Asset and Wealth Management Research Digest

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2018 in review Entrances and exits, Today foreign managers are recognising that the fly in For newcomers pursuing a long term strategy in China. fly out model is losing steam in most parts of APAC establishing a PFM WFOE is currently the most popular. Instead many are ploughing resources into existing mode of entry Starting a PFM WFOE allows managers. or new markets either to comply with regulatory to build up their brand and distribution network two of. guidelines or to exhibit market commitment with the aim the commonly cited market struggles before venturing. of gathering more assets Meanwhile several foreign into the public funds space and also circumvents. players have also bowed out of crowded markets potential problems faced in JV operations. Increased commitment and new Besides raising funds to invest locally PFM WFOEs are. entrances also allowed to apply for the Qualified Domestic Limited. Partnership QDLP license which permits them to, China raise funds domestically for offshore investments In. fact there are a handful of foreign players who hold. Foreign players increasing stakes in JVs both PFM and QDLP licenses the latest being a Korea. headquartered asset manager which received its PFM. 2018 was an inflection point for foreign players as approval in December 2018 in addition to a. Chinese regulators lifted restrictions on foreign QDLP license. ownership allowing foreign asset and wealth managers. to take up to a 51 stake in joint ventures Moving forward we expect continued interest in the. PFM WFOE track However securing the license to, Since then a Swiss bank has won approval to become operate is a mere beginning The ability to overcome. the first foreign bank to own a controlling stake in a hurdles such as high market turnover a rapidly evolving. securities joint venture JV and at least two regulatory environment creating brand awareness. US headquartered asset managers have expressed among others are factors which will set successful. interest in increasing their stakes in existing asset entrants apart from others. management JVs, Others are going fully independent Figure 1 Number of new licenses awarded in China 2018. While some global players are after a larger stake. in current JVs others have additionally registered. themselves as Wholly Foreign Owned Enterprises,Private fund management PFM.
allows foreign fund managers to invest, WFOEs and secured Private Fund Management in a portfolio of onshore assets and. PFM licenses commonly referred to as Private raise funds from a maximum of 200. Fund Management Wholly Foreign Owned Enterprises domestic qualified investors high net. PFM WFOEs worth individuals and institutions,Qualified Domestic Limited. Partnership QDLP allows foreign,managers to raise funds domestically. to invest in offshore traditional and,alternative investments subject to. allocated quotas,Source AMAC PwC analysis,2 Asset and Wealth Management Research Digest.
Southeast Asia, Meanwhile a UK life insurer appears to have set its eyes Each route has its own set of challenges and criteria. on Southeast Asia In the Philippines where a handful but regulatory restrictions including the time taken. of foreign asset managers rely heavily on their life to approve new fund launches are generally lower as. insurance arm as a key distribution channel the said life the regulator acknowledges stronger commitment by. insurer announced its intention to incept a trust firm in foreign asset managers. June 2018 with the aim of offering asset management. and trust services in the country moving forward As a result we have seen a handful of asset managers. move towards deepening their presence A US, In the same year its asset management arm also headquartered fixed income fund house parted ways. declared that it will acquire 65 of the fifth largest asset with its master agent and obtained its own SICE license. management firm in Thailand bolstering its presence on to distribute its offshore funds while several SICE. the ground holders have secured SITE licenses either through. direct application or the acquisition of a local fund. In addition a Singaporean bank backed asset manager house with SITE licenses. also added a second acquisition to its Southeast Asian. portfolio taking a 75 stake in a boutique Indonesian Exits. asset management firm in 2018 This is in addition to its. earlier purchase of an insurance backed global asset While new doors have opened for some a handful of. manager which bowed out of the Thai market in 2012 foreign asset managers have exited crowded markets. In India and Korea where there is a strong bias towards. Taiwan local managers exits by global players continued in. 2018 In Singapore a passive player also shuttered its. In Taiwan challenging fund raising conditions and operations and is expected to serve its Southeast Asian. stringent regulations have prompted foreign asset clients from Hong Kong. managers to act To penetrate the Taiwanese market, asset managers typically have three possible routes. Figure 2 Entry options for foreign asset managers in Taiwan. Entry options Description Commitment Ease of fund,required from raising. fund house, 1 Partnership Sale of offshore fund through a local entity with Low to Low.
