Consultancy Cerulli Associates predicts mutual-fund assets under management in Asia ex-Japan to revisit their 2007 peak by 2010, and remain on track to hit $1.6 trillion by 2012.

AUM in the industry peaked at $1.13 trillion at the end of 2007, thanks to strong stock market performance, the increasing shift from savings into investments, and the expansion of wealth management services.

The picture hasnÆt been so rosy since. China, the biggest contributor to growth through 2007 (when AUM grew 86% over 2006 levels), has seen total fund AUM contract by 34% in the first half of 2008; a reduction sure to be worse in the second half.

But Cerulli argues most of these losses are due to market valuations, rather than redemptions. Net redemptions have been few, in stark contrast to markets in Europe, where investors have fled from mutual funds, particularly equity products.

Cerulli says, over the next five years, the funds industry will return to high growth rates, although not the 33% compound annual growth rates (CAGR) experienced between 2003 and 2007. Rather, CAGR will be 7% for the 2007-2012 period. The markets of Korea and India should lead the charge, with growth rates of 13% and 9% respectively, thanks to the proliferation of bank-led regular savings plans into funds.

Those growth rates may lack the fireworks of the mid-2000s, but are respectable, and reflect the ability of foreign bank distributors û which have experienced downturns before û to recover more quickly than local ones, which are still novices in wealth management.

Why is Cerulli optimistic? The consultancy notes that year-to-date net flows to Asian mutual funds are still positive, at $105 billion, versus an outflow from European funds of $90 billion. Moreover, a CAGR of 7% is decent but hardly rose-tinted, compared to the extremely strong growth experienced in the mid-2000s. Cerulli also notes that this 7% is expected to amortise over a five-year period û and most of that growth wonÆt emerge until late 2009 or early 2010.

Cerulli expects revenues should also remain healthy, growing at 9.2% over the next five years, outstripping AUM growth rates by 2%.

As of June 2008, Asia ex-Japan mutual fund AUM stood at $991 billion (comprising Hong Kong, Singapore, Taiwan, South Korea, China and India), and Cerulli predicts it will end the year around $915 billion. As much as 80% of these assets are onshore funds, invested locally. Domestic banks and securities companies make up 49.6% and 18.7% of fund distribution, respectively. Cerulli also suspects insurance could become the fastest-growing distribution segment, albeit from a low base, in the coming years.