Taking the Path to Long-Term Profitable Growth

Taking the Path to Long-Term Profitable Growth
Managers get ready to face regulatory and digital challenges amid fee pressures

June 2018, Singapore. Asset managers will need to gear up to meet the requirements of a changing business landscape in the face of regulatory reforms, digitalization, and low-fee regimes to grow profitably in their key strategic markets, as per the newly released report, Asian Distribution Dynamics 2018: Re-Orienting Business Strategies, from Cerulli Associates, a global research and consulting firm.

On the regulatory front, there is a common thread in fund domiciling initiatives by regulators in Singapore, Hong Kong, and Taiwan: increasingly pushing managers to boost local fund markets. Hong Kong is considering a new open-end fund company structure and Singapore is working on the Singapore Variable Capital Company structure.

Cerulli believes such initiatives will take some time to pan out as managers will need to evaluate the feasibility of domiciling or redomiciling funds. “Over the long run, such efforts may reshape their fund industries. For now, however, offshore funds in these three markets still dominate—and will likely continue to do so in the medium term, because of economies of scale, cost efficiency, and managers’ and distributors’ familiarity with offshore jurisdictions such as Luxembourg,” says Chin Chin Quah, associate director at Cerulli.

“However, firms may want to consider committing more resources into the local markets, partly because it also helps the asset manager deepen relationships with domestic institutions,” Quah added.

Along with regulatory changes, the wave of digitalization, mounting fee pressures, and increased debates over low-cost passive funds will influence the way managers operate and likely result in managers crafting new business strategies.

“We have already seen active managers realizing the potential threat of passives and jumping into the fray to build low-cost products or smart beta versions. This likely points to a low-fee regime in the years to come, which will force managers to either chase AUM and expand, or be at the other end of the spectrum, offering niche products and services to their investors,” says Leena Dagade, associate director at Cerulli, who led the report.

Cerulli’s survey of managers in the region points to changing business models. An overwhelming majority (93.7%) of respondents said it is likely that they would use digital modes of distribution to drive down fees over the next three years. About 70% of them are considering clean share classes or performance-based fee structures.

“Managers will have to prioritize their preferred markets and client segments by considering the unique traits of local markets and creating the right propositions to meet investors’ needs in this changing environment,” Dagade added.

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