Mobile apps and other digital strategies are enabling fund managers to reach untapped corners of Asia’s investor market. After a recent survey showed the region’s investment landscape changing, Leo Chen, Managing Director – Head of Asia, Calastone looks at the key distribution trends shaping the industry’s future.
Technology will lie at the core of fund managers’ future business and distribution models, based on a recent global survey by Funds Europe and Calastone – but there are key regional differences in how the industry sees that future unfolding.
The survey looked at current distribution strategies, technology investment, and perceptions of service quality, and endeavoured to form a picture of how the industry will develop over the coming years. While the answers showed that asset managers are generally moving in the same direction globally, some distinct trends emerged in Asia.
Digital strategies are a key priority everywhere, but when it comes to scalable solutions such as mobile apps that enable firms to onboard more clients with less friction and at lower cost, Asia has pushed ahead.
Digital strategy has been a major focus within Asia, especially within the virtual banks. Because of the region’s huge population and emerging wealth, digital solutions have enabled fund managers to reach the underbanked and newly affluent, while apps have enabled savings on a scale not seen before.
THE ASIAN APPORTUNITY
To capitalise on this opportunity, Asian investment in mobile apps has outpaced every other region in the world except Australia, according to the survey. Companies from banks to mobile wallet providers and even transport services are able to offer small-scale fund investments and loans.
We’ve seen GoJek in Indonesia, for example, going into payday loans and Grab going into wealth management to try to simplify it with digital solutions. It’s creating a type of consumer patterning that’s encouraging people to have their money work for them, and it’s those who are starting to accumulate who are important, rather than those who are already rich.
This shift to a direct-to-consumer model is likely to accelerate in less mature markets – particularly those with large and highly dispersed populations that have remained broadly outside the financial mainstream – with a consequent rise in demand for advisory services. Not only is technology enabling asset managers to extend their reach, Asia is also in the midst of a massive generational wealth transfer that will see a potentially profound shift in savings and investment habits.
At the same time, survey respondents see investment in apps tailing off sharply as the initial high-growth cycle wanes and investment pivots to emerging technologies such as RegTech, Blockchain, and AI-driven innovation.
China was so successful in growing its tech stocks because it has a market of 1.2 billion people, most of whom own a handset, and mobile apps were the lowest entry point into the investment market. Now the whole industry is based on software-as-a-service and that initial growth period is over.
ESG STILL LAGGING
Asked about the factors driving future distribution strategy, respondents around the world were broadly united in highlighting the rise of ESG-driven investment. However, Asia notably lagged other regions in this regard (only 10% highlighted ESG as a key factor, compared with more than 20% in Europe, the UK, and Australia).
This imbalance will gradually correct itself as the Asian markets mature.
At the moment, there’s just less marketing and a slower uptake [of ESG investments] but people are starting to think about the environment more. In the financial space, there is more ESG awareness, and people are beginning to understand it more and more. As with all financial trends within Asia, there’s going to be a major catch-up.
That process is already underway. According to a Calastone survey of the global funds industry published in January this year, ESG inflows in Hong Kong turned positive for the first time in 2021, accounting for just under one-third of total net inflows into equity funds. In Taiwan, ESG inflows turned positive in 2020 and grew again in 2021, while in Singapore they almost tripled in 2021, representing about 40% of equity fund inflows.
BANKS OVERDUE A CHALLENGE?
When the survey explored the likelihood of fund managers establishing their own wealth-management divisions, Asia diverged from the majority of other regions again. Half of respondents thought this was a probable future trend as demand and availability of funds spreads, compared with 25% in Australia and only 13% in North America.
Part of this may be a result of the stronger savings traditions in more developed markets. Another factor may be the enduring control of Asia’s investment landscape by the banks.
Asia is dominated by the banks as distributors and wealth managers; it’s transactional, operational, account banking with wealth management linked up. So far, there haven’t been firms coming up to challenge that because they haven’t seen the need for ‘fee-for-advice’ services, but over time that will change and the virtual banks will come through.
As those changes unfold, the Asian investment menu will begin to look different. Where index products, local market fund structures and managed accounts predominate at present, fund managers in Asia see ETFs, special purpose vehicles and, to an extent, tokenised funds (where Asia already dominates) coming to the fore in the near future.
ROOM FOR IMPROVEMENT
Asked where the industry performs well, and where it needs to get better, managers in Asia said client servicing and NAV calculation were particular strong points. However, when it comes to technology and innovation, the consensus was that Asia needs to do better.
While this seems to contradict the perception that Asia is a leader in tech investment, Asia has traditionally excelled at implementing technologies that have already been developed elsewhere. At present, a lot of that energy is being expended on adoption and improving cyber security, but in future better connectivity is going to be a key priority.
Asia is coming to a stage where the take-up of technology is much quicker, and if you look at the next place for growth, it’s going to be Southeast Asia.
For customers, though, a lot these improvements will be invisible.
What we’re going to see in the next five years – and consumers won’t see it – is systems talking to each other. This is where a lot of financial institutions don’t have it right within themselves. It’s not even entities speaking to each other, it’s more like a loans system will talk to a cash deposit system that’ll talk to a wealth management system, and this is where the real power of technology will come through.