prudential financial: securities investment trust enterprise (patricia tsai)

8/7/2019 Prudential Financial: Securities Investment Trust Enterprise (Patricia Tsai)

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Prudential Financial

Securities Investment Trust Enterprise

(PF SITE)

Patricia Tsai, CEO[October 29, 2009]

www.pru.com.tw


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Taiwan: Country Statistics

Industry

Taiwan Mutual Fund Industry

Industry Overview

PFSITE Background

Product

Company Performance

Market Challenges and Opportunities Appendix

Table of Contents


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Population: 23 million (as of Sep 2009)

Size: 36,000 km2 (1/4 of New York State)

Per Capita GNP: US$ 16,280 (as of Aug 2009)

Savings Rate: 27.01% (as of Dec 2008)

Foreign Reserves: US$ 332.24 billion

(as of Sep 2009)

Exchange Rate: US$1 = NT$32.2 (as of Sep 30, 2009

GDP Growth (as of Aug 2009)

GENERAL INFORMATION

2006 2007 2008 2009E 2010E

GDP 4.80% 5.70% 0.06% -4.04% 3.92%

Source: Directorate-General of Budget, Accounting, and Statistics, Executive

Yuan, R.O.C. (Taiwan)

Taiwan: Country Statistics

NATIONAL FLAG OF TAIWAN
http://upload.wikimedia.org/wikipedia/commons/7/72/Flag_of_the_Republic_of_China.svg


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The mutual fund industry began to develop in Taiwan in 1983 with the establishment of

International Investment Trust Co., then followed by Kwang Hua (acquired by ABN AMRO,then merged to ING), National Investment Trust Co., and China Investment Trust Co.

(acquired by HSBC).

In 1992, 11 more licenses were granted.

In 1995, the Securities and Futures Commission (SFC) (now known as Financial

Supervisory Commission, Executive Yuan (FSC)) allowed foreign investors to establish

100% owned SITEs.

In 2000, the SFC also permitted qualified SITEs and SICEs (Securities Investment Consulting

Enterprise) to apply for discretionary asset management (DAM) licenses.

New offshore fund regulations were announced in August 2006 allowing master agents topromote offshore funds. There are 38 offshore funds master agents operating in the

Taiwan market offering 956 offshore funds managed by 74 fund houses as of August 2009.

Currently, there are 39 SITEs operating in Taiwan offering 509 onshore funds as of

September 2009. Major SITEs with a majority of foreign shareholders are ING, JP Morgan,

HSBC, PCA, Allianz Dresdner, AIG, Fidelity, Franklin Templeton, and Prudential Financial.

Taiwan Mutual Fund Industry


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Industry Overview The market becomes more competitive due to the new offshore fund regulations allowing

international offshore fund players to appoint master agents conducting promoting andselling in Taiwan.

These fund houses are willing to spend big dollars on branding.

Many SITEs shareholders suffered substantial loss in 2005 and 2006 due to losses of

structure products in fixed income and money market funds.

SITEs then changed their focus to non-fixed income and money market fund products,

especially international equity / balanced funds and fund of funds.

As a result, industry equity fund AUM surpassed fixed income and money market fund AUM in

2007, the first time in more than one decade.

Situation changed in late 2008 after the global financial tsunami. Equity fund AUMslumped due to net redemption and market depreciation.

Investors purchased fixed income and money market fund because of low money market interest

rate and risk concerns.

As of September 2009, fixed income and money market fund AUM (NT 1 trillion)

constituted 51.7% of industry mutual fund AUM (NT$ 1.94 trillion).

Industry Overview


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Industry mutual fund AUM totaled NT$ 1.94 trillion (US$60.2bn) as of September 30 2009.

Fixed income and money market funds with AUM of NT$ 1.002 trillion (US$31.1bn)

constituted 51.71% of industry AUM while equity funds with AUM of NT683.8 billion

(US$21.24bn) made up 35.29% of industry AUM.

Industry Mutual Fund AUM Structure

Equity

Fund

35.29%

FixedIncome &

Money

Market

Fund

Others*

13.00%

* Others: including balanced fund, fund of funds, guarantee fund, index fund, and ETF

Industry Overview[AUM Mix]

Source: SITCA, Exchange rate: US$1 = NT$ 32.2 as of September 30 2009


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Equity fund AUM was higher than fixed income and money market fund in 2007 butwas then surpassed by fixed income and money market fund in the next year due toglobal financial turmoil.

Management fee of equity fund (generally 1.6% to 2.0%) is 5 to 20 times than that offixed income and money market fund (0.1% to 0.3%).

Source: SITCA as of September 30, 2009

2,145

823

958

1,002

332

859

434

684

2,666

2,041

1,571

1,938

-

500

1,000

1,500

2,000

2,500

3,000

Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Sep-09

NT$ BN Fixed Income & Money Market Fund Equity Fund Total Mutual Funds

Industry Overview[Mutual Fund AUM Movement]


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As of September 2009, the market share of the top 10 SITEs together is 59.16% and thetop 20 SITEs all together reached 89.48% of the market.

In other words, about half of the SITEs have almost 90% of the market which leaves the

other half to share the remaining 10% of the market.

