Although assets under management in Asia's mutual-funds industry have returned to levels close to those before the 2008 market crash, the models of distribution are beginning to change.

Ken Yap, Singapore-based director at Cerulli Associates, notes that the regional industry's AUM reached $950 billion by the end of the first quarter of 2010. By now it has further closed the gap on the 2007 peak of $1.1 trillion.

The figure covers Asia ex-Japan, including China, Korea, Taiwan, Hong Kong, Singapore and India. China's share is the biggest and the fastest growing.

Yap, who spoke yesterday at AsianInvestor's annual investment summit in Hong Kong, says Asian fund investors have responded to the crisis by keeping calm and not redeeming -- but since then activity has also remained muted.

2009 saw net growth in AUM from market valuations. The industry experienced a slight negative net outflow of redemptions, with the subset of bond funds enjoying a modest net inflow.

If on the surface the industry has been stable, with assets returning close to 2007 highs, below the surface there is a lot of change.

The mix of fund types has been volatile. In 2005, equity funds accounted for just 23% of the industry's AUM. Today it's 47%. Money-market funds, meanwhile, once commanded 25% of assets but today that has fallen to 16%. This has not occurred in a straight line, however: the main driver of changes is institutional investors' moving in and out of cash and short-term bond funds.

The structure of distribution is also beginning to change, says Yap. Regionally, banks now account for 43% of assets sold in mutual funds, and securities companies another 37%. Insurance companies account for only 4% as of end-2009, but Cerulli finds fund managers are adding resources and are eager to see this channel become more important; insurance-linked products deliver more stable customers.

Banks have seen their mutual-funds business enter relative decline. In 2007, at the funds' industry peak, funds accounted for 82% of all bank sales of investment products. Today that figure is 76%.

Structured products have also fallen off, from 15% in 2007 to 8% of banks' product sales in 2009. Yap predicts structured-product sales will pick up as low interest rates push investors out of bank deposits and volatility continues to make capital markets rather scary. But regulation has been tightened so these won't be the cash cows of yore for either manufacturers or distributors.

In China, Yap predicts trailer fees -- the portion of the management fee that a fund manager must share with the distributor -- will rise, now that authorities have banned commission payments and various kickback arrangements. Today 20-40% of fund managers' revenues are given to banks, and Yap suspects that amount will rise to 50-70%.

Today custodian banks sell 58% of funds in China, while non-custodian banks sell 18%. Funds' direct sales account for another 18% and brokers 6%.

The story is different in Korea, as securities companies are the biggest sellers of mutual funds with 49% of the market. Banks sell 39% of funds. Yap believes this is a stable arrangement, with banks providing for more conservative customers and the brokers selling to those who seek risk.

In Hong Kong, banks have experienced a notable decline in market share, which is down to 49%. Authorities now require banks to separate their investments business from their deposit-taking windows, and they must spend more time profiling clients in order to sell funds. This has raised their costs.

In Hong Kong, direct sales are 10% of the funds distribution market, and insurance companies account for another 9%. But it is the Monetary Provident Fund system that has taken up the slack as bank sales faltered over the past 18 months. The constant contributions to MPF schemes means these pension providers now account for 27% of the Hong Kong mutual-funds market.

But perhaps the most interesting change is taking place in Singapore, where the government has imposed new rules on transparency and disclosure, and where customers are more aware of legal recourse in the case of complaints. This has raised costs for banks.

Yap says the government is deliberating creating an environment that will support a move towards independent advisers. IFAs now account for 9% of the funds industry. Banks have a whopping 67% of the market in Singapore so their dominance isn't going to end, but may face stiffer competition.