with a local master agent license A master agent acts as moderate. master agent wholesale distributor and may help offshore. managers with marketing translation of,documents preparation of fund fact sheets etc. and distribution activities Master agents may,represent more than one offshore fund house. 2 Obtaining a SICE license allows fund house to launch Moderate to Low to. Securities offshore funds only high moderate,Investment. Consulting,Enterprise, 3 Obtaining a SITE license allows fund house to launch High Moderate. Securities onshore and offshore funds to high,Investment.
Enterprise,Source PwC analysis,Asset and Wealth Management Research Digest 3. Diversification, Asset managers operating in APAC today face a wide Alternatives. range of challenges including increasing competition. compressed fee margins and regulatory pressure Open. markets in particular have attracted swathes of asset. Institutional allocation to alternatives, managers in both the traditional and alternative space increasing. Case in point Hong Kong saw a net addition of 445 With central banks globally easing up on fiscal measures. entities licensed to conduct asset management activities and interest rates gradually climbing the search for yield. between 2014 and 2017 while Singapore opened its has become more challenging for investors both retail. doors to at least 196 asset managers and institutional As a result many investors have turned. their attention to private markets for alpha, Figure 3 Number of licensed fund managers Singapore and In APAC institutional investors particularly sovereign. Hong Kong 2014 2017 wealth funds SWFs have been active in alternative. allocation China s sovereign wealth fund is expected. to boost its alternative allocation to up to 45 while. Year Hong Kong Singapore,the Government Investment Corporation GIC in.
2014 1031 591 Singapore has a minimum allocation of 20 to private. equity and real estate investments,2015 1135 628, While a handful of institutional investors often have. multiple office locations to source private market. 2016 1300 660, investments directly most institutional investors in. the region lack resources and expertise especially in. 2017 1477 715 offshore markets and often rely on the external. asset managers,Source MAS SFC PwC analysis, Besides contending with rising competition we have. also observed a fall in fund fees in the last few years. and expect pricing to trend downwards in the next few. years as seen in our global publication Asset Wealth. Management Revolution Pressure on profitability, With active funds forecasted to fall by 24 6 between. 2017 and 2025 in APAC and the race for asset gathering. intensifying asset managers are acting quickly to seek. new sources of revenue to make up for the potential. drop in fees In recent times traditional asset managers. in APAC have diversified into the alternatives and. passive space,4 Asset and Wealth Management Research Digest.
Figure 4 National Pension Service outsourced portfolio by asset class USD Bn 2012 17. Asset Class 2012 2013 2014 2015 2016 2017,Domestic 65 9 75 0 76 5 78 8 80 0 103 7. Equity 33 2 39 3 38 0 39 0 39 6 56 5,Bond 23 3 24 5 26 4 27 5 28 2 32 6. Alternatives 9 5 11 3 12 1 12 4 12 3 14 6,Overseas 47 5 62 4 73 9 80 5 93 2 120 6. Equity 24 1 33 7 40 9 42 5 47 8 66 8,Alternatives 13 7 18 8 22 3 27 5 34 6 41 8. Bond 9 6 9 9 10 7 10 4 10 8 12 0,Total 113 4 137 4 150 4 159 2 173 2 224 3.
