Asset & Wealth Management 2025 - PwC
Asset & WealthManagement 2025The Asian AwakeningJanuary 2019
Contents1. Executive summary42. From sprint to marathon:6Playing the long game to win in AsiaFund markets set for exponential growthSucceeding where others fail3. Asia awakens: Drivers of changeBuyer’s marketDigital technologies: Do or DieThe search for outcomesFunding the futureRegional-interconnectivity124. Seeing the future: What if.285. Conclusion336. Appendix34Contacts35
1Executive summaryThe APAC asset and wealth management(AWM) industry is expected to be thecentre for global AuM growth in thecoming years. With the opening up ofeconomies in the region, we expect tosee more international asset managersset up shop directly in the area, as well ascontinued growth in local boutiques whereregional talent starts to venture outsidetheir familiar nest to spread their wings.The ongoing industry revolution elsewherein the world will see fees, products,distribution regimes, regulation, use oftechnology, and people skills changedramatically in the coming years.“China is asleeping giant. Lether sleep, for whenshe wakes she willshake the world.”– Napoleon Bonaparteas highlighted in our global AWM Revolution2025 report, entitled “Embracing ExponentialChange”, will be further expounded in thisreport, albeit with a more Asian perspective.By 2025, we believe that these trends willpropel the APAC AWM industry to globalheights. Scale, internationalisation andtechnological adoption will characterisethe large global firms in the region. Smaller,specialist firms in the region will prosperby becoming strong niche players, offeringexcellent performance or providing servicesfor the larger global players to enter themarket.As the AWM industries of the region develop,vast changes are expected and we believethat four points are of extreme importance:APAC AuM is set to grow faster thanany other region globally. We expect1it to rise from USD 15.1 trillion in 2017 toUSD 29.6 trillion in 20252. Much like ourglobal estimates3, this growth will likelybe uneven in the more developed APACmarkets and fastest in developing markets.However, uniform challenges across theregion do persist. Geopolitical issues, tradetensions, tax issues, and a possible marketcorrection are some of the various issuesthat could disrupt the industry. The current asset management hubs ofthe region, Singapore and Hong Kong,will be joined by a third, namely Shanghai;The next decade will see a myriad ofchanges which will repaint the landscapefor AWM, and asset managers will need tobe prepared, and to some extent, think farahead to identify possible opportunities andpitfalls. A number of these trends, Asia will be one of the largestinfrastructure investment regions globally.This will be driven by the massive growthexpected from the China’s Belt and RoadInitiative (BRI) and other initiatives acrossthe region; and While the APAC region will remain largelyfragmented in the medium term, this isstarting to change. By 2025, we believethat there will be a realisation thatregionalisation will be necessaryfor APAC to truly compete;1 All views in this document are based on PwC opinions, supported by third-party verified information.2 PwC AWM Research Centre analysis.3 PwC, Asset & Wealth Management Revolution: Embracing Exponential Change, 2017.4 Asset & Wealth4 AssetManagement& Wealth2025Management The Asian2025Awakening The Asian Awakening
Inadequate retirement funds and savingswill be a threat to the sustainabilityof many ageing populations in Asia.A fundamental shift in how pensions andsavings are managed, and the abilityof asset managers to help plug theinvestment return gaps before it is toolate becomes even more critical.As part of this research, we also believethat a number of transformations could takeplace by 2025 across APAC, all of whichhave significant implications on how assetmanagers today need to plan for the future.The purpose of this is not to say whether,or when, the transformations will happen.Rather, what if they do? To challenge thethought processes of asset managers andtest their future-readiness, we have identifieda number of potential future industryscenarios in our section - Seeing the Future.These potential “What if” scenarios include: Formation of a single funds platform,under the ARFP, with multiple regionalto-jurisdictions bilateral agreements,followed by the establishment of a directdistribution link between the ARFPconstituents and the Latin American(LatAm) market; Technological adoption in Asia increasesto the extent that online