Research from State Street Finds Changing Client Demands are Causing a Fundamental Shift in Overall Business Strategy for Asset Managers Worldwide

Asia Pacific to Stay as Key Region for Business Growth Over the Next Three Years

Thursday, July 3, 2014 8:08 am EDT

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HONG KONG
"With the improving economic performance of most Asia Pacific markets, especially China, investors are optimistic about business growth in the region."

The Asia Pacific region is the number one region for business growth over the next three years for asset managers worldwide and they are set to develop new product offerings to cater to investors looking for investment opportunities in the region, according to the findings of a new global State Street survey conducted by FT Remark. The report, entitled “Frontline Revolution: The New Battleground for Asset Managers” found that 60 percent of respondents looking to expand to new markets are planning to invest in Asia Pacific.

The research surveyed 300 senior executives at asset management firms worldwide in April and May 2014, who manage at least US$5 billion in retail and/or institutional client assets.

Thirty-five percent of respondents globally view Asia Pacific as the number one region where the most growth is expected, while 96 percent of Asia Pacific-based asset managers shared the same view. Almost half (48 percent) of the Asia Pacific-based respondents believed that developing new products for their existing markets offers the greatest growth opportunity for their business over the next few years, while 21 percent said they see bringing existing products to new markets as the greatest growth opportunity.

Paul Khoury, head of Asset Manager Solutions in Asia Pacific for State Street Global Services said, “With the improving economic performance of most Asia Pacific markets, especially China, investors are optimistic about business growth in the region.”

According to State Street’s research, 81 percent of Asia Pacific-based asset managers see increased opportunity to enter new markets over the next 12 months and 48 percent of them say they plan to do so in the next three years. According to the findings, China, India and Singapore top the list of target countries. Outside of Asia Pacific, Europe and Latin America are the target regions.

Changing client demands highlight “capability gap”

Eighty-two percent of Asia Pacific respondents said that they are embarking on a fundamental shift in their overall business strategy in response to changing client demands in the areas of innovation, distribution and front office solutions. Multi-asset solutions are cited by more than two-thirds (68 percent) of Asia Pacific respondents as the type of investment strategy most likely to drive growth, but they are considerably more complex to deliver than traditional investment strategies. The shift from traditional products to multi-asset solutions will require many asset management firms to focus on:

  • Transformation: The shift to multi-asset investment solutions requires a major transformation of many aspects of an asset manager’s operating model. Asset managers are required to upgrade the front office to support more complex multi-asset solutions and new growth segments.
  • Tools: The shift to outcome-based investment solutions requires asset managers to be able to analyse risk and performance more holistically across investment portfolios. Advanced tools and technologies are vital to ensure that asset managers can manage, optimize and report highly complex multi-asset portfolios.
  • Talent: Asset managers also need to be able to develop new skills to support a more diverse set of products. Eighty-one percent of Asia Pacific respondents agreed that few asset managers are currently equipped to thrive when it comes to offering multi-asset class investment solutions.

Overcoming regulatory and distribution challenges is key to market expansion

The changing regulatory and distribution landscape are seen as major challenges for market expansion. About one-third (31 percent) of Asia Pacific respondents considered selecting the right distribution platform as the biggest challenge when launching new products in existing markets.

Forty-three percent of the Asia Pacific respondents considered regulation to be the single biggest challenge when expanding into new markets. More than half of the Asia Pacific respondents believed that there will be a significant increase in regulatory risk issues over the next 12 months. When dealing with third party intermediaries for distribution, exposure to regulatory risk is considered as the single greatest challenge for Asia Pacific respondents.

“Despite the regulatory and distribution challenges, Asia Pacific will continue to be the key market for growth for managers all over the world,” said Khoury. “Asset managers are taking that positive outlook into account when planning, budgeting and developing new products. It’s definitely a positive and buoyant market.

Asset managers must now reshape and refocus to meet changing client and investor demands — as well as the heightened regulatory requirements. There is no doubt that global, regional and country specific regulatory reforms present challenges for the industry, but they also offer opportunities.”

Khoury continued, “We believe that the three mooted fund passporting initiatives – Hong Kong-China mutual recognition, Asia Region Fund Passport and ASEAN Collective Investment Scheme – will significantly help cross-border capital flows and allow investment managers to tap the growing asset pool in the region with economies of scale. They will also help simplify distribution in previously less accessible markets, which will create more opportunities for our industry. Asset managers need to keep abreast of what their clients need and be well-equipped with the appropriate products and distribution platforms to thrive in this more specialised and challenging environment.”

To view the full report, click here.

Watch leading asset managers and asset owners talk about the future for the industry in our new video series, The Way Ahead.

About State Street Corporation

State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With $27.5 trillion in assets under custody and administration and $2.4 trillion* in assets under management as of March 31, 2014, State Street operates in more than 100 geographic markets worldwide, including the U.S., Canada, Europe, the Middle East and Asia. For more information, visit State Street’s web site at www.statestreet.com.

* Assets under management include the assets of the SPDR® Gold ETF (approximately $34 billion as of March 31, 2014), for which State Street Global Markets, LLC, an affiliate of SSgA, serves as the distribution agent.

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