Full Speed Ahead: The Dramatic Growth of Funds Automation in Asia
22 Sep 2015
Fund automation in Asia has grown tremendously over the past few years. Whilst 2012 estimates showed that over 80% of fund orders were processed manually, today over 50 of the largest fund distributors in Hong Kong, Singapore and Taiwan have implemented a solution to automate their investment fund transactions, of which 30 have selected the Calastone funds messaging network.
Five years ago the lack of automation in Asia was a big problem for global fund management groups. Indeed, when Calastone started its journey in Asia in 2012, fund automation was still a dream. Whilst global fund management firms already enjoyed STP rates of around 60%, the majority of their manual transactions were originated from Asia. Paradoxically, the region experiencing the highest growth rates was generating over 10 million faxes per year.
Today, the top cross-border fund management groups have now managed to achieve STP levels in Asia of around 50%. Even the initially-hesitant domestic and regional fund managers are now also gearing up for automation.
There was a myth circulating around the year 2000 that all players in the fund industry would invest in their IT infrastructure in an attempt to move to a single standard. Many fund managers believed the ISO standard would solve the problem, but this vision was not realised. Fund distributors were simply not willing to invest in infrastructure to automate fund orders by developing new communication standards solely used by the European fund industry.
By the year 2010, innovative technology had developed new solutions that allowed fund distributors and fund managers to adopt automation at minimal cost and with minimal IT resources. Industry-led initiatives led by the Taiwan Depository & Clearing Corporation (TDCC) and the Asia Fund Automation Committee (AFAC) helped pave the way. Specialised fund distributors and banks, including Singapore’s iFast Financial and the Taiwanese Far Eastern International Bank, achieved important initial breakthroughs. Large independent global fund managers were also keen to achieve the same levels of efficiency being attained both in Europe and the US.
Singapore was the first market to gain some traction in the automation of investment fund orders, with a few pioneer distributor platforms and global fund managers driving STP in 2012. Firms were not only interested in expanding their cross-border fund proposition, but also in automating their local funds transactions. Recently, main fund administrators, a handful of key local banks and fund managers have also embarked on the automation process. By the end of 2015, the Singapore fund industry is expected to enjoy similar STP rates in funds processing as those seen in Europe today.
The TDCC announced the launch of their fund order routing initiative in 2012 with Calastone as one of the three partner service providers for cross-border funds automation. Within the past couple of years, the first Taiwan banks began pioneering the TDCC solution with the leading global fund groups. In 2015, the Taiwanese heavyweights of fund distribution, including Taipei Fubon, Cathay Bank and China Trust, have joined the first batch of distributors alongside regional fund managers. By the end of this year we expect that two-thirds of Taiwan fund orders will be handled electronically - an impressive achievement in 3 years, and one that will save the industry millions in processing fees.
Of the three main cross-border fund markets in Asia, Hong Kong remains the least advanced in terms of funds automation with only a handful of funds distributors and insurance companies having adopted STP. This year’s launch, however, of the Hong Kong China Mutual Recognition of Funds (MRF) is deemed to be the year of change in Hong Kong as players must find STP solutions to cope with cross-border flows to and from China (read more about MRF in our blog here). Here again, Calastone will play a key role in helping the Hong Kong fund industry achieve higher automation levels via the set-up of a direct fund messaging facility with China Clear.
The potential of the Asian market has not gone unnoticed. According to a Boston Consulting Group article, Asia-Pacific’s portion of global assets under management (AuM) is only about 15%, even though the region (excluding Japan) is expected to surpass North America next year in terms of wealth (with projections of $57 trillion and $56 trillion respectively).
Until 2012, most automation initiatives in Asia were solely focussed on cross-border flows into UCITS generated by large global players, leaving domestic flows and local players to their fax machines. Since then, new solutions have broadened the scope of automation to include Asia domestic fund flows. This is good news, as new regulatory-driven initiatives such as HK/China MRF, ASEAN and ARFP passports emerge. These passporting schemes are expected to create vast intra-regional fund flows, sooner rather than later (read more about Asian fund passports in our blog here).
From Calastone’s perspective, we have seen our customer base in Asia grow from less than five to over 100 fund distributors and fund managers processing domestic and cross-border fund transactions daily on our network. As of 2015, some of the largest regional distributors and fund groups have joined in on the automation action and will most certainly be amongst the key players benefiting from increased intra-regional fund flows.
Going forward, we predict the creation of a snowball effect with acceleration of STP trends reaching in the area of 80+%. A notable figure indeed, given that this rate should soon surpass even European STP rates. Calastone’s fast-growing community of distributors and fund managers intends to play a crucial role in building this efficient funds processing infrastructure across Asia.