Research highlights problem of asset retention in Asia
13 September 2013
Category: News, Asia, Global
By Asia Asset Management
Raising mutual fund assets in Asia ex-Japan seldom equates to retaining assets, a report by Cerulli Associates shows. Large funds do not necessarily get the strongest inflows and even when they do, asset retention is often a problem. The reasons include high churn, investors' persisting penchant for short holding periods, and potential erosion of first-mover advantage due to a bad investor experience, according to one of the key findings in Cerulli's Asian Distribution Dynamics 2013 report.
This is true across several Asian markets, including China, Korea, and Taiwan (onshore funds). In Korea, for example, some 87 onshore equity funds were launched in 2010, raising an average of US$14.4 million each. A year later, four of the funds were shut, and the remaining 83 saw an increase in their average AUM to $21.2 million. By the end of 2012, there were only 77 funds left.
This is where distribution dynamics come into play. Getting a fund on board the right channels is important not only to gather, but also retain, assets. Private banks, for example, can be a test-bed for innovative products, especially exotic, higher-risk products, while insurers can provide stickier flows through investment-linked products. Cerulli's survey of Asia-based fund houses, conducted to gather proprietary data for the report, found that private banks and insurers rank second and fourth, respectively, as the channels fund companies most want to tap over the next three years.
"Fund houses don't have to jump through too many regulatory hoops to get their products registered for sale to wealthy investors," says Ken Yap, Singapore-based director and head of Asia-Pacific research at Cerulli. "That's not the case for some funds sold to mass retail investors which, post-2008 global financial crisis, continue to be closely scrutinised by some Asian regulators and can take a long time to receive approval."
Product partnerships with private banks could be an effective way to gain significant inflows into a particular product, as it often involves a short-term-three to six months-exclusive distribution arrangement. However, it is uncommon as there are certain hurdles to overcome.
"It requires a strong, practical product idea that fills client demand or a product gap; the bank's distribution power must be solid because the manager will normally require a minimum AUM; and a fund house might also be unwilling to accept the risk of unsuccessful fund-raising," says Chin Chin Quah, a senior analyst with Cerulli who led the report.