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Asian managers say pension funds will be their most profitable institutional business in 2015

Wednesday, January 09, 2013
Managing retail assets can be more profitable than institutional mandates, but retail business in most regions has taken a knock from poor flows, stiff competition, and lingering investor interest in low-cost products such as bond and money market funds. In response, asset managers are looking at new ways to grow institutional business in core markets.

Asset managers in Asia believe pension funds will be the most profitable segment of their institutional business in 2015, followed by central banks and quasi-government agencies, according to a Cerulli poll. The large size of these institutions, as well as their willingness to engage external managers and move into riskier assets, including equities and alternatives, are the reasons behind their appeal.

In talks with European managers, Cerulli was told that marketing and sales efforts were increasingly focused on winning pension mandates. While segmented Spezialfonds (or Masterfonds) offer international managers a useful toehold in the German market, the Premium Pension Institution (PPI) has stimulated interest in defined contribution (DC) asset gathering opportunities in the Netherlands. Across the Channel, several U.K. DC pension schemes are reviewing existing provisions to capitalize on auto-enrollment. In terms of product launches, diversified growth funds (DGFs) are hitting the mark with consultants and pension funds.

Fees can make or break a manager's marketing and sales proposition. "Across Asia, instances of fee wars, which sometimes result in zero management fees, are increasingly common; mainly because external managers in markets such as China and Korea will attempt to win institutional assets even if it means incurring a loss," commented Barbara Wall, a director at Cerulli Associates. "Managers are often prepared to accept a low fee mandate in the belief that it will open doors to more profitable business."

While none of the European managers polled by Cerulli plan to increase fees, a significant minority are contemplating fee reductions. Active equity and DGFs were cited as prime candidates for fee cuts.

Yoon Ng, a Cerulli associate director said, "Cerulli understands that DGFs are set to attract the bulk of auto-enrollment pension savings. Cutting fees is a shrewd move that will help managers gain goodwill as well as inflows."

Other findings:

  • U.S. distributors are merging. The buzz surrounds super registered investment advisors (RIAs) and the bank trust channel. Cerulli projects that RIAs, including dually registered advisors, will expand their marketshare of advisor-led assets to 14% by the end of 2012. Cerulli estimates the nationally registered bank trust market to be US$1.97 trillion (€1.50 trillion). However, this number underestimates the actual opportunity set.
  • Product developers in the United States and Europe already sense the bond bonanza will end shortly. There are notable exceptions: Cerulli expects new short-dated bond funds to appear in both markets to tackle investor fears about expected volatility.

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