ASSET & WEALTH MANAGEMENT 2025 - THE ASIAN AWAKENING - PWC
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Asset & Wealth Management 2025 The Asian Awakening January 2019
Contents 1. Executive summary 4 2. From sprint to marathon: 6 Playing the long game to win in Asia Fund markets set for exponential growth Succeeding where others fail 3. Asia awakens: Drivers of change 12 Buyer’s market Digital technologies: Do or Die The search for outcomes Funding the future Regional-interconnectivity 4. Seeing the future: What if... 28 5. Conclusion 33 6. Appendix 34 Contacts 35
1
“China is a
sleeping giant. Let
her sleep, for when
she wakes she will
Executive summary
shake the world.”
– Napoleon Bonaparte
The APAC asset and wealth management as highlighted in our global AWM Revolution
(AWM) industry is expected to be the 2025 report, entitled “Embracing Exponential
centre for global AuM growth in the Change”, will be further expounded in this
coming years. With the opening up of report, albeit with a more Asian perspective.
economies in the region, we expect to
By 2025, we believe that these trends will
see more international asset managers
propel the APAC AWM industry to global
set up shop directly in the area, as well as
heights. Scale, internationalisation and
continued growth in local boutiques where
technological adoption will characterise
regional talent starts to venture outside the large global firms in the region. Smaller,
their familiar nest to spread their wings. specialist firms in the region will prosper
The ongoing industry revolution elsewhere by becoming strong niche players, offering
in the world will see fees, products, excellent performance or providing services
distribution regimes, regulation, use of for the larger global players to enter the
technology, and people skills change market.
dramatically in the coming years.
As the AWM industries of the region develop,
APAC AuM is set to grow faster than vast changes are expected and we believe
any other region globally. We expect1 that four points are of extreme importance:
it to rise from USD 15.1 trillion in 2017 to
USD 29.6 trillion in 20252. Much like our • While the APAC region will remain largely
global estimates3, this growth will likely fragmented in the medium term, this is
be uneven in the more developed APAC starting to change. By 2025, we believe
markets and fastest in developing markets. that there will be a realisation that
However, uniform challenges across the regionalisation will be necessary
region do persist. Geopolitical issues, trade for APAC to truly compete;
tensions, tax issues, and a possible market • The current asset management hubs of
correction are some of the various issues the region, Singapore and Hong Kong,
that could disrupt the industry. will be joined by a third, namely Shanghai;
The next decade will see a myriad of • Asia will be one of the largest
changes which will repaint the landscape infrastructure investment regions globally.
for AWM, and asset managers will need to This will be driven by the massive growth
be prepared, and to some extent, think far expected from the China’s Belt and Road
ahead to identify possible opportunities and Initiative (BRI) and other initiatives across
pitfalls. A number of these trends, the region; and
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.
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• Inadequate retirement funds and savings • Technological adoption in Asia increases
will be a threat to the sustainability to the extent that online distribution,
of many ageing populations in Asia. through robo-platforms, retail shopping,
A fundamental shift in how pensions and and other social media platforms
savings are managed, and the ability completely overtake the traditional
of asset managers to help plug the distribution market;
investment return gaps before it is too
• A regional settlement platform
late becomes even more critical.
harnessing the practical applications of
As part of this research, we also believe blockchain, for all equities, bonds and
that a number of transformations could take derivative trades across key markets in
place by 2025 across APAC, all of which the region becomes a reality; and
have significant implications on how asset
• Digital identity on the Cloud becomes
managers today need to plan for the future.
a norm, where all financial and regulatory
The purpose of this is not to say whether,
information is digital and available online
or when, the transformations will happen.
real-time to investors and regulators.
Rather, what if they do? To challenge the
thought processes of asset managers and The ongoing global industry revolution will
test their future-readiness, we have identified see fees, products, distribution regimes,
a number of potential future industry regulation, use of technology and people
scenarios in our section - Seeing the Future. skills change dramatically in the coming
years. To this beginning, we believe that
These potential “What if” scenarios include:
asset managers are well-placed to seize
• Formation of a single funds platform, the opportunities this phenomenal growth
under the ARFP, with multiple regional- provides, whilst being cognisant of the
to-jurisdictions bilateral agreements, challenges and threats emerging in a rapidly
followed by the establishment of a direct shifting landscape. This is the century
distribution link between the ARFP where the Asian AWM industry is set to
constituents and the Latin American shine brightly.
(LatAm) market;
Asset & Wealth Management 2025 | The Asian Awakening 5
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From sprint to marathon:
Playing the long game to win in Asia
We expect change in the Asian AWM industry sanguine, we expect APAC AuM to grow from
to continue at an increasingly rapid pace. USD 15.1 trillion in 2017 to USD 16.9 trillion
Asset managers need to become business in 2020, and to USD 29.6 trillion by 2025,
revolutionaries or disrupters in order to a total compound annual growth rate (CAGR)
survive and prosper in this environment. of 8.7% (see Figure 1). Retail (mutual) funds’
This is especially true for asset managers (including ETFs) estimated AuM is expected
operating in the APAC region with its diverse to more than double between the same
array of markets and maturity levels providing period to USD 11.9 trillion, and institutional
abundant growth opportunities in the coming mandates are expected to grow at a similar
years. Now is the time for asset and wealth rate. We anticipate a boom in alternative
managers to act on these ideas and seize asset popularity among Asian investors –
these opportunities. especially Real Estate and Infrastructure
investments – as alternative AuM grows from
Fund markets set for USD 2.9 trillion in 2017 to USD 6.9 trillion by
exponential growth 2025, a staggering CAGR of 11.7%.