distribution,through robo-platforms, retail shopping,and other social media platformscompletely overtake the traditionaldistribution market; A regional settlement platformharnessing the practical applications ofblockchain, for all equities, bonds andderivative trades across key markets inthe region becomes a reality; and Digital identity on the Cloud becomesa norm, where all financial and regulatoryinformation is digital and available onlinereal-time to investors and regulators.The ongoing global industry revolution willsee fees, products, distribution regimes,regulation, use of technology and peopleskills change dramatically in the comingyears. To this beginning, we believe thatasset managers are well-placed to seizethe opportunities this phenomenal growthprovides, whilst being cognisant of thechallenges and threats emerging in a rapidlyshifting landscape. This is the centurywhere the Asian AWM industry is set toshine brightly.Asset & Wealth Management 2025 The Asian Awakening 5
2From sprint to marathon:Playing the long game to win in AsiaWe expect change in the Asian AWM industryto continue at an increasingly rapid pace.Asset managers need to become businessrevolutionaries or disrupters in order tosurvive and prosper in this environment.This is especially true for asset managersoperating in the APAC region with its diversearray of markets and maturity levels providingabundant growth opportunities in the comingyears. Now is the time for asset and wealthmanagers to act on these ideas and seizethese opportunities.Fund markets set forexponential growthAPAC’s market dynamism providesadvantages and opportunities that areimpossible to find elsewhere. These willremain despite economic and geopoliticalheadwinds sweeping the region. Fromdeveloped AWM markets such as Australia,Japan, Hong Kong and Singapore, toburgeoning India and fast-emerging China,the growth is undeniable, and provides bothlocal and international asset managers withstrong opportunities for scale and returns.Competition in the region’s markets isincreasing as the revenue-pie grows.High equity yields – compared to otherregions and local bond yields – are propellingstrong medium-to-long term growthprospects. If protectionism remains limitedand geopolitical activity remains relativelysanguine, we expect APAC AuM to grow fromUSD 15.1 trillion in 2017 to USD 16.9 trillionin 2020, and to USD 29.6 trillion by 2025,a total compound annual growth rate (CAGR)of 8.7% (see Figure 1). Retail (mutual) funds’(including ETFs) estimated AuM is expectedto more than double between the sameperiod to USD 11.9 trillion, and institutionalmandates are expected to grow at a similarrate. We anticipate a boom in alternativeasset popularity among Asian investors –especially Real Estate and Infrastructureinvestments – as alternative AuM grows fromUSD 2.9 trillion in 2017 to USD 6.9 trillion by2025, a staggering CAGR of 11.7%.A rapidly ageing population, more so incertain APAC countries than the rest of theworld, has led to pension funds speedilysearching for new investment opportunitiesin order to provide the necessary returns.Alongside this, expanding amounts of massaffluent4 and HNWIs5 in the APAC regionprovide opportunities for asset managers toservice these growing segments, which grewby 8.6% and 8.1% respectively between 2015and 2016, far outpacing the more developedregions of Europe and North America.As investors’ wealth grows and the newlywealthy become more comfortable entrustingtheir financial assets to digitally orientatedfirms, wealth managers have a largewindow to seize an almost USD 65.5 trillionopportunity by increasingly targeting retailclients.4 Mass affluent are defined as those having wealth between USD 100,000 and USD 1 million.5 HNWI are defined as those having wealth of USD 1 million or more.6 Asset & Wealth6 AssetManagement& Wealth2025Management The Asian2025Awakening The Asian Awakening
