Opportunity beckons for asset managers in Asia

There are significant opportunities for asset managers in Asia as the industry continues to mature.

Speaking on a panel at FundForum Asia, Lieven Debruyne, CEO Asia Pacific at Schroders, said there was a growing need for investment products as the middle classes got wealthier and saved more, particularly for their retirement.

The region is undergoing a shift in demand as consumers start to move away from putting their money into real estate and towards putting it into wealth management products, FundForum Asia heard.

Michael Falcon, CEO global investment management Asia Pacific, at JP Morgan, pointed out: “The shift in demographics and retirement infrastructure in the region is going to drive a lot of the shift in value and outcomes orientation.

“This is the biggest area of opportunity for the industry and it is an area that asset managers are going to have to compete on, and how those products fit into a portfolio that is outcomes driven is going to be increasingly important.”

Roger Bacon, managing director, head of managed investments, Asia Pacific, at Citi Private Bank, said Asia was also catching up with other regions of the world in terms of people focusing more on strategic investment and less on opportunistic trading.

But he added that there was still a strong beta element to business in Asia, with fund flows tending to be highest when markets were performing well.

Bacon said the evolution of the industry in Asia could be characterised in three phases.

The first phase, which was largely complete, had involved getting more managed products into client portfolios and establishing more of a balance between trading activities and more strategic investment activities.

He said the second phase involved providers starting to think more holistically about clients’ portfolios.

“The third phase is having presented this holistic model to customers, we start the journey of moving towards a more advice-based model, of which, as everyone knows, the take up has been thus far relatively limited, especially compared with other regions around the world,” he said.

He added that in terms of fees, there would be a shift away from a transaction-based fee to a wrap fee model.

The audience shared the panel’s optimism about Asia, with 43% expecting the annual revenues earned in Asia by traditional fund managers to increase by between 10% and 30% each year over the next five years.

A fragmented market

But the panellists stressed that Asia was a fragmented market and this could create challenges.

Pedro Bastos, CEO Asia Pacific at HSBC Global Asset Management, said: “You cannot think about just one centre of growth in asset management in Asia.”

He added that while the big opportunity was definitely China, industries in South East Asia were attracting more direct investment than in China at the moment.

Bastos said asset managers should also be doing more to promote Asia as a region.

“There is still a lot of scepticism on the part of global investors towards Asia, questioning the potential or the governance of the region,” he said.

“One thing the industry can do better is to look at ESG investments, looking not just at themes, but also the quality and sustainability of the investments.

“This could make a big difference in attracting new global investors in this region.”

Passporting problems

When it came to fund types, the audience overwhelmingly rated UCITS funds, with 90% expecting these to achieve the highest level of cross border sales in Asia during the coming three years.

None of the conference participants thought ASEAN passport funds would be the sales leader, while they were also lukewarm about MRF funds and ARFP funds.

Debruyne said there was a tremendous focus on the asset management industry to promote the local industry and local fund platforms.

He said: “UCITS has a great roll to play. Regional platforms are struggling and will take time.”

Falcon added: “I am not particularly optimistic about passporting efforts and in the medium term I think countries will retrench a little bit.”

Elliott Shadforth, Asia-Pacific wealth & asset management leader at EY, shared the audiences’ lack of enthusiasm about ASEAN passport funds.

He said: “I can never see the ASEAN passport being a customer led initiative.

“Many of the passporting schemes do not address the main issue, such as tax neutrality, and if you don’t solve the main issue, can it ever be successful?”

Meanwhile, technology is expected to significantly enhance the operations of asset managers in Asia.

Around 52% of the audience though digitisation and advances in technology would have the biggest impact on the operations of asset management businesses, while 32% thought it would affect sales and distribution.

Shadforth said: “Technology is hugely important to create efficiencies in the region, particularly on the pricing point, which has come down and will continue to come down.

“If you embrace technology well it can really lead to fundamental changes in how you run your business.”