Charting the Course for Asset Management in the Asia Pacific

Asset Management in the Future Leading asset managers, service providers, and regulators across Asia are brought together by Asia 2023 to discuss the latest trends and possibilities in the sector with our skilled editors and journalists.

Since every little bit of capital saved goes directly to the bottom line, asset management businesses' ability to reduce risk through effective post-trade processing has a direct impact on the success of their investment portfolios. Pension funds, in particular, are asset owners who prioritise returns. 

Asset managers are even more focused on operational effectiveness and cost savings in the current market when it is difficult to distinguish between performance and returns. The population's investment preferences and fund kinds vary greatly among India, China, Japan, Singapore, Vietnam, Indonesia, Malaysia, and the rest of APAC. Due to this geographic diversification of investments, funds now have greater exposure to currency settlement risk, and their allocation to offshore assets is growing.

Since the dawn of the 1980s, the Asia-Pacific has undergone substantial transformations. The sector has changed beyond recognition, from China's financial liberalisation to Asia's marketplaces becoming more global. Asia is positioned to take the lead in novel and developing fields during the next 40 years, which should see an equal amount of transformation.

The following major trends in Asian asset management will significantly affect the sector:

• Increasing use of ESG principles.

• Ongoing commercial expansion of China.

• Development of new investing methods and asset classifications.

• Globalisation of Asian fund managers.

As the financial sector accommodates a new investment climate, these structural shifts are anticipated to present both new potentials for growth and some operational issues for asset owners and managers.

Increased Use of ESG Principles

Globally, asset owners and managers continue to incorporate and apply ESG concepts to varied degrees. Over the past ten years, Europe and the US have led the way in ESG investment, but APAC is rapidly catching up.

Asset managers in the region are adopting ESG practices more quickly in response to investor expectations. Around 95 per cent of them are currently integrating ESG in some capacity, with many of them doing so to improve client outcomes.

However, fund managers will face significant ESG difficulties when navigating the area. Investors rather than governments will likely become the driving force behind ESG reporting structures and frameworks in the absence of a robust pan-regional regulator driving standardisation, as in the EU. One of the major difficulties fund managers in the region will likely face when using ESG data is the potential for unequal reporting of indicators.

Continued Opening up to China

Over the past ten years, the Chinese market has made great strides towards enhancing access for foreign investors. Offshore investors now have access to some of the biggest and most exciting firms in the world, owing to innovations like the Bond Connect and Stock Connect programs.

Foreign asset managers now have more opportunities to grow in the Asian economic superpower as the process of luring foreign investors has proceeded. The loosening of restrictions on foreign ownership in 2020 has completely altered the game and accelerated foreign investment in China in the next few years. But some asset managers might need to modify their business practices to take into account regional specificities in a nation where digital platforms are essential for fund distribution and wealth management.

The Globalisation of Asia Fund Managers

By embracing new technologies that are revolutionising cross-border distribution and assisting them in reaching new investors, APAC fund managers are also beginning to expand outside of their domestic markets.

Digitalisation has made it possible for asset managers in the area to use data to innovate with new products, implement data-driven operating methods, and respond to fast-changing investor demand. Thanks to advancements in fields like cloud computing, artificial intelligence, and risk analytics, asset managers are now able to expand their operations across the region, enter new markets, and manage complex portfolios.

Meanwhile, further consolidation generates asset management organisations that can compete with larger peers from outside the region. Asset managers and owners require a partner who comprehends the region after four decades of change so they can promptly capture opportunities while lowering operational and investment risks.

The Emergence of New Asset Classes and Investment Strategies

As the asset management sector in the area develops, investors are looking for new asset classes as well as more sophisticated investment techniques and solutions. For instance, passive techniques have gained popularity in the area, and ETFs are now a mainstay of portfolios. In the meantime, some investors have turned to alternative assets in pursuit of yield. New strategies that provide early-stage exposure to this impressive asset class are being introduced elsewhere as a result of increased interest in digital assets.