Apac should achieve a 5-year compound annual growth rate of 10% in AUM, despite about $1.2trn of asset growth wiped out due to the impact of Covid-19, predicts Broadridge Financial Solutions in its Apac Distribution Insights report, published this week.
This is compared to a much more lacklustre performance from other regions such as the US and Europe, according to Broadridge, a US-based corporate services and fintech firm.
During the past decade, Apac has accounted for nearly 25% of global long-term fund flows, exceeding Europe in 2018, and further growth will likely be driven by digital distribution and the adoption of sub-advisory models, according to the report. Apac, especially China, also stood out during the market rout in the first quarter of 2020, with net inflows of $92bn compared to the collective $400bn in outflows from the US and Europe.
Mainland China is leading the expansion in the region where both trends are especially prevalent and where there is state-encouraged mobilisation of savings towards long-term investment products.
Accelerated by the Covid-19 pandemic, the future of distribution is online, and Asia is poised to be the global leader, thanks to China.
The most common way for mainland Chinese investors to buy funds is already through mobile apps (53%), more than twice the proportion of investors who do it directly face-to-face at a bank or securities company (23%), according to Broadridge, and the skew towards online purchases is even greater, when direct internet investment is also included (18%).
Broadridge expects that new distribution channels from private banks/wealth boutiques, online platforms and securities firms, which will offer attractive alternatives to traditional retail bank distribution options throughout the region. Consequently, the firm expects the market share of retail banks to fall by 5% to 35% from 40% with online platforms, direct sales, private banks and IFAs all benefiting from the decline.
“Fueled by high mobile and internet penetration, tech-enabled incumbents and new entrants as well as blockbuster online fund launches, the battle for fund dollar is increasingly online,” said the report.
The mass retail market has more options beyond banks to buy funds, such as online platforms and robo-advisers, which are offering greater variety, and importantly at a lower cost.
Online distribution is widespread in mainland China through Ant Financial and Tencent’s Wechat platforms. For instance, fund companies in China that distribute products on online platform Caifuhao, which sits on Ant Financial’s Alipay platform, have collectively attracted 120 million followers, according to Ant Financial Financial Services Group.
Elsewhere, fintech companies such as Stashaway, Syfe and, most recently ride-hailing firm Grab, in Singapore and Malaysia, and Bareksa in Indonesia are increasing market share.
Retail banks are responding and reinventing themselves with the launch of their online platforms, while digital advisers are targeting HNWIs and corporate clients with products and services. Examples include Bank of Singapore, Fubon Bank and China Merchant Bank.
Sub-advisory model
Meanwhile, sub-advisory models (that is, outsourcing investment management to specialist third-parties) are one of the fastest increasing routes for AUM growth in Apac, because they offer an alternative to circumvent local distribution difficulties. Total sub-advisory assets in Apac in 2019 was $1.2trn, with the model most popular in Japan, Australia and China, according to Broadridge.
The superannuation system has driven the model in Australia, Japan’s growth has been fueled by a combination of the rise in discretionary portfolios and fund wraps, and the outsourcing of overseas investment exposure by domestic fund managers.
Indeed, Broadridge expects sub-advisory assets to grow at 10% in the next five years to reach $2trn by 2024, faster than the entire Asian mutual funds industry, which it predicts will increase 9%.
“We expect China to emerge as the biggest source of sub-advisory opportunities over the next five years. Growth in private funds and banks selling wealth management products will accelerate Chinese market share,” said the report.
“Meanwhile, despite being relatively small in terms of AUM, Malaysia and Thailand offer global managers an easier route via feeder fund structure to market cross-border funds as it is less resource intensive.”
