemption
establish as the BSP dictates that before
pressing regulation.
for investment earnings and a rebate
entering any transaction fund managers
for contributions, but as yet the law has
have to execute an individual letter of
“The market is limited to fixed income
not been put into practice.
transaction with the client.
and equities and there is very little in
That is not to say there have been no
Such stringent rules can be an irritant.
widely used, and ETFs are just starting
developments that should foster growth
Indeed, some fund managers counter-
out,” adds Noel Andrada, senior vice
of the industry.
intuitively suggest that dealing with the
president at BDO-TIG. “Commodity
money with wealth managers in other
sophisticated products. REITs are not
documentation issue will be key to
trading is not here yet so we tend to
A recent rule change has allowed com-
developing the industry rather than the
look for products from other countries
panies to introduce feeder funds. BPI
typical drivers in other markets such as
for our clients to invest in.”
has introduced products linked to ex-
product variety, distribution, marketing,
change traded funds that track the
or performance.
S&P500 and the Eurostoxx 50, and
One way of keeping assets in the domestic market would be to introduce a
BDO-TIG is considering feeders into
Regulatory caution is perhaps not sur-
single regulator for all types of collective
Chinese and Japanese equity funds.
prising, given what happened when the
investment scheme, rather than having
BSP first introduced the idea of mark-
the BSP regulate UITFs, the SEC mutual
More recently, the BSP announced rules
to-market pricing. However, for the
funds, and the Insurance Commission
on April 17 this year allowing UITF to
industry to advance, the central bank,
insurance. At the very least, there is a
provide a unit-paying feature.
and other regulators need to strike a
need to overhaul the regulatory frame-
cautious balance between the need to
work to allow a wider range of products.
The funds can pay out gains in redeem-
protect investors and helping to foster
able units, rather than have to reinvest
development of a local fund manage-
“There are moves to align [regulation]
them in the trust.
ment industry.
but it is not progressing yet,” says Valerie
Apart from these developments,
If they do not, Philippines investors, and
ment Company. “If we can’t agree locally
however, neither the central bank nor
in particular its growing number of mass
how can you align yourself with what
the SEC are giving fund managers much
affluent, HNW and UHNW individuals
is coming in terms of [fund] passporting
room to move on the product front.
and families, might look to place their
and Asean [integration]?”
Pama, head of Sun Life Asset Manage-
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