With Principal International owning the entire stake in Principal Mutual Fund in India, what is your roadmap for the growth of the company over the next three years?
Principal does business in more than 70 countries around the world. When we invest in a market, it is for the long-term outlook of that country and we see positive opportunities in India.
Looking ahead, we see opportunity to innovate in digital tools and infrastructure to support our advisors in serving their clients, in addition to providing these digital tools to consumers to better understand and access their accounts.
In addition, we can leverage Principal global investment management best practices, global product development expertise and global distribution networks.
For example, Principal is uniquely suited to:
- Bring global asset management best practices to our India operations, which can enable us to deliver consistently competitive investment performance and enhance investment risk management.
- Leverage global product expertise to design and deliver “high value add plus” products and solutions
- Leverage Principal’s proprietary global distribution network to bring global asset management capabilities and strategies to local (India) clients, and in to bring local (India) asset management capabilities and strategies to global clients.
What opportunities are you looking for in India? What are your plans & how do you see your positioning here?
India is an important market for Principal due to compelling demographic trends and increased interest and need for investment products and advisory services. This market is a long-term play for Principal and suits our deep roots in retirement and long-term investing.
We have seen performance improve year-over-year, and are optimistic about that trend will continue.
How is Indian fund business different from other markets? Which practices of developed markets would you plan to bring in here?
India’s fund market is relatively small at USD 334 billion, but is growing fast with a 3 year CAGR of 30%.
The market is evolving from physical assets to financial assets, looking for better returns and encouraged by government initiatives to formalize the economy.
B15 markets and SIPs are emerging as significant growth drivers for retail assets.
Additionally, we are working to make better use of data in our investment management process, as well as in the distribution process.
You are responsible for business development, which includes distribution. What needs to be done to strengthen distribution channel in India?
- Continue to advocate for fee transparency for advisors and manufacturers.
- Greater distributor attention to investment management procedures, philosophies and processes in addition to investment performance. Greater realization of the importance of investing for the long term.
- More importance placed on three year performance vs. one year (or less)
- Clear delineation between advisors that provide objective financial and investment advice and are paid via fee vs. those selling through commission arrangements.
- Evolution of fiduciary roles and responsibilities.
- Increased use of technology to enhance advisor productivity and customer experience.
- Greater compensation flexibility available to customers including choices of fee based, “wrapped” accounts and commission based offerings. The customer can chose what best suits their needs.
- Continued investment and focus on consumer financial education and awareness
The penetration level of mutual funds among US households is one of the highest globally. What are the reasons for this?
The ownership of mutual funds within a workplace-sponsored defined contribution pension plan is a key development. It gives participants confidence in the commingled fund structure with a professional asset manager working on their behalf to grow the corpus and help them achieve their retirement goals. This provides ownership exposure to all income strata, not just those at the top of the income pyramid. Per the ICI Factbook 2017, 89 percent of mutual fund assets ($16.2 trillion) are held by households, of which $13.6 trillion are in long term assets and $2.7 trillion are in money market fund assets.
Additionally, the following features of the US system has contributed to greater investment in mutual funds:
- Mature capital markets, which allow for broad choices of funds suitable for long term investing.
- Laws designed to protect the consumer from predatory practices such as churn. Strict guidelines for advisors to adhere to suitability rules.
- Stringent licensing requirements for advisors and distributors with strict compliance procedures and continuing education requirements in place.
- Fee transparency applicable to distributors and manufacturers.
- Emphasis on financial planning and advice.
- Well-developed fiduciary roles and responsibilities that apply to distributors and manufacturers.
- Ease of transaction—both for buying and selling mutual funds.