APAC’s market dynamism provides A rapidly ageing population, more so in
advantages and opportunities that are certain APAC countries than the rest of the
impossible to find elsewhere. These will world, has led to pension funds speedily
remain despite economic and geopolitical searching for new investment opportunities
headwinds sweeping the region. From in order to provide the necessary returns.
developed AWM markets such as Australia, Alongside this, expanding amounts of mass
Japan, Hong Kong and Singapore, to affluent4 and HNWIs5 in the APAC region
burgeoning India and fast-emerging China, provide opportunities for asset managers to
the growth is undeniable, and provides both service these growing segments, which grew
local and international asset managers with by 8.6% and 8.1% respectively between 2015
strong opportunities for scale and returns. and 2016, far outpacing the more developed
regions of Europe and North America.
Competition in the region’s markets is As investors’ wealth grows and the newly-
increasing as the revenue-pie grows. wealthy become more comfortable entrusting
High equity yields – compared to other their financial assets to digitally orientated
regions and local bond yields – are propelling firms, wealth managers have a large
strong medium-to-long term growth window to seize an almost USD 65.5 trillion
prospects. If protectionism remains limited opportunity by increasingly targeting retail
and geopolitical activity remains relatively clients.
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.
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Figure 1: Total client assets across APAC in USD trillion
Clients 2007 2012 2014 2015 2016 2017 2020e 2025e
Pension funds 2.1 3.2 3.8 3.9 4.0 4.6 5.8 6.8
Insurance companies 4.8 6.7 7.5 7.7 9.1 10.5 11.7 13.7
Sovereign Wealth Funds
1.5 2.1 2.6 2.7 2.8 3.1 4.0 5.7
(SWF)
HNWI 9.9 14.3 15.1 15.5 16.9 17.0 19.9 28.9
Mass affluent 14.2 19.6 19.8 20.4 22.1 22.3 25.9 36.6
Total Client Assets 32.5 45.9 48.8 50.3 54.9 57.5 67.3 91.7
APAC AuM 6.4 7.7 8.8 11.0 12.1 15.1 16.9 29.6
Penetration rate 19.8% 16.8% 18.1% 21.9% 22.0% 26.3% 25.1% 32.3%
Sources: PwC analysis. Past data based on OECD, World Bank, FSB, Credit Suisse, SWF Institute
There are, however, challenges that might likely be an impact on the financial services
affect growth. Unequal tax treatment industry. In light of this, our conservative
with regards to fund passports, mounting estimates predict a slower growth, with total
concerns over geopolitical difficulties AuM rising to USD 18.1 trillion by 2025.
such as North Korea flexing its muscles,
Following global trends, intra-APAC’s
continued trade tensions between China
growth will, for the most part and on a
and the US, or possible corrections due
percentage basis, be faster in developing
to market normalisation count among the
markets than developed ones. Advanced
various diverse issues facing asset managers
asset management markets such as
and investors alike in Asia. Should these
Australia, Japan, Hong Kong and Singapore
challenges continue or worsen, there would
will continue to grow, though they will be
outpaced by growth economies of the region
such as China and India who are experiencing
strong flows associated with burgeoning
asset management markets. The opening
up of China’s economy to offshore investors,
India’s decreasing interest rates and
disinflation, and the overall continued growth
of defined contribution (DC) pension plans
across the region are accelerating people’s
adoption of investing. Over the next ten years,
new frontier markets such as in Central Asia,
Sri Lanka, Vietnam and Myanmar, to name
a few, will fuel the increasing wealth being
added to capital markets.
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From sprint to marathon:
Playing the long game to win in Asia
Succeeding where others fail potentially upend the existing fee sharing model.
Additionally, Japan’s regulator has released
Ongoing demographic and technological seven principles they expect financial institutions
changes, shifts in regulations, potential fee to follow which include clarification on fees
pressure, and fluctuating market growth in and accessibility of information, and regulators
the APAC region will make it challenging for in Australia are implementing new regulations
all managers to achieve their desired growth. requiring greater transparency and disclosure of
Going forward, managers who achieve success fees and costs. Increased compliance, regulation,
will be those who beat the market by providing and technology costs will further squeeze profits
proven alpha, innovative product structuring, across the region. Moves toward outcome-based
and ensuring that the client experience remains solutions and the ever-growing share of passive
a strong element of their value proposition. strategies could push down the regional revenue
Asset managers will have to act with purpose pool. In the face of this, regulations are also
in order to deliver on these points. providing asset managers with new opportunities;
APAC is immune neither to the effect of global particularly in the area of passporting where the
regulations, nor to the wave of regulatory change AuM of regional passport schemes is expected
sweeping across the world. Regulators and to increase from USD 6.7 trillion in 2017 to
investors are demanding greater transparency USD 11 trillion in 2025 (see Figure 2). As markets
and this will increasingly put pressure on fees such as China, Thailand, and Indonesia continue
– regulators in Singapore and Hong Kong are to open up their markets to external investment,
planning guidelines for managers regarding regional and global asset managers will find new
their fees for selling funds which could avenues of growth.
Figure 2: Asian fund AuM projection by countries in passport scheme for 2025
10.6%
11.0
31.2% -0.3%
6.7 7.2% 6.3
6.7
7.2%
25.7%
4.0% 5.7%
4.8 5.1 12.9% 0.6
4.6 4.4
3.4 4.2
2.8
3.2 3.5
0.3 0.3 4.1
2.7 2.7
2.2 0.2 0.3 16.8%
1.8 1.9
0.1 0.2 0.2 1.4 1.4
0.5 0.5 0.8
2007 2012 2014 2015 2016 2017 2020e 2025e
MRF ASEAN CIS* ARFP* % CAGR
Sources: ICI, Lipper, PwC Singapore, PwC AWM Research Centre analysis
Note: *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 rounding
8 Asset & Wealth Management 2025 | The Asian Awakening
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From sprint to marathon:
Playing the long game to win in Asia
Despite uncertain growth across APAC markets Passive investing – a driving force behind
in recent years, several areas provide strong net flows in Europe and the US – is, with the
potential for profit. As HNWIs and mass affluent exceptions of Australia and Japan, relatively
investor numbers grow across APAC, asset immature in APAC, though the style is taking
managers will play an increasingly prominent role hold, and passive AuM is forecast to reach
in servicing them. The number of billionaires rose USD 5.1 trillion by 2025. Alternative assets on
by 103 between 2016 and 2017, a 14% growth, the other hand are attracting AuM from a range
and increased their wealth by USD 700 billion of investors chasing higher returns and real
in 2017 alone6. Retirement investing is another assets are expected to receive significant inflows
area where asset managers have the potential as mass urbanisation across the region leads
to expand, with several APAC economies, to increasing demands for power, water, and
namely Japan, China, Singapore, Hong Kong, transportation infrastructure. Asset managers will
and Thailand, among the most rapidly aging play an increasing role as they move centre-stage
economies in the world, and the need to fund and provide capital for these projects.
