Dimensional Fund Advisors wants to bring its academic-based research investment management approach to the Asian markets. To achieve this objective, the Austin, Texas-based pioneer of investing in small cap firms has hired Peng Chen to deliver its message.
Chen takes on the newly created role of chief executive officer for Asia (ex-Japan). He joined Dimensional on July 1 from Morningstar, where he served as president of its global investment management division until May 2012. Money Management Executive spoke to Chen about his new venture and some of the challenges he'll face in building up DFA's presence in Asia.
Congratulations on your appointment. According to your former shop, you left Morningstar to be closer to your family in Asia. But why did you take the DFA job?
That certainly is part of the plan. I grew up in Asia and came to this country for almost 20 years and at this point in my career I want to be a little closer to family and that's certainly a factor. But at the same time the opportunity at Dimensional is a big factor as well.
The academic research-based investment approach was attractive to me and it also suited what I like to do in my career, which is to try and take academic research and apply it into industry practice and help investors have a better investment experience. To me, it was somewhat of a natural decision.
What are some of your key responsibilities at DFA?
My number one role is to work with a number of colleagues to grow the Asian business and that has a couple of dimensions to it. One is to serve our existing clients; we already have a number of existing clients in that region. Number two is to help bring that academic-based investment approach to Asia. Dimensional is unique in that approach and has a great 31-year track record in terms of delivering superior results for investors. We want to bring that to Asia in a bigger way than we have done in the past and potentially serve more customers.
In addition, I will also devote some of my time to help Dimensional in research whether it is in industry practice or investments. Hopefully, I'll have time to do that to further the firm's thought leadership. The firm has looked at the defined contribution market globally as a key area and a big part of my experience at Ibbotson Associates and Morningstar was in the DC business, and I'm just excited that Dimensional looked at that area as something I can contribute to as well.
Building up an asset management business in Asia is not for the faint of heart. What are some of the challenges that you'll face in that region?
The first challenge is that even though Dimensional is a global firm with about $245 billion in assets under management, in Asia relative to other parts of the world, we're less known. A lot of people may know the name but don't know exactly what we do and how we do it. So first we need to set up a foundation to support a global infrastructure.
Also make clients understand the firm's base on reverse academic research. We're not trying to chase the hot money in a particular market or segment. We're there to try and bring a new set of solutions to the market we believe long term and strategically can play a role in Asian investors' portfolios. But there will be challenges as any business will face but we're excited. We're a global firm and fairly diversified and we hope we can bring a lot of the success we have in other markets to Asia as well.
The other challenge is we don't view ourselves as trying to sell products. We have a good foundation and infrastructure built on investment principles directly linked to academic research. What we'd like to do is use these building blocks and work with Asian clients and constituencies like you guys to figure out what's the best solution in the Asian market. So localizing is going to be a big challenge and that's going to be a big part of my job to try and link that with our global research and infrastructure to be able to bring more solutions to Asia.
In the Asian DC space, you're seeing a global movement in terms of DC schemes being the more popular schemes for individual investors to fund their retirement, and each market is a little different. In the U.S., it is predominantly sponsored by the employer. In other markets, the government tends to have a much bigger role in terms of setting it up whether it is a government-sponsored or mandatory scheme.
But at the end of the day, one thing is common and that is you have individual investors and participants trying to fund their retirements. They're still facing equity market risks, bond market risks, inflation risks and longevity risks. The fundamental factors are the same and that really meshes up well with what Dimensional is trying to do, which is leverage our academic research rule and then figure out a set of solutions that can work with different parts of audiences.
It could be helping people save more in some countries that have a mandatory saving rate. At the end of the day, we're trying to not look at it from a pure investment perspective what investors need to do but from a balance sheet perspective what investors should do.
We're aiming to open both offices later before the end of this year and we do have plans to bring people on board through internal transfers as well as through local hires in both areas of sale and marketing, client service, portfolio management trading and operations.