Source NPS PwC analysis, The National Pension Service South Korea s largest Taiwan asset managers launching PE arms. pension fund for example works with over 100 external. asset managers across alternative asset classes from In Taiwan a handful of local managers were quick to. hedge funds to private equity start building private equity PE capabilities following. the 2018 announcement allowing asset managers, Traditional asset managers are developing with SITE licenses to expand their offerings This is a. in house alternative capabilities significant change as it allows existing asset managers. to also tap on the needs of institutional investors. In addition to growing opportunities in the alternative particularly insurers who are keen in accessing. space regulators have also lifted restrictions on private markets. alternative classes As a result traditional asset, managers particularly in Taiwan and India have been. occupied with building up alternative capabilities in. recent years, Figure 5 Taiwan life insurance industry assets USD Bn 2017. Total life insurance Addressable insurance,industry assets market for private equity.
and hedge fund managers,currently capped at 2,USD 712 7 billion USD 14 3 billion. Source TII PwC analysis,Asset and Wealth Management Research Digest 5. Indian asset managers are launching,alternative investment funds. In India some of the biggest local asset,managers have also moved into the alternative. space since the launch of the Alternative,Investment Fund AIF regime in 2012.
Faced with margin squeeze in the open ended,mutual fund space traditional asset managers. have expanded into the AIF space and launched,over 70 AIFs since 2012 In 2018 alone 22 AIFs. were launched by traditional asset managers with,launches in Category II AIFs taking the lead. Figure 6 Number of AIFs launched by traditional asset Types of AIFs in India. managers in India 2012 2018,Category I, 25 AIFs which invest in start ups early stage ventures. social ventures small and medium sized enterprises. 20 SMEs infrastructure etc,Category II, 3 5 AIFs which do not fall into categories 1 or 3 and do.
10 not undertake leverage or borrowing Eg Private,3 1 12 equity real estate funds. 2 Category III,0 AIFs which employ diverse or complex trading. 2012 2013 2014 2015 2016 2017 2018 strategies and may employ leverage including through. investment in listed or unlisted derivatives Eg Hedge. Cat I Cat II Cat III funds,Source SEBI PwC analysis. 6 Asset and Wealth Management Research Digest, US managers building up ETF capabilities in Local players tapping on the expertise of. Asia Pacific regional ETF leaders, Other than building up alternative arms a handful of Growth and regulatory relaxations in the ETF space.
asset managers have ventured or are making plans have also encouraged local players to launch passive. to move into the passive space in APAC This is products For instance in Malaysia where Leveraged. particularly apparent among US headquartered asset Inverse L I ETFs have been permitted since January. managers where there is a huge amount of pressure 2019 two Malaysian asset managers who are new. to manufacture exchange traded funds ETFs due to to L I ETFs are leveraging on the experience of ETF. exponential uptake in their home market leaders in South Korea and Taiwan. In 2018 commitment to building up ETF capabilities. in APAC increased visibly with some asset managers. going as far as setting up full investment teams in. the region, Figure 7 Illustration of ETF expansion plans of selected US headquartered asset managers. Asset Manager US Europe Asia Pacific, US Asset manager First US ETF launched First Europe ETF launched in Considering ETFs in Asia in. in 2014 November 2017 late 2018 or 2019 with new,1 hires made in mid 2018. US Asset manager First US ETF launched First Europe ETF launched in Reports of interest in. in 2009 Jan 2011 launching an Australian ETF,2 business. US Asset manager First US ETF launched First Europe ETF launched in Launched first Asia Australia. in 2003 however only April 2017 ETF in November 2018. 3 expanded beyond one ETF, US Asset manager First US ETF launched First Europe ETF launched in Reports of interest in.
in 2013 September 2017 launching an Asian ETF,4 business. Source PwC analysis,Asset and Wealth Management Research Digest 7. Figure 8 Number and asset size of L I ETFs in selected APAC markets 2018. L I ETF s USD mn,South Korea,L I ETF s USD mn,L I ETF s USD mn. Singapore Hong Kong,1 293 22 680,L I ETF s USD mn L I ETF s USD mn. 6 Asset and Wealth Management Research Digest Types of AIFs in India Category I AIFs which invest in start ups early stage ventures social ventures small and medium sized enterprises SMEs infrastructure etc Category II AIFs which do not fall into categories 1 or 3 and do not undertake leverage or borrowing Eg Private equity real estate funds Category III AIFs which employ

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