SINGAPORE (Jan 22): The asset and wealth management industry in Asia Pacific (APAC) is expected to be the centre for global Assets under Management (AuM) growth in the coming years, according to PwC.
PwC’s Asset and Wealth Management 2025: The Asia Awakening report says APAC AuM is expected to grow at a total compound annual growth rate (CAGR) of 8.7% to US$16.9 trillion ($23 trillion) in 2020 and US$29.6 trillion ($40.2 trillion) by 2025 from US$15.1 trillion in 2017, if protectionism remains limited and geopolitical activity remains relatively sanguine.
Retail (mutual) funds including exchange-traded funds estimated AuM is expected to more than double to US$11.9 trillion, and institutional mandates are expected to grow at a similar rate.
Alternative asset popularity among Asian investors is also expected to more than treble to US$6.9 trillion by 2025 from US$2 trillion in 2017, at a CAGR of 11.7%, especially in Real Estate and Infrastructure investments.
The increasing wealth of the mass affluent and high-net worth individuals in the region also gives the opportunity to asset managers to service these growing segments, propelling huge growth in the AWM industry and far outpacing the more developed regions of Europe and North America.
As APAC investors shape their investment habits and target specific outcomes, their demand for investment shifts too. The report showed that active strategies are losing ground to passive strategies as their lower cost is attractive to many investors.
Although it may be more popular in more developed markets such as Europe and US, passive strategies remain mainly an institutional play in Asia.
Justin Ong, Asia-Pacific asset & wealth management leader for PwC says, “However, the introduction of robo advisers and more digitalised fund advice will play a large role in paving the way for passive growth in the region, opening up new distribution channels and disintermediating current ones. This new order will further be bolstered as pension reforms in countries such as China continue, allowing pensions to invest in passive assets and sharply driving APAC AuM from 12% in 2017 to 17% in 2025.”
The report also found that intuitional and retail investors in the region are more inclined to sustainable investing in the forms of Environmental, Social and Governance (ESG) and Socially Responsible Investing (SRI) products. This is driven in part by millennials who prefer to invest in alignment with their personal values.
To hop on this trend, Singapore even produced its first international green bond last year.
“In line with millennials playing a larger role in the market over the next decade, the rise of online distribution has also been particularly pronounced in the region. The challenge in the coming years will be the ability of such platforms to offer more sophisticated products, especially as the region’s markets develop,” says Ong.
The norm of the financial industry has been disrupted by the introduction of additional regulations. Despite the heterogeneity of regulatory systems in the region, the outcome of these pressures is similar, with transparency surrounding fees and services increasing, and pressures on revenues being felt.
“Going forward, asset and wealth managers that achieve success will be those that beat the market. As new investors enter the market, the industry will become increasingly digitalised and investors will look to managers who can tailor portfolios to their needs. Firms will need to combat fee pressure by reducing costs and gaining new investors,” says Ong.