retiring populations through defined benefit (DB)
In addition to the growth in real assets, institutional
or DC schemes is already being felt across the
and retail investors across APAC are ever more
developed APAC markets. Pension assets are
aware of sustainable investing in the forms of
forecast to reach USD 6.8 trillion by 2025, a CAGR
ESG and SRI products. These forms of investing
of 5.01% between 2017 and 2025 (see Figure 3)
are gaining in popularity across the region,
and even a small shift in growth economies of
though they are not as popular as in Europe and
the region – namely India and China – could see
North America, with investors demanding more
well-positioned asset managers receive a windfall
clarity and transparency in their investments. SRI
of assets. This shift has already begun in China
investments in Asia ex-Japan grew by a CAGR of
where recent regulatory change, notably the
7.6% over the period 2014-2016 and in Japan they
Third Pillar Pension Tax Initiative, is encouraging
grew at a CAGR of 724% over the same period,
investment in pension insurance products. Under
rising from USD 7 billion to USD 474 billion. This
this new system, individuals receive a deduction
phenomenal growth was largely driven by the
on their income tax to invest in fixed-return,
Government Pension Investment Fund’s (GPIF’s)
guaranteed-return and floating-return products.
focus on ESG and SRI investing. The rise of
At withdrawal date, 25% of the benefit is tax free
millennial investors is a large contribution of this
while the other 75% is taxed at a lower rate.
growth in sustainable investing.
Figure 3: APAC pension fund AuM growth
7.6% 3.5%
14.4% 6.8
3.9%
3.1%
8.5% 5.8
8.8%
4.6
3.8 3.9 4.0
3.2
2.1
2007 2012 2014 2015 2016 2017 2020e 2025e
Asia Pacific % CAGR
Sources: OECD, World Bank, FSB, PwC AWM Research Centre analysis.
6 PwC and UBS Billionaires report 2018
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From sprint to marathon:
Playing the long game to win in Asia
This is because, in addition to posessing a focus have strong growth potential. As the wealth
on sustainable investing, millennials are much management market in the region expands,
more digitally orientated and demanding, more especially as it begins to cater to digitally-
financially literate, and want to engage across orientated millennial investors, robo-advisers
‘digital-by-default’ platforms compared to older are expected to grow in popularity. A number of
investors. Millennials’ preferences will change B2B robo advisers and ones aimed towards the
the entire investing value chain – and have middle-class market are already making inroads
already begun to do so – and asset managers in a number of APAC markets and tie-ups
will need to increase their offerings and access with asset managers and banking distribution
across research, transactions, and client platforms are taking place. Asset managers
servicing if they wish to capture their attention will gradually need to consider their customer
and business. experience as part of their value proposition.
In line with millennials playing a larger role in the Shifting client preferences will alter the very
market over the next decade, the rise of online face of AWM across APAC. The popularity
distribution has been particularly pronounced in of multi-asset solutions is likely to continue
the region, judging from the success of existing and will alter the product mix on offer. The
players who have emerged from China. The decoupling of alpha and beta closet-tracking
challenge in the coming years will be the ability funds means managers will have nowhere to
of such platforms to offer more sophisticated hide, and investors in Asia and globally alike
products, especially as the region’s markets will willingly pay for proven alpha, but not alpha
develop. Despite these challenges, online fees for beta products. In the new normal, asset
distribution platforms will continue to lead the managers will need to consciously choose
way in terms of innovation compared to their where they are focused, i.e. whether they are
traditional counterparts. This innovation, coupled delivering solutions or whether they are simply
with customers’ attraction to the strong returns building blocks to be incorporated into solutions
and ease of investing, means these platforms by others.
The Indian middle-class which, for example,
previously favoured traditional assets such
as gold or residential property, has begun
to shift to stock-focused funds. For the year
that ended in March 2018, Indian investors
poured a record USD 62.5 billion into
equity-focussed mutual funds, an increase
of 90% on the previous year7. With the
growing recognition of mutual funds, we
expect this trend to continue and for more
households to move to financial products.
7 Association of Mutual Funds in India
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From sprint to marathon:
Playing the long game to win in Asia
Figure 4: Mutual fund AuM
11.0%
0.4% 11.9
27.2%
8.0%
11.8%
4.0%
7.0 7.1
5.5
5.1
3.6
3.0
2007 2012 2015 2016 2017 2020e 2025e
Asia Pacific % CAGR
Source: PwC AWM Research Centre analysis. Past Data based on ICI, Lipper, and PwC Singapore.
Note: Changes from previous reports explained by changes in methodology: we included more countries in the APAC region
and we used different sources. Data missing for 2007 (Indonesia).
