Regulation and compliance tops the worry list for operations executives at asset management fims in the Asia-Pacific region, an AsianInvestor survey shows.
The poll of 10 questions was conducted at AsianInvestor’s 2nd Chief Operating Officer Forum in Singapore on April 20, where an audience of Asia-based COOs and heads of operations was gathered. About 40 respondents took part in the survey.
Topics covered included outsourcing trends, MiFID II regulations, regional passporting schemes, and alternatives investments.
The results to five of these questions, which touch upon the biggest challenges and trends now facing COOs in the Asia-Pacific asset management industry, follow below.
Regulation and compliance is the top result and yet the conversation around compliance so far at the event has been relatively muted, Mark Nelligan, BNY Mellon's regional managing director and head of alternative investment services and structured products, said on stage in a subsequent discussion of the results.
“We haven't really touched too much on compliance, although I suspect a lot of that is because we have to live with it,” Nelligan said.
That technology was the second-highest result was not unexpected. Regulation and technology are increasingly becoming intertwined as technology and data management tools produce valuable insights into clients, products, and markets, but there are challenges in navigating regulations surrounding the use of technology, delegates heard on an earlier panel.
In another question, outsourcing was shown to be still a big theme.
“I think that's not surprising because the outsourcing thing is very much a cost thing," Nelligan said, when looking at the results. "All of our organisations have been through it, through outsourcing geographically, and then now there's a shift back to more expertise.”
However, the motivation for outsourcing should really be driven by what you want to derive out of the business and what is the core offering, he said. “That should determine what we want to do, what people we want to hire, and what technology we have in-house,” Nelligan said.
And then there was the inevitable Markets in Financial Instruments Directive (MiFID II) question, which showed that almost a fifth of respondents had been caught out unprepared.
With the rollout of MiFID II on January 3, fund managers and brokers in Asia that trade any asset class with European counterparts are now subject to EU regulations aiming to make financial markets more open and safer, including the unbundling of broker fees.
Over half of the respondents said they were either largely prepared or compliant with MiFID II, or that it would have a limited impact. “There are some who are not impacted because they are very limited in terms of geography and investors and who their providers are,” Nelligan said.
“The important thing is you had to know what the implications of MiFID were in the first place. So you can't just think it's in Europe, so forget it,” he said.
Nelligan added that he expects more regulations down the pipeline, especially closer to home. “MiFID has come out, and now I’ve been hearing that the Singapore government is thinking of a similar MiFID-type thing that they want to implement,” Nelligan said.
In November 2017, the Monetary Authority of Singapore (MAS) issued a consultation paper proposing a regulatory framework that had some overlap with MiFID, requiring asset managers to enhance investor protection and put in place policies and procedures that acted in the best interests of customers.
Passporting is another live theme for COOs, but not a huge one at present, the survey shows.
In the last few years a number of Asian fund passporting schemes have either been implemented or are in the planning stages, including the Asean Collective Investment Scheme, the Mutual Recognition of Funds between mainland China and Hong Kong, and the Asia Region Funds Passport. However, participation in such schemes has so far been slow.
Nelligan was sceptical about such attempts at regional cooperation.
“It should play an important role, but in reality, in my years of seeing attempts at cooperation between the exchanges and regulators, the idea was great but when it came to actual implementation, it falls down,” he said.
In fact, he expects passporting schemes in the region will continue to play a minor role, due to the pace of technological advancement. “I suspect there’s going to be a way in which someone somewhere will find a way to keep within the law, but somehow get to the client base,” he said.
Finally, the survey turned to alternatives investing.
Investor interest in the alternatives asset classes is high, according to a February 2018 survey by Natixis Investment Managers, which showed 75% of institutional investors in the Asia-Pacific region believed alternative investing is necessary to diversify portfolio risk.
Sixty-two percent of the survey respondents at the COO event believe this interest in alternatives is part of a long term trend, and Nelligan is inclined to agree.
It's going to be a longer-term shift, particularly from larger asset owners who, while they will always do allocations in the traditional fund structures, find they aren’t able to put in as much capital as they would like in public markets, Nelligan said.
“Hence, there is a move into real estate and into infrastructure. There’s a huge demand for infrastructure, not least in this region,” he said.