Much has changed in the Asia-Pacific asset management industry since State Street established its presence in the early 1980s. From China’s financial liberalization to the internationalization of Asian markets, the industry has become unrecognizable. The next 40 years should be equally transformative, with Asia poised to lead the way in new and emerging areas.
Indeed, there are several key trends shaping Asian asset management that will have a huge impact on the industry:
• Wider adoption of ESG principles
• The further opening of China as a market
• Emergence of new asset classes and investment strategies
• Globalization of fund managers in Asia.
These structural trends are likely to create new growth opportunities, as well as operational challenges, for asset owners and managers as the industry adapts to a new investment environment.
Wider adoption of ESG principles
Asset managers and owners around the world continue to adopt and integrate ESG principles at different levels. While Europe and the US have dominated ESG investing over the past decade, the trend is now taking hold in APAC.
Asset managers across the region are responding to investor demands by accelerating their adoption of ESG practices, with 94% now undertaking some level of ESG integration, many of which do so to achieve better client outcomes.
But there will be significant ESG challenges for fund managers to navigate the region.
The absence of a strong pan-regional regulator driving harmonisation, as in the EU, is likely to see investors rather than policymakers become the driving force behind ESG reporting structures and frameworks. This could create uneven reporting on metrics and will most likely be one of the biggest challenges fund managers in the region will face when using ESG data.
Further opening up of China
The Chinese market has made significant progress in improving access for international investors over the past decade. Innovations such as the Bond Connect and Stock Connect programs have given offshore investors exposure to some of the largest and most interesting companies in the world.
The process of welcoming international investors continued, providing foreign asset managers with greater opportunity to grow into the Asian powerhouse. The liberalization of foreign ownership limits in 2020 could also be a game-changer, which may accelerate foreign expansion in China in the years to come.
But in a country where digital platforms are essential for fund distribution and wealth management, some asset managers may need to adapt their operations to account for local nuances.
Emergence of new asset classes and investment strategies
Investors are seeking new asset classes and more sophisticated investment strategies and products as the region’s asset management industry matures. For example, passive strategies have gained ground in the region, with ETFs now a staple in the portfolio. At the same time, the search for yield has pushed some investors towards alternative investments.
Elsewhere, growing interest in digital assets is leading to the launch of new strategies that provide early exposure to this exciting asset class.
Globalization of Asian fund managers
APAC fund managers are also beginning to expand outside of their home markets by embracing new technologies that are transforming cross-border distribution and helping them reach new investors.
Digitization has enabled asset managers in the region to harness data and adapt to rapidly changing investor demand, adopt data-driven operating models and innovate with new products. Asset managers can now scale their businesses across the region, enter new markets and manage complex portfolios through innovations in areas such as cloud technology, artificial intelligence and risk analytics.
Meanwhile, greater consolidation is creating asset management groups that can compete with larger peers outside the region.
After four decades of evolution, asset managers and owners need a partner who understands the region and can help them seize opportunities quickly while reducing operational and investment risk.
To learn more about State Street’s positioning for the next chapter of asset management in Asia, click here.
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