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Landscape
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Asia awakens: Drivers of change
Buyer’s market Regulatory pressure
Regulatory scrutiny protecting investors Additional regulations are already being
and investor scrutiny will lower fees introduced and disrupting the established
going forward. As new investors enter norm of the financial industry. Despite the
the market, the industry will become heterogeneity of regulatory systems in the
increasingly digitalised and investors will region, the outcome of these pressures is
look to managers who can tailor portfolios similar, with transparency surrounding fees
to their needs. Firms will need to combat and services increasing, and pressures on
fee pressure by reducing costs, and revenues, being felt.
focusing on gaining new investors. With fees set to drop in the coming years,
Power is increasingly shifting to investors’ firms will need to focus on increasing net
globally and in the APAC region. Market new sales in order to make up the difference.
pressures to stay competitive are pushing A report by DST kasina notes that asset
down prices overall and fee transparency managers would need to increase sales by
issues are rising to the fore. As the Retail between 15% and 38% to keep revenue stable
Distribution Review (RDR) and Markets in if fees were to drop by 10bps8. Furthermore,
Financial Instruments Directive 2 (MiFID II) while a commission-based model remains
are adopted throughout Europe and the prevalent in Asia, with distributors receiving
US, APAC regulators have already begun a retrocession from asset managers, these
considering the suitability of such regulations fee cuts will further impact the entire value
for their countries. chain. The RDR and MiFID II are beginning
to shape the operations of global fund
Pressure is not only coming from regulators. managers in Asia, as they look to streamline
Investor scrutiny, especially from institutional practices and operations. Asian branches of
investors who have a fiduciary duty to act global distributors, mainly in Hong Kong and
in the best interest of their clients, is adding Singapore, have already begun assessing
to the burden that asset managers face. approaches that better lie within these
Furthermore, investors are beginning to ask frameworks.
for digitalisation from their asset managers as
a service expectation. While this represents
an opportunity for asset managers seeking to
tap into the new generation of investors, it will
also add a layer of complexity and costs.
8 DST kasina, The Impact of Changes in Distribution, 2017
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| The Asian AwakeningJapan’s Financial Services Authority released Digital technologies: Do or Die
finalised principles regarding fiduciary duty,
setting out seven overarching principles which Technology is disrupting all areas of
will aid the economy in pursuing sustainable Asia’s AWM industry. Robo advisers are
economic growth and the stable financial expected to become more popular as a
accumulation of Japanese household assets. younger generation of investors enters
In India, regulations of mutual fund mergers the landscape, client engagement will
have been tightened to improve transparency increasingly become more digitised,
and eliminate product ambiguity for investors. and outsourcing or automating back
Similarly, a new regulatory framework in and middle office will allow firms to
China will enhance market surveillance and reduce inefficiencies while concurrently
transparency. reducing costs.
Regionally, this shift towards transparency As the industry digitalises, an opportunity
surrounding fees and services, coupled with exists for asset managers to tap into the
younger, tech-savvy investors turning to lower growing class of investors who will look for
cost alternatives is set to increase pressure on cost-cutting solutions. Asset managers must
fees and decrease margins. Asset managers find ways to increase scale and target new
who find ways to reduce costs for investors will market segments. They will need to look to
continue to do well in coming years. Already, their value propositions to ensure buyers are
we are seeing the introduction of zero-fee funds at the forefront of their minds.
in APAC. The impact of these will be watched
avidly by investors and industry players alike.
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Tech is enabling the shift in investments to the US or Europe, due to the younger, more
tech-savvy population. As this group tends to
Although tailored portfolios were traditionally
have less disposable income when compared
reserved for HWNIs, robo advisers are slowly
to the more developed regions, robo advisers
changing the game. Offering relatively low cost
could be a successful option. Additionally, China
wealth management products and services
has one of the largest direct digital distribution
through the internet and mobile devices, robo
markets, meaning asset managers in China are
advisers are beginning to take off in the region.
well-positioned to make use of robo advisers.
One robo adviser, launched in February 2016,
Millennials’ moves towards automated solutions
offers investments starting as low as USD 940.
are already reducing the need for the traditional
Using an algorithm based on the answers of
wealth management models as robo advisers
nine simple questions, it determines the best
are beginning to take into account outcome-
investment combination from 6,000 ETFs.
based planning, identifying clients’ life goals
Another, which specifically targets Southeast
and finding solutions that match. The abilities of
Asian millennials, allows investors to start
these automated solutions are already reducing
assembling their portfolio from as little as USD 50.
the need for human intervention in the wealth
Both offer investors an education portal alongside
management process.
the platform. Competition to access the mass
affluent and less affluent markets in the region is PwC research, however, suggests that while
likely to start pushing investment prices lower and these tools will significantly improve service,
consequently, tailored portfolios will become a relationship managers will still play an important
more common option. role going forward for both HNWI and institutional
investors. In the future, we expect a greater
There are hurdles that asset managers will need
segmentation of and by wealth managers as
to overcome. Trust issues around robo advisers
clients are able, and willing, to pay differing
and their ability to handle investments are still
amounts for service.
prevalent in the region, however given that interest
is growing we expect this to diminish quickly. Digitising across the whole value chain to
The favourable regulatory environment in Asia decrease costs and increase efficiencies is
around digital technology and FinTech solutions not solely about introducing robo advisers.
to financial advice, seen particularly in Singapore Leveraging technologies in the back, middle,
and Hong Kong, will allow the proliferation of new and front offices will provide possibilities to
distribution channels to sprout. Nevertheless, reduce costs, increase flows, and produce alpha.
given the individual market size, and fragmented Making use of large data sets and technology to
jurisdictional requirements across Asia, robo test investment strategies, find connections, and
advisers will more likely partner with large process data is changing the way asset managers
institutions to provide a quick go-to-market digital operate, and is blurring the lines between
service platform rather than strike out on their traditional financial services companies and
own as independent financial advisory channels. technology companies. Adopting tech throughout
We believe that robo advisers will become the whole value chain will help managers reduce
particularly popular in the region, when compared fees and maintain current margin levels.
