Making an impact on Asia's institutional markets

09 November 2017   Category: News, Asia, China, Global, Hong Kong, Japan, Singapore, Taiwan, USA   By Asia Asset Management

A new report from Boston-based research and consulting firm Cerulli Associates (Cerulli) says the uptick in the Asia ex-Japan institutional landscape is likely to continue due to institutions diversifying their assets and seeking investment expertise in specialised areas.

According to the report – Institutional Asset Management in Asia 2017: Keeping Up With Institutions' Growing Sophistication – the region’s institutional landscape is at present vibrant, with total investable and outsourced assets rising over the past few years.

Cerulli predicts institutions in Asia will outsource 18% of their assets by 2021, up from 14.2% in 2016 and 11% in 2012.

The research and consulting firm also believes that future outsourcing opportunities will likely come from markets with diverse institutional investors that increasingly need to diversify their portfolios and achieve stable, if not higher, returns. It says China is the most notable in this respect, with its retirement and insurance segments expected to lead future opportunities.

Across Asia, competition for institutional assets is keen, the report points out. In Taiwan, for instance, it says competition for mandates from its pension funds can be intense, with tough beauty parades and fee pressures. Peer rivalry is also high in relatively smaller markets in which numerous asset managers have an onshore presence, such as Singapore and Hong Kong.

Cerulli’s research also shows that in Singapore, for example, manager searches by statutory boards and other small institutions over the past year have typically attracted more than ten applicants vying for just one or a handful of mandates.

How, then, does a manager stand out from the crowd to win and keep institutional assets, Cerulli asks.  

It says there are at least four main factors worth noting: strong performance, investment specialisation or strength, strong client servicing or having someone on the ground, and getting into investment consultants' good books.

“In fact, superior performance is more than half the battle won: the manager naturally stands out from the crowd, be it when meeting clients or in consultant ratings,” Chin Chin Quah, an associate director at Cerulli who led the report, says in a November 8 company statement explaining the key findings from the research.

Additionally, Cerulli suggests that large asset managers are better placed to offer solutions, rather than merely be product providers, to Asian institutions. Solutions can encompass multi-asset or asset allocation expertise, risk management, software, and thought leadership, the report says. It goes on to point out that institutions are also increasingly seeking co-investment and partnership opportunities as a step to build their internal talent pools.

“As many Asian institutions scale the sophistication ladder, they increasingly expect their external managers to act deftly and think like they do,” adds Leena Dagade, an associate director at Cerulli who contributed to the report. “Building a solutions-based approach could help some managers, but they should be patient as institutions' inclination toward solutions will pick up only gradually in this part of the world.”