Much has changed in the Asia-Pacific region’s asset management industry since State Street established its presence in the early 1980s. From China’s financial liberalisation to the internationalisation of Asia’s markets, the industry has become unrecognisable. The next 40 years should be equally as transformative, with Asia poised to lead the way in new and emerging areas.
Indeed, there are several key trends shaping Asian asset management that will have a considerable impact on the industry:
• Larger adoption of ESG principles
• The continued opening up of China as a market
• Emergence of new asset classes and investment strategies
• Globalisation of Asia fund managers.
These structural trends are likely to throw up new opportunities for growth, as well as some operational challenges, for asset owners and managers alike as the industry adapts to a new investment environment.
Larger adoption of ESG principles
Asset managers and owners worldwide continue to adopt and integrate ESG principles at varying levels. While Europe and the US have led ESG investment over the past decade, the trend is now taking hold in APAC.
The region’s asset managers are responding to investor demands by accelerating their adoption of ESG practices, with 94% now undertaking some level of ESG integration, with many doing so to drive better client outcomes.
But there will be significant ESG challenges for fund managers to navigate in the region.
The absence of a strong pan-regional regulator driving harmonisation, like in the EU, will likely see investors rather than policymakers become the driving force behind ESG reporting structures and frameworks. This could create uneven reporting of metrics and will most likely be one of the biggest challenges facing the region’s fund managers when using ESG data.
Continued opening up of China
The Chinese market has made significant progress in improving access for international investors over the past decade. Innovations such as the Bond Connect and Stock Connect schemes, have allowed offshore investors to get exposure to some of the world’s biggest and most exciting companies.
The process of welcoming international investors has continued, providing foreign asset managers with a greater opportunity to expand into the Asian powerhouse. The liberalisation of foreign ownership limits in 2020 could also be a game-changer, which can accelerate foreign expansion into China in the coming years.
But in a country where digital platforms are critical in fund distribution and wealth management, some asset managers may need to adapt their operations to accommodate local nuances.
Emergence of new asset classes and investment strategies
Investors are seeking out new asset classes and more sophisticated investment strategies and products as the region’s asset management industry matures. For example, passive strategies have gained traction in the region, with ETFs now a portfolio staple. Meanwhile, the search for yield has driven some investors into alternative investments.
Elsewhere, growing interest in digital assets is leading to the launch of new strategies that offer early-stage exposure to this exciting asset class.
Globalisation of Asia fund managers
APAC fund managers are also starting to expand outside their domestic markets by adopting new technologies that are transforming cross-border distribution and helping them reach new investors.
Digitisation has allowed the region’s asset managers to leverage data and adapt to rapidly changing investor demand, adopt data-driven operating models, and innovate with new products. Asset managers can now scale their businesses across the region, enter new markets and manage complex portfolios thanks to innovations in areas such as cloud technology, artificial intelligence, and risk analytics.
Meanwhile, greater consolidation creates asset management groups capable of competing with larger peers outside the region.
After four decades of evolution, asset managers and owners need a partner that understands the region and can help them seize opportunities quickly while reducing operational and investment risks.
To find out more about how State Street is positioning for the Next Chapter in Asian asset management click here.
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