14 Asset & Wealth Management 2025 | The Asian Awakening3
Asia awakens: Drivers of change
Middle and
back office
outsourcing
Outsourcing operations is becoming a viable mature market in Asia aimed at outsourcing
option for APAC asset managers as developing services such as fund accounting, other
regulatory requirements and a low-yield functions are not yet fully readily available
environment add ongoing pressure to costs across all jurisdictions, particularly around the
and fees. Large AWMs are already automating middle-office, risk management and analytical
or outsourcing back-office functions to a more functions. Tax compliance/reporting and
efficient third-party provider. Outsourcing of planning functions is fairly developed across
middle-office services, while still nascent in the region, with many large, medium and small
Asia, due to a lack of established providers firms outsourcing – however this is expected
and a reluctance to relinquish control, will to grow alongside other functions being
nevertheless see an upward trend over the outsourced. The growing use of blockchain
next decade. There is a need to focus on core in the industry will further alter accounting,
activities, i.e. generating alpha and minimising trading, and asset servicing services and
non-core activities, and reducing unnecessary processes, and likely create new players able
capital expenditure growth by managers. to bring new technologies to the marketplace
For smaller firms, outsourcing operations and leapfrog existing traditional providers.
for services such as transfer agency, trade As the roles, responsibilities and risks of the
processing, KYC, and risk and tax reporting, middle office mature, we expect that the
is prevalent in established markets, but less so effective outsourcing of these operations will
in emerging markets. While there is already a be a vital strategic choice.
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Asia awakens: Drivers of change
The search for outcomes approach than their western counterparts,
racing to funds that include these criteria.
APAC investors’ demands are shifting as Sustainable Development Goals (SDGs)
they look for specific outcomes and shape also have the potential to produce trillions in
their investment habits accordingly. Active investment opportunities, with nations such
strategies are losing ground to passive as China already promoting the importance
strategies as their lower cost is attractive of sustainable growth. As a result of this
to many investors. While we expect passive promotion, China is the leader in green bonds
demand to continue growing, this by no issuance. Hurdles to adopting SDGs still persist
means conveys a death sentence for active and sustainable growth should not be cast
managers. Institutional investors are aside for rapid urbanisation. Developed APAC
becoming ever more concerned with the nations should continue to scrutinise those
impact of their investments and millennials’ countries that do not adhere to the goals and
demand for green assets are changing will be aided in this by HNWIs, mass affluent,
products across the region. and millennial investors who will increasingly
The shift from active to passive is in its infancy pressure asset managers to ensure their funds
in the APAC region – largely due to current meet sustainability criteria.
distribution channels that promote active Fund advisers should increasingly align their
products, which are still the favoured form of investment management practices with
investment. Recent implementations of semi- the investment objectives of the brave new
passive strategies do, however, already point world they find themselves in. With greater
to a gradual change in the status quo. This, price sensitivity and awareness of alternative
together with the introduction of alternatives, investment strategies, there is increasing
ETFs, and smart beta funds are accelerating pressure to reduce costs and generate alpha
the growth of passive strategy assets. which adds to the fund advisers’ burden.
Investors are differentiating between alpha As such, to create multi-asset solutions,
and beta and what they are willing to pay firms are likely to do one of three things:
for each. As the cost of beta continues its 1. Enhance and build on their internal
march downward, we expect to see active organisations, making use of their existing
management structures evolve to keep pace. talent and capabilities,
Passive investments will be the base on which
multi-asset solutions are built, with alternative 2. Acquire further services in talent, track-
and active investments delivering alpha being record, or scale, expanding their capabilities
the distinguishing factor between funds. across asset classes and strategies, or
Notably, impact investing, including both ESG 3. Partner with other institutions to take
and SRI, will grow rapidly with APAC institutional advantage of broadened distribution
investors expected to take a more pragmatic channels9.
9 PwC, Alternative asset management 2020: Fast forward to centre stage, 2015
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Asia awakens: Drivers of change
Passives gain in popularity 1. APAC investors tend to be more active and
focused on returns, and are prepared to
Passive strategies are establishing
take risks to reach their targeted returns.
themselves in the region, with the Bank of
Therefore, passive products might not
Japan a strong purchaser of ETFs tracking
provide the incentives they are looking for;
Japanese indices, and other investors
allocating larger amounts to passive 2. The current distribution channels
strategies. Many pension funds in the region incentivise advisers to promote actively
are implementing semi-passive investment managed funds to retail investors; and
strategies in order to trim costs and diversify
3. While we see large growth in digital
their portfolios. Australia’s largest pension
distribution and passive products in
funds have been implementing passive
China, this is fairly unique and the rest
strategies for some time and are expected to
of the region has yet to see similar levels
continue expanding their smart beta reach to
of growth.
domestic small cap stocks and developing
markets. The Japanese equity holdings of For these reasons, among others, passives
GPIF are 91% passive and pension funds in have yet to see the same popularity as they
Hong Kong, South Korea, and Taiwan are have in more developed markets such as
gradually implementing similar strategies. Europe and the US. As a result, passives
currently remain mainly an institutional play in
Smart beta product popularity is set to play
Asia, and a transformative change in the fee
a significant role in this area in the coming
model in Asia must happen before the growth
years, with investor interest in smart beta
of passive strategies can be sustained at the
strategies which track emerging home
broader investor level.
markets in Asia increasing. Consequently,
firms have begun to look to markets in the The introduction of robo advisers and more
region, other than Japan, to list their smart digitalised fund advice will play a large role in
beta ETFs. changing the current status quo. We believe
that these new channels may pave the way for
While passives are slowly gaining in
passive growth in the region, opening up new
popularity, we have identified three reasons
distribution channels, and disintermediating
that are hampering their uptake in the region:
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 for instance, and
sharply driving the share from 12% in 2017
to 17% in 2025 (see Figure 5).
Figure 5: APAC AuM projections for 2020 and 2025
18.9% 19.6% 23.5%
Active
Passive
12.1%
Alternative
2017 14.3% 2020e 2025e
17.1%
69.1% 66.1% 59.4%
Source: PwC AWM Research Centre
Note: Sums may not add to 100% due to rounding
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Alternative assets set to boom more than double the global rate of 3.8%. Only
those firms truly providing alpha and aligning
Alternative strategies are set to grow
their solutions to clients’ needs will come out
significantly in the coming years, from
on top in this survival of the fittest contest.
