Product Partnerships Key to Accessing Southeast Asian Retail Assets

Product Partnerships Key to Accessing Southeast Asian Retail Assets
Meanwhile, the institutional segment has seen more outsourcing activity

August 2018, Singapore. Master-feeder funds and other product partnerships remain among the most viable ways for foreign asset managers to gather retail assets in Southeast Asia ex-Singapore, Cerulli Associates has found in its newly released report, Asset Management in Southeast Asia 2018: Building Strength and Scale.

In key markets such as Malaysia and Thailand, feeder funds and funds of funds (FoFs) remain popular among local managers. In the Philippines, a long-awaited deregulation that allows mutual fund companies to launch masterfeeder funds—in addition to FoFs—was passed early this year, paving the way for more foreign-invested funds in the market.

“Thai and Malaysian fund houses are generally open to boutique partners and niche products,” said Kian Hong Tan, a senior analyst at Cerulli. “Still, as the biggest managers increasingly build their internal investment expertise, they are choosing to work with foreign partners more selectively, to fill small product gaps or to pitch their capabilities externally. Having interesting or new product ideas that meet their local partners’ needs will likely help foreign managers stand out.”

Foreign-invested assets under management (AUM) grew by a robust 26.0% in 2017, beating locally invested AUM’s 10.8% rise. Strong home bias, well-performing local equity markets, and regulatory limits on mutual funds’ overseas exposure are among the reasons for locally invested products’ dominance. Encouragingly, things will likely change, albeit gradually, as regulations ease in most markets, and managers and investors see the merits of diversifying into foreign assets.

Meanwhile, Southeast Asia’s institutional space—particularly state pensions—also appears to be getting more vibrant. The Philippines’ Government Service Insurance System and Social Security System, and Malaysia’s Employees Provident Fund and Kumpulan Wang Amanah Persaraan are among the funds looking to farm out assets to external managers.

Cerulli’s research found that Southeast Asian state pensions funds’ outsourced assets rose nearly 11% year-on-year to an estimated US$45 billion in 2017, representing an 11.6% addressability. Malaysia leads the region in terms of addressability.

“While Southeast Asian pension funds differ in their investment needs and levels of sophistication, they share similar investment directions: to boost foreign and alternative investments, as they seek yield and portfolio diversification,” said Chin Chin Quah, an associate director at Cerulli. “We believe they will continue to offer among the best outsourcing opportunities in the region.”

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