Others: includes balanced fund, fund of funds, guarantee fund, index fund, and ETF


Industry Overview[Mutual Fund AUM Structure of Top 10 SITEs]


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COMPANY

BACKGROUND

Before the company was acquired in October

2000, Prudential Financial SITE was originally

Masterlink SITE.

Masterlink SITE was established in 1992 andlaunched its first domestic equity fund the

following year.

In 2001, the company was rebranded as

Prudential Financial SITE (PF SITE) and obtained

its Discretionary Asset Management (DAM)license from the SFC. The company was among

the first SITEs in the industry to obtain a DAM

license.

In addition to the headquarter office in Taipei,

PF SITE has 4 branches around the island.

Taipei

Taoyuan

Taichung

Kaohsiung

MAP OF

PF SITE BRANCHES

Industry Overview


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Mutual Funds PFSITE offers 26 mutual funds including 8 domestic equity funds, 10

international funds, 1 domestic balance fund, 2 domestic fixedincome funds, and 5 fund-of-funds to meet investors needs.

PFSITE currently manages over 99.1 billion NTD of fund asset and a

total benefited number of people exceeding 167,000 as of September30, 2009

Discretionary Asset Management Account (DAM) PFSITE started DAM business in 2001.

Major clients of PF SITEs DAM business are government pensionfunds and insurance companies.

PFSITE Products


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PFSITEs AUM totaled NT$161.23 bn (U$$4.62 bn) as of September 30 2009.

Fixed income and money market fund (NT$53.24 bn, US$11.53 bn) and non-fixed income fund (NT$ 45.87 bn, US$1.31bn) constituted 28.45% and

33.02% of total AUM, respectively.

DAM (NT$62.06bn, US11.98bn) and Private Placement Fund (NT$69.13 mm,

US$11.98mm) constituted 38.49% and 0.04% of total AUM, respectively.

Fixed Income &

Money Market

Fund

28.45%

Non-included Fixed

Income & Money

Market Fund

33.02%

DAM

38.49%

Private Placement

Fund

0.04%

As of September 30 2009

Company Performance[Total AUM]


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Amount MarketShare

Rank

Mutual fund AUM (NT$Bn) 99.10 5.11% 9

Equity Fund AUM (NT$Bn) 46.23 6.76% 6

Domestic Equity Fund AUM (NT$Bn) 28.13 7.48% 4

International Equity Fund AUM (NT$Bn) 18.10 5.88% 6

No. of Customers 167,373 9.27% 3

No. of RSP (Regular Savings Plan) Subscriptions 74,807 12.27% 2

Company Performance[Market Position]


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Political uncertainties

Cross-strait relationship between China and Taiwan has been in tensionfor decades.

Intense competition between two major political parties, unsatisfactoryeconomic performance in recent years, and multiple elections increaseuncertainties.

Volatile domestic equity market Investors become over-pessimistic or over-optimistic with market

movement, which lead to significant net outflow / inflow of equity funds.

Competition of market share The biggest SITE has a market share of only 6.95%.

AUM/market shares of leading SITEs are so close that the AUM rankchanges every month.

Market Challenges and Opportunities [1]


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Distribution network development

First tier distributors are picky about products and service level, anddemand higher rebates.

More restrictions are imposed on distributors and their selling forces,which alters distributors selling practices.

Competition from offshore products Taiwan investors can easily access unregistered offshore financial

products, which does not require:

compliance with local regulations on investment targets and vehicles such asthe use of derivatives, commodity investments, China holdings etc.

following the local requests of sales practice, customer services, informationdisclosures , and so forth.



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Pension and retirement market Taiwan has been an aging society since late 1993 and is expected to become an aged

society in 2017.

By 2026, the # of people over 65 will likely make up 20.6% of the total population.*

Findings from the Retirement Readiness in Taiwan survey by Prudential show thathalf of the interviewees were behind schedule with their retirement savings.

People are clearly not in control of fundamental retirement-related factors associatedwith savings and protection such as:

affording medical care

generating an income stream

not running out of money in retirement and MORE

There are major confidence gaps (32-49%) that indicate achieving these importantgoals will be a challenge to many.

* Based on the United Nations definitions: A society in which more than 7 percent of the total population is aged 65 or

over is referred to as an "aging society." When the corresponding proportion surpasses 14 percent, or when the numberof people aged 65 or over exceeds those 14 years of age or younger, then it is termed an "aged society."



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Pension and retirement market

The defined contribution pension system was launched in Taiwan in July2005 and is the main stream of the pension system.

The government-managed Labor Pension Fund provides government-guaranteed return rate of no less than 2-year bank deposit rate.

Main Pension Funds and Participants

Name ParticipantsFund Size Annual Inflow

sub total (Estimate)

Public Service Pension Fund 622,370 12.75 1.30

Labor Pension Fund 4,600,868 28.13 3.19

--DB 14.91

--DC 13.22Labor Insurance Fund 8,938,573 8.05 N.A.

