Asia Pacific's family offices are a nimble bunch and never more so than when it comes to ESG where they're already proving to be ahead of the regulators.
Unit-linked assets in Asia will surge 86% to $309 billion by 2012 from $166 billion in 2007, according to projections by financial services research firm Cerulli Associates. So far, unit-linked assets have already risen eight-fold from $19.5 billion in 2003.
Looking ahead, the growth in unit-linked assets will be driven mainly by rising demand for retirement solutions, a low insurance penetration that leaves a lot of room for growth, and the rising affluence in the region, according to Cerulli.
ôThe unit-linked investments business is still relatively new in Asia. Although it is a small part of the asset management business, it is a segment that has grown very quickly in the past few years,ö says Ken Yap, Singapore-based head of Asia-Pacific research at Cerulli.
ôAsia is a market that is not yet well-covered in terms of pensions, and that creates a natural demand for products that will provide some kind of coverage for the future,ö Yap adds.
CerulliÆs research on unit-linked investments covers Hong Kong, Singapore, Taiwan, Korea, China and India û markets where the unit-linked business has grown the most in Asia over the past five years. Unit-linked investments refer to the portion of an insurance policy that is invested in unit trusts.
At present, the bulk of the unit-linked assets in Asia are managed by insurance companies or their asset management arms or affiliates. AIA and Axa are among the regionÆs key insurance players in the unit-linked investment business. Prudential, Royal Life (now Friends Provident), and Clerical Medical International were among the first movers in the region.
Unit-linked assets in Asia managed by third-party fund managers totalled $93 billion in 2007. Cerulli expects that figure to rise significantly to $227 billion by 2012. That represents a compounded annual growth rate of 20% and estimated revenues worth $1.5 billion for the third-party fund managers, according to Cerulli.
ôThe open architecture feature of the unit-linked platforms means more opportunities for external managers to access insurance assets,ö Yap says.
Jamie Poh, the lead analyst on CerulliÆs unit-linked investments report, says unit-linked assets will provide fund managers with ômore stickyö assets or those that are not prone to redemptions due to a number of reasons, including higher redemption fees.
ôThe unit-linked business offers fund houses a direct opportunity to gather relatively stable insurance assets in a marketplace where churning is one of the most severe issues,ö says Poh.
Poh says unit-linked investment products in Asia are mostly exposed to equities, especially in Hong Kong and Singapore, which are the biggest growth markets for these types of products.
Hong Kong is an example of a market where rising affluence will be a major factor in growing unit-linked assets.
ôInvestors in Hong Kong are using their discretionary income to purchase single-premium unit-linked products. They are putting more money in these types of products that can service both insurance and investment needs,ö Poh says.
Meanwhile, Yap expects insurance companies to continue to increase the amount of unit-linked assets they outsource to third-party fund managers.
ôInvestors are very aware of the different types of investment products that are out there. They are looking for the best products that fit their needs,ö Yap says. ôInsurance companies should take the best of breed approach and outsource more rather than try and do everything themselves.ö
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