Asian asset managers have an unprecedented opportunity for growth even though the region is still underestimated and misunderstood by many global investors, says MSIM’s Navtej Nandra.
In a wide-ranging interview, the firm’s head of international investment management also sees industry consolidation on the horizon as cost and revenue pressures take their toll.
Nandra says Asia as a market should be two to three times its current size; he notes it is about $9 trillion in sourced assets today, and could hit $16-$22 trillion in the next decade.
“When we look at the future of Asia, you will see growth not only in investor wallet size but also a shift out of deposits into classic asset management products,” he tells AsianInvestor.
MSIM as a global business has $304 billion in AUM, of which Asia makes up around 13% or $40 billion, notes Nandra. It aims to increase this in line with its Asia forecast – by two or three times. “If I look at the opportunity in Asia with healthy balance sheets, I don’t see why that’s not possible,” says Nandra.
He reckons for the breadth of product MSIM has, it should be twice the size that it is in Asia. Asked why it isn’t, he replies: “We went through a lot of change in client coverage. That is the issue, but that is the opportunity.”
He argues the need for professional fund management has grown commensurately as the investor community has become more sophisticated. The financial crisis has been positive from the perspective that people recognise the value of good active management, he says.
“The amount of dialogue that takes place around asset allocation and performance of your product and fine-tuning at the edges has gone up,” he reflects. “The expectation from clients is much higher [than in the past]. You are truly competing for share of mind and assets.”
MSIM’s strategy for Asia is to bring its international product set to the region, although it retains a domestic funds focus in China, India and Saudi Arabia, having disposed of its retail businesses post-crisis. “In a lot of cases Asian clients are looking for non-Asian product,” says Nandra.
He suggests yield-starved Japanese investors are hungry for US high-yield product in particular – “there is a belief that the US will reinvent itself” – while there has clearly been demand for dividend income stocks from the West among Asian clients more broadly.
At the same time, Nandra confirms that western and Asian clients are also seeking Asia-focused funds. “We are hearing that people want a regional fund, so we are looking into [providing] more regional products for our clients,” he says, noting MSIM is beefing up its emerging markets fund of funds capabilities and is hiring in Mumbai, Singapore, Hong Kong, Shenzhen and Hangzhou.
“We are focusing a lot more on taking our story to consultants and on cross-selling to existing relationships,” he adds.
Nandra is unequivocal in his belief that Asia is being underestimated by the global investor pool, expressing incredulity that emerging markets are so heavily underrepresented in client portfolios.
Further, he argues industry consolidation is inevitable including in Asia given cost and revenue pressures, with the biggest firms at $1 trillion or more at an advantage and best placed to capitalise.
“We expect to see some of the larger banks rethink their asset management strategy, either because it’s not big enough for them or it can’t become big enough quickly enough,” he says.
“At the smaller end [among asset managers] you will see some shake-up as well because of the cost of complying with regulation and the fact that customer demand for information and service has gone up.”
Nandra notes that increased investor sophistication has led to more opportunities for co-investment, working with in-house capabilities at institutions as partners on the private side.
He says among pension and sovereign wealth funds globally he has seen appetite for alternative assets, adding they have become more nimble in asset allocation. It is in MSIM’s suite of alternative asset capabilities in particular that he sees opportunity to cross-sell to existing clients.