USD 2.86 trillion in 2017 to USD 3.33 trillion
by 2020, and then to USD 6.9 trillion by 2025. While infrastructure and real estate are
This staggering increase is largely due to the forecasted to grow strongly between 2020
expected boom in infrastructure (see page 17 and 2025, much of this growth will fall under
for more information) and private equity assets infrastructure. However, real estate should
(see Figure 6) which are set to grow from not be forgotten. As urbanisation in the region
USD 1.54 billion in 2017 to USD 3.28 trillion increases, many asset managers will look to
by 2025, a CAGR of just under 10%. non-traditional areas of investments such as
rented accommodation, low-cost housing,
Hedge funds in the region are expected to
and industrial real estate to provide returns.
grow at a CAGR of 9.3% from 2020-2025,
Figure 6: APAC Alternative Asset AuM growth in USD billion
15.8% 6,948
9.3% 1,998
28.5% 1,289
5.3%
3,344 13.9% 382
43.0% 2,857
8.3% 1,246
26.6% 982
1,998
24.8% 336
173
841 158 6.7% 192 14.7% 3,279
5.0%
76.5%
97
141
778 1,544 0.3% 1,560
610
311
26 245 33 919
12 111 17 99
28 90 335
45 258
2004 2007 2012 2016 2017 2020e 2025e
Private Equity Real Estate Infrastructure Assets Hedge Funds % CAGR
Sources: PwC Market Research Centre, based on Preqin data and national sources
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Asia awakens: Drivers of change
ESG and SRI will play a larger role which outlines a number of actions to be
taken to help green China’s economy, as well
There is a heightened interest in the region for
as a Green Bond Grant Scheme launched
aligning investments with socially conscious
by the Hong Kong Government. Authorities
values. Increasing awareness of issues of
in Singapore and Japan have also launched
culture, unethical behaviour, and environmental
initiatives and we believe that more will be
regulation breaches are driving the uptick in
seen across the region as ESG becomes more
ESG and SRI forms of investing. In certain
prominent.
regional economies, namely Japan, Australia,
and New Zealand, ESG and SRI investing is In South East Asia, rapid urbanisation poses
fairly widespread and it is forecast they will a significant opportunity for impact investing
play a much larger role across APAC by 2025, and the promotion of green bonds. Singapore
with investors across the region increasingly recently produced its first international green
demanding ESG and SRI products from asset bond and Malaysia saw its established Sukuk
managers. framework used to launch its first green Sukuk
by a company in the second half of 2017.
Development banks and international
Indonesia followed, being the first jurisdiction
institutions, such as the Principles for
to sell a sovereign green Sukuk bond. The
Responsible Investment Corporation (PRI),
bonds will be used to finance projects in
are in large part responsible for this change,
renewable energy, green tourism, and waste
as their reach grows throughout the region.
management. While these do not represent
In late 2015, the PRI partnered with GPIF
particularly large movements for the region,
whose goals now include raising its ESG
impact investing has not been a historically
rating from 3% to 10% in the coming years,
prevalent trend. Thus, we anticipate,
incorporating ESG issues in their investment
development in the region will increasingly be
decision making process, and demanding
related to environmental trends, much like it is
ESG disclosures. A number of government
in China. As such, ever more “green financial
initiatives across the region are also promoting
systems” will arise promoting infrastructure
ESG, including China’s 13th Five-Year Plan
projects financed by green bonds.
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Funding the future Infrastructure skyrockets
Following global trends, asset managers As one of the fastest growing economic
in the APAC region are taking centre regions globally, infrastructure will be a
stage and filling financing gaps that have key investment. In line with this, we expect
emerged following the global financial infrastructure assets in the APAC region
crisis, becoming new sources of capital for to grow at a staggering annual rate of
real asset projects and playing a large role 24.8% between 2017 and 2020, and then to
in investing for retirement needs. Growing skyrocket by 28.5% out to 2025. This is largely
urbanisation in the region is leading to due to growing financial, telecommunications,
large infrastructure opportunities and great and technology sectors that will require major
potential for asset managers to generate investment injections as the region sees mass
alpha financing these projects. urbanisation.
The trend is global and has been firmly Alternatives as a whole are expected to
established, readers can refer to our earlier grow from almost USD 2.9 trillion in 2017 to
publications Asset Management 2020 and USD 6.9 trillion in 2025, with infrastructure
Asset and Wealth Management Revolution for assets making up just over a fifth of this
additional context. There are huge financing amount11. In fact, according the Asia
needs globally, especially in the APAC region, Development Bank, developing Asia will
and AWMs are increasingly stepping into the need USD 1.7 trillion invested every year until
role of financing these projects. Within the 2030 in order for the region to maintain a
APAC region, China’s Belt and Road Initiative strong growth momentum, respond to climate
and general growth will be a driving force change, and tackle poverty issues12.
representing approximately 60% of global The accelerated growth of these projects and
infrastructure spending by 202510. the strong interest in real estate, coupled with
Ageing populations in the region, some more the expectation of further initiatives, will place
so than others, will translate not only to an an emphasis on the longevity and security
increased opportunity to bridge retirement of these investments. Investors into these
savings gaps, but also real asset opportunities projects are likely to tackle a wide range of risks
as more healthcare facilities and retirement and opportunities. The move from low-risk
homes are built. Increasing prosperity in the investments to larger scale financing will require
region will drive consumer related infrastructure an array of new skills in order to successfully
spending, including transportation and evaluate, source, and manage assets.
manufacturing sectors. Furthermore, growing As institutional investors search for yield in
urbanisation will boost spending on sectors the environment, they will increasingly move
such as water and power. towards alternative investment opportunities.
The growing need for infrastructure
investments will provide asset managers with
the opportunity to distinguish themselves and
to truly provide alpha.
