Money managers in Asia will face growing pressure in 2020 to rationalize their operations even as they ramp up their expansion in China, analysts say.
Fee margins for traditional business in the Asia-Pacific region should "continue to decline in coming years," predicted Katsuki Fumiaki, a Tokyo-based partner with McKinsey & Co.
By way of example, the largest asset owners in key markets such as Japan are offering as little as 2 or 3 basis points on active fixed-income mandates that incorporate performance fees now, down considerably from prior years, forcing managers to rethink their mix of clients and investment strategies, Mr. Katsuki said.
Fee pressure has left managers thinking more about how to scale their businesses and control costs, while focusing on emerging opportunities, Mr. Katsuki said.
On the allocation front, asset segments such as private debt and strategies built around environmental, social and governance factors "seem to be on the top of most clients' minds," said Justin Ong, Singapore-based partner with PricewaterhouseCoopers LLP and Asia-Pacific asset and wealth management industry leader.
Cost cutting in Asia could accelerate as investments in technology lead to greater efficiencies, said Steven McCrindle, Korn Ferry's Singapore-based senior client partner and global co-head of asset management.
But a potential doubling or tripling of fund management company headcounts in China for top 10 global firms over the coming year or two could more than make up for reductions elsewhere in the region, he predicted.
Starting in April, foreign money managers will at last be able to establish wholly owned fund management companies in China, managing publicly traded stocks, bonds and money market funds on behalf of local retail investors — after two decades of minority joint venture partner status.
"2020 will be the year of foreign-owned fund management companies, in my view," Mr. McCrindle said.
Market analysts say continued market opening in China could accelerate foreign money managers' push into long-sought client segments on the mainland such as retail, even as big new opportunities unfold in the country's wealth management product market.
An ongoing push by Chinese regulators to reform the huge shadow banking market — forcing banks and insurers to launch asset management subsidiaries subject to greater transparency — will offer up a range of new opportunities for global managers, analysts say.
At roughly 22 trillion yuan ($3.1 trillion), the portion of that pool of bank wealth management assets slated to be shifted to bank asset management subsidiaries is considerably bigger than China's $2 trillion mutual fund market now, said Miao Hui, a Singapore-based senior analyst with Cerulli Associates Inc.
With that market just getting off the ground now, a number of details still need to be hammered out before the scale of the opportunities available to foreign managers can become clear, Ms. Hui said.
Even so, some analysts say it's not too early to conclude that China's huge pool of wealth management product assets will further boost what was already predicted to be the leading engine of inflows for the global money management industry in decades to come.
With the shift of shadow banking assets to local capital markets, growth momentum for the country's asset management market is likely to be "much stronger" over the next few years, offering opportunities that are both larger and more diversified, said Cliff Sheng, a Hong Kong-based partner with McKinsey.
For foreign managers not yet in China, becoming a partner of a bank wealth management subsidiary offers access to capital markets set to enjoy strong growth momentum in tandem with a very strong distribution partner, Mr. Sheng said.
On Dec. 20, Amundi announced it had won approval from the China Banking and Insurance Regulatory Commission to set up a joint venture with BOC Wealth Management, the wealth management subsidiary of the Bank of China. Amundi will have a 55% stake in the venture and BOC Wealth Management will hold 45%.
Meanwhile, money managers continue to explore ways to harness money management services to Chinese digital giants. On Dec. 13, Vanguard Group announced a joint venture with Hangzhou-based Ant Financial Services Group to provide customized fund investment advisory services to Ant Financial clients with as little as 800 yuan to invest.