The latest report Institutional Asset Management in Asia 2013 from Cerulli Associates, finds that Asian institutions – ex-Japan - garnered $10tln in assets in 2012 and are on course to have $17tln by 2017, rising at 9.6% year on year with a compound growth of 10.1%. The firm finds that as assets grow, institutions' growing appetite for alternatives will help drive opportunities for external managers.
The firm predicts stronger increases from Southeast Asia, as institutions in those markets are relatively underdeveloped and are growing their assets from low bases.
Cerulli expects that two key factors will likely drive institutional outsourcing across Asia ex-Japan-growing appetites for alternatives and deregulation. The firm finds that alternatives allocations still remain small at most institutions, often accounting for less than 10% of their overall portfolios, but these allocations are increasing steadily. External managers play many roles in assisting institutions in alternatives, including co-investing and conducting due diligence, and it is good to start as early as possible.
"Managers that start engaging institutions early-even when the latter are not ready to allocate to alternatives-will stand a better chance of winning mandates when an institution is ready to invest," says Cerulli senior analyst Chin Chin Quah, who led the report.
Meanwhile, the firm finds that deregulation is freeing up the investment shackles of some institutions. China has been at the forefront with a series of deregulations, especially for insurers. From late June this year, insurers have been allowed to set up fund management units to offer mutual funds to retail and institutional investors.
"It could be a way for global fund houses to participate in China's retail and institutional markets if they are able to team up with the right local insurers," says Ken Yap, Singapore-based director and head of Asia-Pacific research at Cerulli, citing the recently approved joint venture between Australia-based AMP Capital and local insurer China Life as an example.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.