National Pension Fund 4,150,224 1.76 0.77

Total 50.69

Unit: USDbn (rate:32.3TWD/USD) As of August 2009



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Pension and retirement market

According to the survey conducted by SITCA in 2007, the majority ofinterviewees were in favor of a self-selected investment products

This means taking the responsibility of adding the return/riskto their defined contribution pension system on top of thegovernment-guaranteed return.

The market may become more retail-oriented in the future if participantsare allowed to make their own investment decisions into either:

the currently available government guaranteed portfolio

OR

other commercial products including mutual funds that arecurrently pending for legislators approval



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PFSITE Product List

Awards Summarization

Appendix


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PF Product ListPFSITE Product List


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The 12th Taipei Best Fund Awards 2009Organizer: Taipei Foundation of Finance

Awards Received

Fund: Prudential Financial Balanced Fund

Class: Balanced (Value)

Time Period: 3 Years & 5 Year

Fund: Prudential Financial OTC Fund

Class: OTC

Time Period: 5 Years

Nominations Received

Fund: Prudential Financial Global Small & Mid Cap Fund

Class: Global Equity

Time Period: 5 Year

Fund: Prudential Financial High Growth Fund

Class: General Domestic Equity

Time Period: 3 Year



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The 11th Taipei Best Fund Awards 2008Organizer: Taipei Foundation of Finance

Co-organizer: Lipper

Awards Received in Domestic Onshore Fund Category:

Awards Received

High Growth Fund General Category - 3 year

OTC Fund OTC Category - 3 year & 5 year

Balanced Fund Balanced (Value) Category - 1 year, 3 year & 5 year


First Fund Domestic General Category - (3 year)

Small & Medium Cap Fund - Domestic Small & Mid Cap - (3 year)

PFSITE won 6 domestic fund awards among the 25 awards that were

granted and was the biggest winner of all SITEs.


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Smart Taiwan Fund Awards 2008Organizer: Smart Magazine and Morningstar

Awards Received

PFSITE was awarded Best Fund House in Taiwan Equity

Investment Management Awards 2008Organizer: AsianInvestor based in Hong Kong

(based on risk-adjusted performance figures from Mercer and Watson Wyatt)

Awards Received

PFSITE was awarded Taiwan Equity - 3 year performance



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The 10th

Taipei Best Fund Awards 2007Organizer: Taipei Foundation of Finance & Lipper

Awards Received in Domestic Onshore Fund Category:

Awards Received

High Growth Fund Domestic General Category - (3 year & 10 year)

Taiwan Enterprise Fund Domestic General Category - (3 year)

OTC Fund Domestic OTC Category (3 year & 10 year)

Balanced Fund Domestic Balanced (Value) Category (1 year and 3 year)


Maxima Fund Domestic General Category - (10 year)

Taiwan Enterprise Fund Domestic General Category - (1 year)

There were a total of 23 domestic Fund Awards - PFSITE won 7 of them. The remaining 16 awards

went to 13 SITEs with a maximum of 2 domestic fund awards for one single SITE.


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Standard & Poors Taiwan Fund Awards 2007Organizer: Standard & Poor

Awards Received

Balanced Fund Asset Allocation TWD Neutral 3 year

High Growth Fund Equity Taiwan 3 year

WIP High Yield Fund Fixed Income USD High Yield 5 year

Best Fund Management Group 3 year


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PFSITE operates independently. The Companys funds have been approved or agreed to be effective by the

FSC. However, there is no guarantee that it is risk-free. The past performance of a fund manager does not

guarantee a minimum investment return. Apart from exercising the duty of care of a prudent administrator,the fund manager will not be responsible for the profit or loss of the fund, nor guarantee a minimum return.

Investors should read the prospectus carefully before subscription. The costs of Funds are disclosed in each

Funds prospectus, which investors can access through Prudential Financial Securities Investment Trust

Enterprises (PF SITE) website (www.pru.com.tw) or the Market Observation Post System (MOPS)

(http://newmops.twse.com.tw) for further query. The forecasted economic trends and estimated values

mentioned herein are not necessarily representative of the current or future performance of the companys

Fund. Please read the Funds prospectus regarding the Funds investment risks.

No part of this material may be reproduced or distributed further without the written approval of the

Company. These materials are not intended for distribution to, or use by, any person in any jurisdiction where

such distribution would be contrary to local or international law or regulation. The companies, securities,

sectors and/or markets referenced herein are included solely for illustrative purposes regarding economic

trends and conditions or investment processes and may or may not be held by accounts managed by the

Company or by its affiliates. The strategies and asset allocations discussed do not refer to any service orproduct offered by the Company or by its affiliates. The global asset and strategy allocation models presented

are hypothetical allocation models shown for illustrative purposes only and does not necessarily reflect the

management of any actual account. Following the allocation recommendations presented will not necessarily

result in profitable investments. Past performance is not an assurance of future results. Nothing herein should

be viewed as investment advice or as a recommendation, solicitation, or an offer to buy/sell any security, or to

adopt any investment strategy, nor should it be considered an offer to provide investment advisory or other

allocation services.

Disclaimer
http://www.pru.com.tw/http://newmops.twse.com.tw/http://newmops.twse.com.tw/http://www.pru.com.tw/


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prudential financial: securities investment trust enterprise (patricia tsai)

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