Revenues for asset managers across Asia-Pacific are on course to nearly double from $66bn to $112bn over the next five years, driven by reforms in China, ageing populations and rising wealth in emerging economies, according to a study by McKinsey, the consultancy.
Third-party professional money managers run around $16tn across Asia. This leaves close to 90 per cent of Asian financial assets outside the control of the asset management industry, a far lower share than in Europe or the US. Three big trends should increase the share of wealth run by third-party managers, boosting their revenues and profits.
Moves by Beijing to create a larger and more closely regulated investment market will create a “great wall” of new capital, estimated at $6tn by McKinsey, that will become accessible to foreign asset managers by 2022.
In more mature markets such as Japan, Australia and Taiwan, an increase in retirees combined with further pension reforms could provide at least $1.2tn of new business for asset managers over the next five years. More companies in these countries are discontinuing their expensive final salary pension arrangements and shifting workers into defined contribution retirement schemes that require the expertise of third-party money managers. Demographic developments in China will also increase the need for new pension saving products.
A further $2tn in new business could come from increased demand for investment services as a result of rising wealth in India and south-east Asia.
Wide variations, however, in the maturity of investment markets across the region along with differences in regulations means that developing a pan-Asia strategy remains hugely challenging for all asset managers.
Tackling Asia requires managers to identify their priority markets and pay close attention to the secular trends that will determine long-term results, says Jacob Dahl, a senior partner at McKinsey, based in Hong Kong.
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