Sovereign wealth funds in Asia-Pacific will prove increasingly difficult for money managers to target and gather revenues from as they move investment expertise in-house, according to a white paper from Casey, Quirk & Associates.
The money management consultant found that over the next five years, the revenues and net flows previously coming from sovereign wealth funds, large pension funds and central banks will give way to local retail funds and private banking markets in the region. The consultant said these two asset owners will generate close to 50% of net new flows and revenues from what it identifies as “rising segments” over that period.
“Increasingly, large sovereigns and national pension funds represent lower-margin prospects, particularly for investment strategies with scarce capacity,” the paper stated.
Investment assets in the region are forecast to surpass $14 trillion by the end of 2018, from $10 trillion this year. Managers are chasing up to $66 billion in fee revenue over the next five years, across these “rising segments: and what it calls “legacy segments,” such as sovereign wealth funds and state-sponsored pension funds. Sovereign wealth funds are expected to account for about $9.5 billion of that revenue, and state-sponsored pension funds for $6.4 billion. By comparison, local retail and private bank is expected to represent about $17.5 billion of revenue over the next five years.
Australia, Japan and mainland China will represent two-thirds of the total revenue opportunity through 2018, the consultant said, followed by South Korea, Hong Kong, Taiwan and India.
The consultant recommended money managers select specific countries on which to focus, match their skills to growing market segments and upgrade their operating models for Asia-Pacific markets in order to successfully compete in the region.
“Global asset managers may have the edge currently on managing strategies that are increasingly in demand, but to be successful in the region they will need to adapt their investment and distribution capabilities to fit local needs,” said Daniel Celeghin, Hong Kong-based partner at Casey Quirk and head of Asia-Pacific, in a news release accompanying the paper.