AsianInvestor has set out to identify five key hurdles that asset managers need to ovecome if they are to win a rosette by the end of Year of the Horse.
This is as much about positioning for future growth as it is about navigating near-term market challenges.
Over the next week or so we are revealing our selections in descending order of importance as we rate them. We picked cost control as our No.5 choice, as reported, partly because getting this wrong could be costly.
The year ahead contains key milestones for compliance, with potential for other regulatory challenges to arise quickly.
At No.4 we have selected fundraising. This is an ever-present challenge for asset managers, but competition for mandates is rising fast. The field is becoming more crowded at a time when the traditional opportunity set is becoming narrower as liability-focused investors can no longer count on bond yields rising.
This creates opportunities for a range of managers in a wider range of solutions, making 2014 a crucial year to adapt to changing market realities, particularly with regulatory liberalisations across the region.
For our article we sought the views of a wide range of industry professionals including asset management CEOs, portfolio managers, institutional and retail salespeople, distributors, custodians, lawyers, consultants, recruiters and research analysts. Thank you for your input and we welcome your feedback.
The big opportunities for fundraising in Asia will come from insurance firms and sovereign wealth funds, which have deep pockets, dry powder and are maturing fast.
To meet the duration mismatch between assets and liabilities, insurers can’t simply count on bond yields rising. They have to factor in lower returns from fixed income, so will need to raise risk exposures. China, Korea, Singapore and Taiwan have all eased restrictions on the asset classes that insurers can hold.
Managers can expect substantial flow of capital offshore from Chinese insurers, which also offer interesting tie-up opportunities. AMP Capital and China Life were first to capitalise on liberalisations last year.
Asian sovereign funds are similarly developing quickly. They turn over managers every three years, so there remain plenty of chances for managers to win mandates.
Meanwhile Beijing is prioritising large global sovereigns for QFII quota – creating an additional opportunity for managers to go after business.
General trends among Asian asset owners are changing benchmarks and increased exposure to structured credit and alternative assets, including real estate, hedge funds, private equity and infrastructure.
Faith in G4 currencies has eroded due to central banks' money-printing policies, so institutions have to look at real assets. Alternatives will become more and more mainstream to offset missing opportunities in fixed income.
Smart-beta strategies should also see more interest on the understanding that market-cap-weighted indices fail to reflect economic realities.
Asset managers will also be mindful of pension industry developments in Asia. This includes increased international appetite from Australia’s super funds and public pension funds in Japan, which will look to diversify through active managers; moreover, the Nippon Individual Savings Account scheme has now launched, generating new opportunities for firms with a Japanese presence.
Taiwan is seeking to add employee choice to its pension programme; Malaysia has introduced a private retirement scheme; and Thailand is exploring coverage via a National Savings Fund. These will provide opportunities for managers to demonstrate product performance.
On the retail side there will likely be growing demand for lifecycle products and default funds on a country-by-country basis, driven by Asian demographics. This will encourage fund firms to think about the positioning of their business, and how to prepare for future opportunities.