Asset managers in Asia Pacific are focusing on distribution ahead of the planned launches of three regional fund passporting schemes, finds a new State Street survey*. Pressing issues for them include how to expand into new markets and whether and/or how they should develop multi-asset capabilities.
“A lot of Asian investors or asset management companies are trying to understand how the three different schemes [the Hong Kong-China mutual recognition, Asean initiative and Asian Region Fund Passport] are likely to play out. That was front and centre in their minds,” said Paul Khoury, Asia-Pacific head of asset manager solutions at State Street Global Services.
Eighty-two percent of Asia-Pacific respondents said they are embarking on a fundamental shift in their business strategy in response to changing client demands for innovation, distribution and front-office solutions.
Citing Chinese e-commerce platform Alibaba’s foray into asset management, Khoury, told AsianInvestor: “Previously the distribution channel might have been a bank, or a traditional idea of a bank. We are seeing that start to change with the move to digitisation of distribution. Managers are going to have to understand and come to terms with that development quickly.”
Change is partly being driven by the uptake of multi-asset solutions, which are more complex to manage than traditional strategies, the report noted.
While some two-thirds of Asia-Pacific respondents see multi-asset strategies as most likely to drive business growth, 81% of respondents said they are not equipped to thrive when offering them.
It’s not only in product development where capabilities might be lacking, said Khoury, but also in investment analytics, which provide investors with information about how assets are behaving in their portfolios.
“Because managers hold data across multiple asset types,” he added, “they are looking for correlations and trying to understand performance to make sure they are coming up with a diversified portfolio” for managing risk better.
The move to multi-asset strategies requires front-office upgrades, a more holistic approach to risk analysis and performance, and more advanced technologies to manage highly complex multi-asset portfolios, the report said.
A big question for investment managers is where they need to build such capabilities and whether they need to acquire them or outsource them, said Khoury.
Eighty-one percent of Asia-Pacific-based asset managers see more opportunities to enter new markets over the next 12 months and 48% plan to do so in the next three years. China, India and Singapore top the list of target countries.
But the changing regulatory and distribution landscapes are seen as major challenges for market expansion. About one-third of Asia-Pacific respondents said choosing the right distribution platform was the biggest challenge when launching new products in existing markets.
Forty-three percent of Asia-Pacific respondents considered regulation to be the single biggest challenge when expanding into new markets, and more than half believed there would be a significant increase in regulatory risk issues over the next 12 months.
When dealing with third-party intermediaries for distribution, Asia-Pacific respondents considered exposure to regulatory risk as the single greatest challenge.
* The survey, conducted in April and May, polled 300 senior asset management executives across the globe, who each oversee at least $5 billion in retail and/or institutional assets. Australia and Japan were the best represented Asia-Pacific countries in the poll, each accounting for 30% of respondents.