10 PwC, Capital project and infrastructure spending: outlook to 2025, 2014
11 PwC AWM Research Centre analysis
12 ADB, Meeting Asia’s infrastructure needs, 2017
20 Asset & Wealth Management 2025 | The Asian Awakening3
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China’s
Belt and Road
The BRI plans to invest in infrastructure projects The project is, however, not without its
crossing Asia and connecting it with Europe. challenges. The long-term vision and
The project will create a network of roads, ports, investments that characterise the project
utility grids, railways, and pipelines that will are also exposed to geopolitical issues such
inextricably link Asian countries, with markets as changes in governments, policy shifts,
in the West. and diplomatic stances. Additionally, the
transnational dimension of the project requires
Aiming to create the largest global economic
a high level of trust throughout the region. This
collaboration platform, the network will include
trust is not easily gained, but is often easily lost.
policy harmonisation, cultural cooperation, and
trade and financing partnerships. Formed on As many of the planned projects are in ‘frontier’
the back of concerns of a slowing domestic markets, where legal protection for investors
economy, the project is a major driver of might not be as substantial as in more
infrastructure investment for the whole region, developed economies, investors might shy away
aiding developing economies’ growth while from investing until a reliable track-record of
having the possibility of generating strong successes can be demonstrated.
returns for investors.
Regardless of the challenges, the initiative
Estimates put the economic value of the project is likely to draw much attention from asset
at between USD 4-8 trillion. With development managers. International asset managers,
banks in the region not able to cover the especially European managers with local offices,
required investment amounts, the opportunity are well placed to step up their financing of
for returns on this project are driving many these initiatives, and we expect this trend to
Chinese private investors to the project. grow in the coming years.
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Asia awakens: Drivers of change
Planning for retirement Venturing into the future
The world’s population is ageing, especially Venture capital is one of the fastest growing
so in some Asian countries. China and Japan’s opportunities in the APAC region. In terms of
populations are greying fastest, but Singapore, deals, the region ranks just below the US, with
Hong Kong, and Thailand are catching up. With China leadings he market and accounting for
largely unfunded pensions in the region, asset five of the top 10 largest VC investments at the
managers will play a growing role in retirement end of 2017. Unlike more mature markets, such
investing. A switch to funded pensions in growth as the US and Europe, most investors tend to
countries in the region could represent a windfall be corporate investors, banks, and insurance
for asset managers. companies. This is largely driven by incentives
introduced for insurance companies.
Pension provision in the region is inconsistent
and many governments recognise the need Growth is evident throughout the region.
for privatised pensions. However, many local Southeast Asia experienced a record
regulations do not encourage private pension USD 13 billion in venture capital deals in 2017.
savings yet. More developed countries, such as In fact, the attractiveness of Southeast Asian
Australia, Hong Kong, Singapore, New Zealand countries is increasing in terms of deal volumes
and Japan, to some extent, have moved to and values, especially in Singapore, Malaysia,
funded pension systems, both DB and DC. and Indonesia. Singapore’s Government offers
Auto-enrolment is prominent among these incentives to attract leaders and venture capital
schemes, though some allow workers to opt-out managers such as protection of intellectual
or receive an exemption if certain criteria are property, allocation of public money for early
met. With regional pension fund AuM expected investments and the reduction of regulatory
to grow in the APAC region from USD 4.6 trillion “red tape”.
in 2017 to USD 6.8 trillion by 202513, it is likely
With the development of Islamic Finance
that more governments in the region will turn to
and Sukuk products, and the awareness of
DC plans and individual retirement accounts.
international potential investors regarding
This transfer to funded pensions represents a
the related opportunities, this market offers,
great opportunity for asset managers.
venture capitalists are expected to become
more interested in some economies in the
region. Indonesia, for example, provides strong
incentives in order to draw investors. The
government recently declared that perceived
income derived by venture capitalists will
not be subject to tax treatment in order to
enhance start-ups and SME investments.
However, the jurisdiction still has to go through
reforms regarding the ease of doing business,
regulations, and talent education and retention
Asset & Wealth to be counted among the leaders of the VC
Management
2025
market in Asia.
The Asian
Awakening In order to increase their global market
presence and be hosts to highly-valued
companies, APAC economies will need to tackle
issues regarding capital flows, talent shortages,
and intellectual property protection, besides the
structure and strength of their stock markets.
13 PwC AWM Research Centre analysis
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Spotlight
on China
While China is becoming a rich jurisdiction, system. A pilot-programme has been rolled-
it is also becoming one that is old, with the out in three centres to provide individuals with
elderly increasing in numbers as the working taxation incentives on personal pension products
age population shrinks. China also has a and regulators have also approved the launch
disparate and relatively uncoordinated pension of several pension target funds. These funds,
apparatus which is tied to the household currently able to be launched by 14 approved
registration (Hukou) system. Above this fund management companies (FMCs), are fund-
provincial-level apparatus stands the National of-fund products able to invest in a mix of stock
Social Security Fund (NSSF) which was and bond products which rebalance over time as
founded to plug the expected pension shortfall investors age and their risk tolerance changes.
from the provincial systems. Rounding off
The combined AuM managed by FMCs
the pension system is the occupational third
reached RMB 1.62 trillion in September 2018
pillar referred to as Enterprise Annuities (EAs).
and, given the enacted reforms and scope
These are corporate sponsored, DC products,
for future reform, this number should grow
and currently provide the best avenue for
substantially in coming years.
foreign asset managers to access the China
pension space directly, instead of receiving By 2025, we believe that the governing body
mandates. Outside of the formal pension of the NSSF will have centralised control of
system, many Chinese, especially mass- the provincial pension pots. Such a move will
retail investors, purchase pension insurance likely see provinces in surplus bail-out those in
products. Compared to EA AuM, which stood arrears which will be an expensive but necessary
at just over RMB 1.3 trillion at the end of 2017, move. Without the distraction of, generally,
pension insurance product AuM amounted to underperforming provincial pension systems to
nearly RMB 9 trillion at the same point in time. worry about, the centralised pension authority
Public sector workers have their own third-pillar can take greater steps in allocating mandates
called Occupational Annuities (OA’s), these and investments to ensure returns are suitable.
were founded in 2014 and prior to that state
We also forecast that the EA market will be
workers’ pensions were directly funded by the
sufficiently open by 2025 that foreign asset
state. Since their inception, OA AuM has been
managers with operations in China – likely
growing by RMB 150 billion annually and is
majority control of FMCs – will be able to apply
expected to reach RMB 1 trillion by 2020.
for and receive EA licenses. This will provide
The impact of China’s aging on its pension foreign asset managers with experience in
system could be severe, with the World occupational, DC and pension products a great
Economic Forum estimating China’s pension opportunity to market and capitalise on their
shortfall amounting to USD 11 trillion in 2015 skills. Some amount of offshore investment in
and rising to USD 119 trillion by 2050. In the face pension funds will also be allowed, enabling
of this, potentially, catastrophic under-funding, qualifying foreign asset managers a competitive
China is taking steps to encourage pension advantage in offering diversified, overseas
savings and is slowly reforming its pension investment products.
