Southeast Asia's fund industry still plays second fiddle
While more international fund managers are looking to Southeast Asia for expansion, the region will continue to represent a much smaller opportunity compared to North Asia in the coming years.
International fund management companies with a strong presence in North Asia are looking at Southeast Asia for expansion in the region. This doesnÆt mean, however, that the next few years will see a shift in the main revenue source for these companies, according to Cerulli Associates. At least not in the foreseeable future.
ôOverall, there are a lot of interesting opportunities in Southeast Asia as a component of the region," says Shiv Taneja, CerulliÆs managing director in Singapore, the firmÆs base of operations in Asia. ôBut it still represents a relatively small opportunistic part of the market in the region for large multinational fund management companies that operate here.ö
Cerulli has been monitoring AsiaÆs asset management industry, with particular focus on market size, product development, and distribution strategies. Taneja came to Singapore in 2005 to set up the office there. He notes that when many international firms set up in Asia, they tend to go to Hong Kong first largely because that market is fairly developed and is relatively open. From Hong Kong, there is a natural tendency to expand in the region, but initially looking at the rest of North Asia.
Initially, CerulliÆs focus in Asia was only on markets in the north. But that changed around three years ago, when the firmÆs coverage extended to Southeast Asia.
ôI got the sense about three years ago that we needed to expand our research a little bit to look at the developments in Southeast Asia, but not because there was a fundamental shift in the way business was being done,ö Taneja says.
The feedback Cerulli was getting from clients was that they had a good sense of the business in North Asia and already knew what they wanted to do in Taiwan, Korea and China. ôIt was the opportunities driving the Southeast Asian market that [they wanted to know more about],ö he says, noting the impetus for CerulliÆs first report on the Southeast Asian market last year.
For now, Cerulli monitors the Southeast Asian markets of Singapore, Malaysia, Indonesia, Thailand, the Philippines and Vietnam.
ôWhat tends to happen is companies tend to focus on the larger markets. But then you have newer markets like Vietnam that generate a lot of interest until such time as people realise it is more hype than actual business,ö he says.
Southeast Asia is undergoing three major developments: the overall wealth of the region over the last five years has risen quite markedly; there is considerably more money to be managed; and there has been regulatory developments across all markets, some more than others, Taneja says.
Historically, Southeast Asian markets have been more volatile. The fact that the markets have been less volatile of late has helped greatly in the development of the fund industry.
ôYou see very strong growth in a market for a couple of years and then 50% of the assets disappear because the markets have fallen very, very sharply,ö Taneja says. ôThis is largely because a lot of them are very small, very shallow markets. It doesnÆt take a lot to see significant assets disappear in a very short period of time.ö
These swings in fund asset size remain, but the market appears to be on its way to becoming more stable, he says.
Taneja is careful not to overstate the importance of Southeast Asia in the context of AsiaÆs asset management industry, however. ôI donÆt believe it has the asset weight of the North Asian markets,ö he says. ôIf you look at Taiwan, at Korea, at China, the sheer size of those three markets will provide the momentum even in difficult times. Size does count.ö
As of June 2007, which was CerulliÆs latest published data on the region, assets under management (AUM) of the Southeast Asian markets it monitors totalled $93 billion. But Sze Yoon Ng, an analyst at Cerulli, believes the region would have already crossed the $100 billion mark by now. This amount represents funds sourced from clients in Southeast Asia, particularly in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam.
In terms of market share, Southeast Asia makes up only about 10% of the entire Asia ex-Japan market.
ôSoutheast Asia is relatively small, but it presents a lot of strategic opportunities for fund managers, especially with more regulations coming up,ö Ng says. ôWe see Malaysia and Thailand as the two markets where there are the most opportunities in Southeast Asia in the near-term. Indonesia, on the other hand, presents a longer-term investment opportunity.ö
In Malaysia, Ng notes that many significant new rules and regulations have been issued to promote the fund management industry, especially in relation to efforts to promote the country as an Islamic capital market hub.
