INVESTMENT banking may be the domain for the big guys in town but one relative newcomer to the scene is looking at the average investor.
That institution, the Hong Leong Capital Group (HLCG), is figuring out ways to re-energise the retail market for investments.
The task is not going to be easy but HLCG chief operating officer Lee Jim Leng, who is also Hong Leong Investment Bank (HLIB) CEO, has her mind set on that task.
“We want to see how to make the asset management industry more vibrant and bring back the investors,” she tells StarBizWeek.
That will be done, she feels, by going back to the basics rather than what's the investment flavour of the day' see what they want for long term, listening to their experiences on how they have profited and lost in their investments.
“We have to see how to bring back their confidence,” she says.
As a result of previous market crashes, people's confidence in equities has been shaken and many still shy away from the stock market.
“Investors now prefer more defensive investments that cap their losses and provide more stable returns,” says Lee.
HLCG spent the last one year researching on investors' risk appetite and preferences.
“Most of the growth in assets under management in Malaysia is from fixed income, for example, via money market and bond funds,” Lee says.
Moreover, high net worth investors are more inclined to look at either self-directed products or customised discretionary funds, with less emphasis on those that cater to the mass market.
In line with this, HLCG intends to complement its current largely equity-based offerings via the launch of such defensive oriented funds to cater to the more sophisticated investors first.
“Once we have built the momentum, the retail market can see the track record and statistical evidence,'' says Lee.
“We hope to re-energise the retail market, whether in broking or asset management,'' she says, adding that the retailers have, to a certain extent, evaporated.
“The take-up rate for equity funds recently had been very bad. So, why do we bring in something which has no demand?'' she says.
In broking, HLIB aims to make trading more accessible and simple.
“We want to encourage people to trade more and make the channels easier.
“A lot of people are promoting trading through iPad. The Internet trading platform is the way to go. Mobile trading has become very important.
“Recognising the demographic change, we will introduce new products and services to suit this new generation of investors,” Lee says.
HLIB's strength is in the retail stock market. It is also trying to get into institutional trading.
“We want to exploit the cross opportunities and gain back some market share on the institutional side which is very insignificant to Hong Leong now,'' says Lee.
HLIB has set up a research team providing coverage of companies. “Our ranking has been strengthening in the sectors we cover,'' she says.
There is no quantum leap in the setting up of the institutional business; many accounts have been nurtured over the past one year.
“We can use our primary activities as a cross-platform to support our secondary brokerage business,'' Lee says. “For example, when we deal with institutions, they always ask us whether we do primary placements.''
Big players naturally have a lot of offerings and score quite high in some of these segments.
“From our perspective, we must have a strong origination front to support a stronger brokerage business.
“For example, when we meet our clients, they will ask what products do we have to offer? (It will be disadvantageous) if we have never obtained a share placement mandate, an initial public offering (IPO) or have no special products to sell,'' she says.
Investors of the Hibiscus Petroleum IPO (for which HLIB was principal adviser, placement agent and underwriter) would have almost doubled their money with the shares at 75 sen each from the primary allotment and trading at RM1.46 on Friday's close.
That excludes the free warrants. For those who are still keeping the warrants, another 90 odd sen can be added.
“If we have this kind of products, our high net worth individuals will stay with us because of what we are able to offer them. When we originate IPOs, our clients have better chances of getting more shares.
“The more active you are in the primary markets, the higher the tendency for you to have more followers. We need to be strong here in the long term and defend our priority and private clients,'' Lee says.
Building the IB
The theme for the capital raising and corporate advisory part of the IB business will focus on strengthening cross regional capabilities.
Of HLIB's total staff strength, about a third is dedicated to the IB business.
“We can expand to cater to where organic growth is,'' Lee says. “We will export (our talents) and try to build the regional business.''
The search is on for people who can sniff out opportunities, for example, in the area of convertible bonds, a security which can be converted into common stock.
“We can apply similar products for more corporates across the region,'' she says.
How did HLIB start with convertibles? “When people are so afraid of equities, convertible bonds become an ideal hybrid product. It gives the equity upside while allowing the investor to seek redemption from the issuer (subject to normal credit provisions ) at maturity (if not converted).
“More convertible bond deals are in the pipeline. We must find a product that investors want to buy and issuers want to undertake.
“We have to acknowledge the changing market,'' she says.
While Malaysia may have the market for convertibles, Indonesia may be the next market for such related products as equities there have risen substantially.
“We have to look at markets that can be replicated,'' she says, adding that delivery and coming up with good deals would build investors' confidence.
“There must be a viable project. It is not just the fees that matter but also the relevancy of the deal.''
Preparing for liberalisation
“Malaysia is looking at transformation into a greater financial market,'' Lee says. There is no choice but to open up the sector to allow more participants and building more channels.
“We have to really sharpen our skills so that we can operate cross-markets as well. To us, our skill sets are universal.We have access to people who are educated abroad. How can our skill sets be different from those of foreign houses?'' she asks.
What is lacking is global coverage.
“We don't want to be what we cannot be but we can be an equivalent player in our own region ... in markets that are more familiar to us. We should be confident of our own skills, but know our limitations.''
HLIB spent the last three years building up its base in Malaysia. “One cannot expect to be taken seriously in the region if domestically, one has not gained the niche,'' says Lee, adding that investment banking with the addition of corporate advisory and capital markets is now a bigger profit contributor than stockbroking.
Having gained the strength, HLIB compared itself with the competitors. “We ask ourselves how far we can go if we do not go regional,'' she recalls.
HLIB has already gained meaningful positions in the Rating Agency of Malaysia (RAM), Malaysian Rating Corp (MARC) and International Financing Review (IFR) league tables.
“We have done fairly well in the domestic market and are ready to extend our footprint. If we stay in Malaysia, building bigger leaps from our current revenue of RM100mil will be challenging,'' says Lee, who joined the Hong Leong group at the end of 2009.
Domestically, pockets of growth will continue with further liberalisation.
Under the new financial services blueprint, the target for wider access to capital intermediation via financial markets will mean more volume for IBs.
About 46% of our financing activity goes through markets and this will ultimately increase to above 50%, which is in line with the transition towards more market-based financing.
By diversifying the sources of financing, greater financial stability can be achieved; it also makes capital raising more accessible.
“This is the inevitable avenue for financing as deals become bigger,'' she says.
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