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Investors are growing in sophistication and looking for diversification and foreign exposure
August 2019, SINGAPORE - Against the backdrop of growing foreign interest in Southeast Asia and demand for foreign exposure, local asset managers in the region are increasingly keen to work with external managers to come up with more innovative and unique propositions to fill product gaps, according to research from Cerulli Associates, a global research and consulting firm. Meanwhile, global managers are expanding through acquisitions, joint ventures, or product partnerships.
Growth opportunities abound in Southeast Asia, fueled by the rising middle class and emerging affluent populations. Excluding Singapore, the region posted year-to-date growth of 6.4%, exceeding US$320 billion as of June 2019. Household financial assets in Southeast Asia were estimated to reach US$3.5 trillion in 2018, yet mutual fund penetration stands at just 9.6%. Hence, Cerulli projects the mutual fund industry in Southeast Asia ex-Singapore to grow at a compound annual rate of 11.8% to US$525.7 billion till 2023.
Foreign interest in Southeast Asia is also growing. Besides establishing an onshore presence and forming joint ventures, product partnerships are a common mode of entry for foreign firms, as investors flock to these product offerings in efforts to diversify their local investments. In 2018, Cerulli research showed that foreign exposure was the highest in Thailand at 25.8%, where foreign managers are free to partner with multiple local managers for a particular fund.
In the feeder fund space across Thailand, Malaysia and the Philippines, total assets stand at US$16.7 billion. Thailand is the largest feeder fund market among the three, contributing 76.8% to assets. However, in comparison to the total mutual fund assets across these countries, feeder funds accounted for only 7.9% in marketshare in June 2019.
“Nevertheless, the feeder fund market is poised for growth, along with the increasing sophistication of investors, said Jaslyn Ong, an associate analyst at Cerulli Associates. “Funds with growth stories are generating interest among investors who are hungry for higher yields. In fact, Cerulli has found that local managers are increasingly willing to work with external managers on innovative product offerings. In a recent survey for The Cerulli Report— Asset Management in Southeast Asia 2019, 75.9% of local managers are interested to work with external managers, of which 58.9% are keen on master-feeder partnerships.”
Southeast Asia will continue to appeal to foreign firms, supported by the regulatory push to open markets. As the landscape becomes more competitive, asset managers and distributors—both foreign and local—will have to reinvent their business strategies.
NOTES TO EDITORS:
These findings and more are from: The Cerulli Edge—Asian Monthly Product Trends Edition, August 2019 Issue.
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