Figure 1: Total client assets across APAC in USD ension funds2.13.23.83.94.04.65.86.8Insurance companies4.86.77.57.79.110.511.713.7Sovereign Wealth 5.516.917.019.928.9Mass affluent14.219.619.820.422.122.325.936.6Total Client Assets32.545.948.850.354.957.567.391.7APAC 9%22.0%26.3%25.1%32.3%Penetration rateSources: PwC analysis. Past data based on OECD, World Bank, FSB, Credit Suisse, SWF InstituteThere are, however, challenges that mightaffect growth. Unequal tax treatmentwith regards to fund passports, mountingconcerns over geopolitical difficultiessuch as North Korea flexing its muscles,continued trade tensions between Chinaand the US, or possible corrections dueto market normalisation count among thevarious diverse issues facing asset managersand investors alike in Asia. Should thesechallenges continue or worsen, there wouldlikely be an impact on the financial servicesindustry. In light of this, our conservativeestimates predict a slower growth, with totalAuM rising to USD 18.1 trillion by 2025.Following global trends, intra-APAC’sgrowth will, for the most part and on apercentage basis, be faster in developingmarkets than developed ones. Advancedasset management markets such asAustralia, Japan, Hong Kong and Singaporewill continue to grow, though they will beoutpaced by growth economies of the regionsuch as China and India who are experiencingstrong flows associated with burgeoningasset management markets. The openingup of China’s economy to offshore investors,India’s decreasing interest rates anddisinflation, and the overall continued growthof defined contribution (DC) pension plansacross the region are accelerating people’sadoption of investing. Over the next ten years,new frontier markets such as in Central Asia,Sri Lanka, Vietnam and Myanmar, to namea few, will fuel the increasing wealth beingadded to capital markets.Asset & Wealth Management 2025 The Asian Awakening 7
2From sprint to marathon:Playing the long game to win in AsiaSucceeding where others failOngoing demographic and technologicalchanges, shifts in regulations, potential feepressure, and fluctuating market growth inthe APAC region will make it challenging forall managers to achieve their desired growth.Going forward, managers who achieve successwill be those who beat the market by providingproven alpha, innovative product structuring,and ensuring that the client experience remainsa strong element of their value proposition.Asset managers will have to act with purposein order to deliver on these points.APAC is immune neither to the effect of globalregulations, nor to the wave of regulatory changesweeping across the world. Regulators andinvestors are demanding greater transparencyand this will increasingly put pressure on fees– regulators in Singapore and Hong Kong areplanning guidelines for managers regardingtheir fees for selling funds which couldpotentially upend the existing fee sharing model.Additionally, Japan’s regulator has releasedseven principles they expect financial institutionsto follow which include clarification on feesand accessibility of information, and regulatorsin Australia are implementing new regulationsrequiring greater transparency and disclosure offees and costs. Increased compliance, regulation,and technology costs will further squeeze profitsacross the region. Moves toward outcome-basedsolutions and the ever-growing share of passivestrategies could push down the regional revenuepool. In the face of this, regulations are alsoproviding asset managers with new opportunities;particularly in the area of passporting where theAuM of regional passport schemes is expectedto increase from USD 6.7 trillion in 2017 toUSD 11 trillion in 2025 (see Figure 2). As marketssuch as China, Thailand, and Indonesia continueto open up their markets to external investment,regional and global asset managers will find newavenues of growth.Figure 2: Asian fund AuM projection by countries in passport scheme for .20.520120.20.82014ASEAN .920172020e% CAGRSources: ICI, Lipper, PwC Singapore, PwC AWM Research Centre analysisNote: *Thailand is included in the ASEAN CIS and was removed from the ARFP to avoid double counting.When calculating AuM, we take into account all fund AuM for countries participating in said schemes.Sums may not add to 100% due to rounding8 Asset & Wealth Management 2025 The Asian Awakening4.116.8%2025e
2From sprint to marathon:Playing the long game to win in AsiaDespite uncertain growth across APAC marketsin recent years, several areas provide strongpotential for profit. As HNWIs and mass affluentinvestor numbers grow across APAC, assetmanagers will play an increasingly prominent rolein servicing them. The number of billionaires roseby 103 between 2016 and 2017, a 14% growth,and increased their wealth by USD 700 billionin 2017 alone6. Retirement investing is anotherarea where asset managers have the potentialto expand, with several APAC economies,namely Japan, China, Singapore, Hong Kong,and Thailand, among the most rapidly agingeconomies in the world, and the need to fundretiring populations through defined benefit (DB)or DC schemes is already being felt across thedeveloped APAC markets. Pension assets areforecast t
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