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Regional inter-connectivity New investment vehicle structures
– establishing the APAC region globally
The fragmented nature of the region’s
AWM industry is being challenged as global With the introduction of new investment
trends force the industry to evolve and vehicles – Open-ended Fund Company (OFC),
new investment structures will compete Corporate Collective Investment Vehicle (CCIV),
with established offshore vehicles. In and Singapore Variable Capital Company (VCC)
addition, fund passports will become ever – APAC domiciled funds are expected to soar
more popular with investors as they ease – enhancing the marketability of such funds to
regulatory burdens and foster asset growth. foreign investors. As more of these new vehicles
are established, we believe that onshore fund
The pressure to evolve and match global
centres will grow to a point where they compete
levels of financial integration is driving the
with current international cross-border fund
development of new vehicles for domestic
distribution centres like Luxembourg and Ireland.
onshore funds. In this context, territories such
as Hong Kong, Singapore, and Australia are The OFC will offer an alternative legal structure
leading the way. We anticipate that this trend for managers looking to a Hong Kong based
will continue with the increasing adoption of platform. The new structure will allow open-
passports, eventually pushing APAC fund ended funds to act similarly to a conventional
centres to compete with established fund limited liability company with the overall aim of
centres like Luxembourg and Ireland. diversifying the fund domiciliation platform in
Hong Kong. However, with the implementation
Increasing interest in cross-border distribution
of attractive fund jurisdictions in Australia and
is encouraging fund passport adoption.
Singapore, the competition is getting more
While more work is needed to fully establish
intense.In consideration of this, the Hong Kong
these institutions and their advantages, the
Government has offered tax exemptions to
benefits of established schemes is felt by the
privately offered OFCs providing it meets the
handful of countries who have joined them.
specified conditions.
In line with this, member numbers in schemes
such as the ARFP are rising and are expected
to continue to do so.
When compared to the US or Europe,
the region is playing catch-up in terms of
cross-border regulations. Cooperation is
taking the form of regional passport schemes
coupled with new collective investment
vehicles and APAC is looking to outperform
other regions through increasing collaboration
and integration.
The number of bi-lateral arrangements,
whereby two or more countries within or
without the region agree on a common
framework for mutual recognition of products,
is also changing the landscape and strategy
for the marketing and selling of products.
In particular, Hong Kong has been active in
this, signing mutual recognition agreements
for funds with China, France, Switzerland,
the United Kingdom and most recently
Luxembourg. We expect that a number of
other more established jurisdictions in Asia
will follow suit.
24 Asset & Wealth Management 2025 | The Asian Awakening3
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Comparably, the CCIV will permit Australian Fund passports will proliferate
fund managers to structure their investment
Based on UCITS, the new cross-border
offerings in a similar manner. The intention
schemes – ASEAN CIS, ARFP, and MRF – are
across the board is to enhance the
changing the face of regional cooperation in the
marketability of domestically managed funds
asset management industry. Regional growth
to foreign investors.
possibilities, increased liquidity, reduced costs
While the coupling of CCIVs and fund for cross-border investing, improved efficiency,
passports is still in its infancy, it is already and the ability to invest in funds previously
beginning to shape regulatory frameworks. unavailable to them are driving investors’ desire
The Australian Federal Government released for cross-border schemes. We believe that the
draft legislation regarding the ARFP and CCIV. uncertainties surrounding tax treatment, sales
These changes are expected to continue channels, cannibalisation of pre-existing funds,
across the region, with both Singapore and language barriers will be overcome and fund
and Hong Kong also looking to align their AuM of countries participating in these schemes
passports and new CCIV structures. will grow accordingly (see Figure 2).
Singapore’s VCC structure is set to increase Currently, the most prominent and inclusive
opportunities for cross-border collaborations regional scheme is the ARFP. Participants
for the city-state, allowing growth for already include Australia, Japan, South Korea, New
established managers and creating a larger Zealand, and Thailand. In keeping with the
investor platform for managers to tap into. scheme, each nation possesses their own
Approved fund firms must adhere to a number step-by-step legislation on procedures for
of requirements and the framework is closely exporting funds from and importing funds to the
modelled around existing established vehicles home nation. Given its recent introduction, the
such as the Cayman Mutual Fund or the Irish benefits are difficult to measure. However, we
Collective Asset-management Vehicle (ICAV). anticipate further multilateral mutual recognition
Considering the recent success of ICAVs, agreements in the coming years, easing
we expect similar achievements from the OFC, regulatory burdens such as the present tax
VCC, and CCIV; changing the way the industry system for included nations. Countries will need
operates and closely aligning with the growth to work together and take a more holistic view
of fund passports. of their tax treatment of funds and investment
products under ARFP, including considering any
tax leakage and coordinating efforts to mitigate
against this with other signatory countries.
All in all, the ARFP should be simple to
administer, practical, and transparent. In light
of this forecast expansion, we project a CAGR
of 7.4% between 2020 and 2025. In addition
to the current five members, the scheme will
likely see renewed interest from Singapore who
will probably seek to join in the coming years.
Furthermore, APEC announcing their backing
of the scheme and promoting member states to
join will probably lead to Indonesia expressing
interest in joining in the future, while non-
members such as India are also likely to show
interest. These developments will further the
scheme’s importance for the area.
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