Asia Pacific — which comprises Japan, Australia, Hong Kong, South Korea, Taiwan, China and Singapore — has about $8.1 trillion in aggregate assets from government-related investment authorities such as sovereign wealth funds, according to estimates by SSgA using data from various public sources. The region also is home to about $4.6 trillion in pension assets and $3.6 trillion in collective funds assets.
Asia Pacific's more than $16 trillion fund management market at the end of 2010 represents an average 9.2% annual increase over the past five years. Furthermore, the sector will grow at an estimated rate of 8.3% annually over the next three years, according to data provided by SSgA.
“Managers know that there's faster growth in Asia, and capturing a larger share of that market has been an ongoing effort, even before the financial crisis,” said Min Tha Gyaw, director at consultant Z-Ben Advisors Ltd. based in Shanghai. “What happened in 2008-2009 derailed a lot of plans, but it didn't put an end of those plans … many (managers) are once again trying to figure out what expansion efforts are right for them.”
This time, managers are looking for a more balanced growth plan, with the client base evenly distributed between large institutions such as sovereign wealth funds and pension funds, and high-net-worth and retail investors, who generally pay higher fees. In addition, some managers are planning to add manufacturing capabilities in Asia, sources said.
“In the past, the focus has been on distributing existing products to local investors,” Mr. Tha Gyaw said. “The growing consensus is that there also needs to be product manufacturing for local investors. Like any other investors globally, they want to invest in what they know.”
In addition, regional expertise in Asia is becoming an increasingly important piece of global portfolios, whether it is in equities, fixed income or alternatives, said Benjamin F. Phillips, partner at money manager consultant Casey, Quirk & Associates LLC, Darien, Conn. “It's critical to managing any global portfolio,” he said.
In terms of aggregate revenues in the money management industry outside of sovereign wealth funds — a group of clients that has arguably been “overfished” — Asia ex-Japan accounts for about 5% to 10% of global revenues, according to Mr. Phillips. However, that figure is set to double by 2015, he added.
“What's developing is a variety of cooperative strategies,” Mr. Phillips said. “This is not necessarily limited to joint ventures. What we're seeing more often are subadvisory agreements, joint product developments and minority stakes” in local fund management companies.
At SSgA, one of the key areas of growth is exchange-traded funds, which are becoming more popular among institutions. SSgA is the leading ETF manager in Asia Pacific, with $16.8 billion, or about 22% of the market share, since its 1999 launch in the region. “We want to retain that dominant position,” Mr. Reilly said. Globally, SSgA managed $260 billion in ETF assets as of March 31.
In December 2010, SSgA hired Frank Henze in the new role as head of ETFs for the Asia-Pacific region based in Hong Kong. Part of his job is to introduce new products specifically for the region's institutional and retail investors. SSgA's Mr. Reilly declined to specify what types of strategies are being developed.
“Another area in which we're seeing interest from institutional investors is around absolute-return strategies,” Mr. Reilly said in a telephone interview.