Asset managers should target smaller institutional investors in Southeast Asia, such as university endowments and insurers, as they are posting faster growth than entities such as state pensions and central banks, according to a new report from Cerulli Associates.
But they face a new set of challenges in doing so, said the research house. For one thing, smaller institutions do not commonly issue requests for proposals in their investment process, so managers need to get noticed through relationship-building and referrals.
"These small domestic institutions are probably not at a stage where they have the need and expertise to conduct a very structured manager selection process," noted Felix Ng, a senior analyst at Cerulli.
Asked what they felt they needed to secure mandates from pensions, life insurance firms and university endowments in the Asean region, asset managers ranked an investment track record with institutional assets as top for all three investor segments. Then came brand name, followed by competitive fees.
First-mover advantage will be a major determinant of success, said Cerulli, because long-term relationship-building is crucial in winning business from smaller institutional investors in the region.
“Circles in the private institutional space are small and many managers find it hard to break in,” said the report. “But it is certainly worth the trouble, as assets are much stickier in the space.”
What's more, growth rates are higher in the segment. For example, from 2008 to 2012, Southeast Asian insurers' investable assets grew at a compound annual rate of 15.7%, the highest among institutional segments in the region, said Ng.
"This is likely to be a long-term trend, and will happen at a gradual pace," he told AsianInvestor. "Insurers will become increasingly important as demand for protection rises and they increase penetration among the less sophisticated segment of the population."
Moreover, from 2009 to 2012, only a quarter of the assets managed onshore in Southeast Asia on a discretionary basis came from state pensions, noted Cerulli, without providing a figure. That suggests that $74 billion of assets managed on a discretionary basis in 2012 came from smaller private institutions and wealthy individuals, it added.
Asset managers that are part of financial groups are at an advantage, as they can draw assets from affiliated insurance or banking arms. Independent players must find other ways of accessing institutional clients, noted Cerulli.
“Ultimately that means relationships matter more in the private institution segment,” added the report, “and managers should work on developing a strong service culture within their firms.”