Highly fragmented markets are creating complexity for regulatory compliance, product innovation and efficient scaling of operations, revealed a survey conducted by State Street.
About 42% of the respondents said they are considering expanding into new markets with 28% of the respondents citing it a top priority.
Asset managers are targeting developing economies and high savings rates in other Asian markets due to low returns and a limited market size at home, the study said.
The drive to expand into new markets was particularly strong among respondents in Japan with 52% highlighting this priority. New market expansion was a priority for 28% of managers in Hong Kong, 23% each in China and Australia.
Chinese market is one of the priorities for asset managers in the region, according to Paul Khoury, head of asset manager sector solutions in Asia Pacific for State Street Global Services.
Managers are also eyeing frontier markets with 54% considering expansion in Malaysia and 43% in Thailand.
"Companies that are targeting new markets are driven by both opportunity and economic necessity. Staying put is often not an option," Khoury said.
Fragmented Market Challenge
Fragmented markets pose a significant barrier with 51% of the respondents terming it as a serious or very serious challenge for their business. Among firms that operate in more than one country, the figure rose to 63%.
"The region is more fragmented than any other in the world in terms of size, geography, language, culture, regulation and tax harmonization," said Damien Barry, senior vice president, offshore funds services.
In terms of regulations, 52% respondents said they need to make significant changes to systems and processes to meet the diverse reporting requirements of multiple jurisdictions.
Nearly 38% of managers are concerned over their firm’s ability to assure compliance with fragmented and evolving regulations in these jurisdictions. Nearly 51% favored making substantial changes to develop strong risk management strategies tailored to each market.
"With these pressures, and despite the hunger for growth, it is not surprising that 69% of respondents described scaling operations efficiently as a serious or very serious challenge in the region," said Khoury.
A further 71% of respondents thought optimizing returns in a challenging global environment was a serious challenge.
The recent Asian funds passporting initiative, if successful, could be hugely effective and present significant opportunities for asset management, the survey noted.
Product Development Constraints
"Product innovation is a major challenge for asset managers in this region," said Barry, as compliance across multiple markets constrains fund managers.
Majority 64% of respondents cited concerns over regulatory constraints on their ability to develop innovative products and services.
While 36% agreed to make significant changes to understand the regulatory implications of new products, 49% were concerned about management time and focus being devoted to regulatory compliance, at the expense of other issues.
When developing new products, asset managers also have to develop a greater understanding of investor appetites and product preferences, with 47% of respondents saying their businesses required significant changes to their approach to this aspect.
Integrating Data
When asked in what areas they need to make most significant changes to maximising value, 57% cited integrating and consolidating investment data from disparate sources, 49% cited preserving margins in face of downward fee pressure, and 39% cited managing complexities associated with investing in alternative asset classes.
A growing interest in alternative investments to help drive returns and manage risk means that firms will need data platforms with multi-asset capabilities.
Sample details
State Street, in partnership with Longitude Research, surveyed 200 asset management industry executives across the Asia Pacific region to explore the key issues that will shape the industry’s evolution.
The majority of participants were senior executives based in Singapore, Hong Kong, Japan, Australia and China.
About 46% of respondents work for domestic asset management companies based in the region, 36% for major international businesses headquartered in the region and 19% for international businesses from outside the region.
State Street Corporation, a financial services provider which operates in over 100 locations, manages $2.1tn in assets under management as of June 30.
