Cerulli report sees fee pressure for managers in Asia

The pool of institutional assets up for grabs in Asia outside Japan will almost double to $1.7 trillion by the end of 2016, according to Cerulli Associates' latest annual report on institutional asset management in Asia.

Despite that ostensible good news, which includes a projection that the central banks, sovereign wealth funds and government pension funds dominating Asia's institutional landscape will boost the outsourced portion of their assets to 12.3% by 2016 from 8.9% in 2007, Cerulli predicts increasingly tough pressure on fees will weigh on the profitability of money managers in the region.

Even if institutional assets up for bid should roughly quadruple by 2016 from $462.2 billion at the end of 2007, that growing pool of outsourced assets “translates into neither easier access for all types of asset managers nor greater profitability,” according to a Cerulli news release on its report, “Cerulli Quantitative Update: Institutional Asset Management in Asia 2012.”

Pressure from institutional investors to lower fees and competition among money managers have led to “fee wars,” the report said. In markets such as China, Korea and Thailand, money managers with less established institutional businesses have accepted mandates for minuscule fees — or even “zero-management fees” — just for the credibility of managing money for big institutional investors, the report noted.

For the most part, established global firms don't engage in such cutthroat competitions, but “there is no shortage of firms that will, especially recent entrants that need the prestige and perceived credibility of managing institutional assets,” said Ken Yap, head of Asia-Pacific research at Cerulli Associates, in the news release. The release cited China's “enterprise annuity” corporate pension market as a place where managers have been accepting “deals at a loss” for years. Mr. Yap couldn't immediately be reached for further comment.

Cerulli's report said managers of specialized, niche strategies — including emerging markets fixed income, greater China strategies and private equity — have proved best able to resist that fee pressure.

The news release said “the largest, most transparent Asian institutions, such as Korea Investment Corp., the National Pension Service of Korea, and the Employees Provident Fund of Malaysia, are generally willing to pay fair rates for impeccable investment management and servicing,” but assets outsourced to external managers are increasingly niche-oriented.

— Contact Douglas Appell at dappell@pionline.com | @Appell_PI