Asset managers in Asia Pacific ( APAC ) are remodeling for long-term growth to tap emerging opportunities, including the region’s new cross-border funds initiatives.
APAC-based asset managers are staying focused on creating value for long-term profitable growth even as volatility and market turbulence persist in the industry. Managers are taking steps to remodel their businesses to stay relevant and to tap new opportunities as regulators create frameworks to increase overall funds flow into the region.
A new report by State Street shows that asset managers in APAC are bullish about the opportunities for profitable growth in the next year and are revamping investment strategies, upgrading capabilities, targeting new markets and hunting for acquisitions that could extend their capabilities or reach.
Emerging opportunities
Our report shows 84 percent of respondents in APAC see increased opportunity for profitable growth in the next 12 months and 42 percent are “highly confident” of their ability to allocate capital to areas that will generate the most value.
A harmonized regulatory structure across multiple markets helps new market entrants reduce costs. The cross-border schemes also enable managers to develop tailored products that meet specific demands of the region and give investors a bigger choice of asset types.
For example, the eventual expansion of Shanghai-Hong Kong Stock Connect program to include the Shenzhen equity market and the scheduled launch in 2016 of the Asia Region Funds Passport ( ARFP ) scheme – which would initially cover six APAC markets – will provide even greater market accessibility. For APAC’s asset management industry, the ARFP scheme is viewed as a potential game-changer as it includes Australia and Japan, the region’s two biggest and most mature fund markets.
Already, APAC asset managers are building and improving their distribution networks and operational capabilities to support the new growth opportunities. Some may already have a foothold in one market and are working to expand into another new market. According to our survey, 60 percent of APAC-based respondents plan to expand their existing distribution network to tap growing inflows while nearly half ( 48 percent ) say that they are accessing new distribution channels.
Still, only 33 percent of respondents are highly confident their current operating infrastructure would support their future distribution strategy – which suggests there is work still to be done.
Cost and competitive pressures
While asset managers see new opportunities and have a positive growth outlook, they also face tremendous pressure to reduce costs. Nearly all APAC-based asset managers ( 98 percent ) say they are under pressure to reduce costs in their overall business. Sixty-eight percent of them say their cost of distribution will increase over the next five years.
Asset managers in APAC also face new market competitive pressures. More than four-fifths ( 82 percent ) of respondents say they will face direct competition from non-traditional market entrants, such as technology firms.
In APAC, banks have typically dominated the distribution landscape but in recent years, technology companies have started to use their online and mobile platforms to offer financial services products. These technology companies have tremendous reach with consumers. By offering the right type of investment products, they are becoming strong competitors to the traditional asset managers.
Investors are seeking more choice and they will shop around. In a more open playing field, investors will want more personalization of services from asset managers.
Value for long-term growth
With increased market competition, the region’s asset management industry must focus on building capabilities that enable them to better respond to these changing needs. They must step up and establish a new value-driven relationship with their investors.
Today’s managers must have a greater understanding of the outcomes that their investors are looking to achieve, and an ability to devise solutions aligned with these outcomes. Managers are focusing on tools to improve their core expertise and to help investors manage their money better, with greater risk protection around volatility and market turbulence.
To drive operational efficiencies, APAC’s asset managers are investing in technologies that give them a competitive advantage in client servicing. Advanced technology would underpin their new service offerings, providing a more transparent view of risk and performance across client portfolios.
By delivering value to investors in new ways, the most forward-thinking asset managers will translate today’s optimism into long-term success.
Mark England is a senior vice president, head of Asset Manager Sector Sales for Asia at State Street