Thailand is currently the market leader in terms of AUM in Southeast Asia, at $40 billion. ôInvestors are confident.ö Ng says. ôWhat we see is a mutual fund industry that will continue to grow slowly but steadily.ö
In Indonesia, Ng expects growth opportunities to come mainly from the high-net-worth market and the growing middle class thatÆs investing more money in funds.
ôOverall, there are a lot of interesting opportunities in Southeast Asia as a component of the region," says Shiv Taneja, CerulliÆs managing director in Singapore, the firmÆs base of operations in Asia. ôBut it still represents a relatively small opportunistic part of the market in the region for large multinational fund management companies that operate here.ö
Cerulli has been monitoring AsiaÆs asset management industry, with particular focus on market size, product development, and distribution strategies. Taneja came to Singapore in 2005 to set up the office there. He notes that when many international firms set up in Asia, they tend to go to Hong Kong first largely because that market is fairly developed and is relatively open. From Hong Kong, there is a natural tendency to expand in the region, but initially looking at the rest of North Asia.
Initially, CerulliÆs focus in Asia was only on markets in the north. But that changed around three years ago, when the firmÆs coverage extended to Southeast Asia.
ôI got the sense about three years ago that we needed to expand our research a little bit to look at the developments in Southeast Asia, but not because there was a fundamental shift in the way business was being done,ö Taneja says.
The feedback Cerulli was getting from clients was that they had a good sense of the business in North Asia and already knew what they wanted to do in Taiwan, Korea and China. ôIt was the opportunities driving the Southeast Asian market that [they wanted to know more about],ö he says, noting the impetus for CerulliÆs first report on the Southeast Asian market last year.
For now, Cerulli monitors the Southeast Asian markets of Singapore, Malaysia, Indonesia, Thailand, the Philippines and Vietnam.
ôWhat tends to happen is companies tend to focus on the larger markets. But then you have newer markets like Vietnam that generate a lot of interest until such time as people realise it is more hype than actual business,ö he says.
Southeast Asia is undergoing three major developments: the overall wealth of the region over the last five years has risen quite markedly; there is considerably more money to be managed; and there has been regulatory developments across all markets, some more than others, Taneja says.
Historically, Southeast Asian markets have been more volatile. The fact that the markets have been less volatile of late has helped greatly in the development of the fund industry.
ôYou see very strong growth in a market for a couple of years and then 50% of the assets disappear because the markets have fallen very, very sharply,ö Taneja says. ôThis is largely because a lot of them are very small, very shallow markets. It doesnÆt take a lot to see significant assets disappear in a very short period of time.ö
These swings in fund asset size remain, but the market appears to be on its way to becoming more stable, he says.
Taneja is careful not to overstate the importance of Southeast Asia in the context of AsiaÆs asset management industry, however. ôI donÆt believe it has the asset weight of the North Asian markets,ö he says. ôIf you look at Taiwan, at Korea, at China, the sheer size of those three markets will provide the momentum even in difficult times. Size does count.ö
As of June 2007, which was CerulliÆs latest published data on the region, assets under management (AUM) of the Southeast Asian markets it monitors totalled $93 billion. But Sze Yoon Ng, an analyst at Cerulli, believes the region would have already crossed the $100 billion mark by now. This amount represents funds sourced from clients in Southeast Asia, particularly in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam.
In terms of market share, Southeast Asia makes up only about 10% of the entire Asia ex-Japan market.
ôSoutheast Asia is relatively small, but it presents a lot of strategic opportunities for fund managers, especially with more regulations coming up,ö Ng says. ôWe see Malaysia and Thailand as the two markets where there are the most opportunities in Southeast Asia in the near-term. Indonesia, on the other hand, presents a longer-term investment opportunity.ö
In Malaysia, Ng notes that many significant new rules and regulations have been issued to promote the fund management industry, especially in relation to efforts to promote the country as an Islamic capital market hub.
Thailand is currently the market leader in terms of AUM in Southeast Asia, at $40 billion. ôInvestors are confident.ö Ng says. ôWhat we see is a mutual fund industry that will continue to grow slowly but steadily.ö
In Indonesia, Ng expects growth opportunities to come mainly from the high-net-worth market and the growing middle class thatÆs investing more money in funds.
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