Wed, Apr 26, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Cerulli: Asian institutional assets face profitability squeeze

Thursday, November 29, 2012
Opaleque Industry Update - Niche strategy managers will prosper while general strategy managers will mostly struggle in future.

Cerulli Associates estimates that Asia ex-Japan institutional assets accessible to external asset managers (i.e., addressable assets) have expanded from US$462.2 billion in 2007 to US$998.3 billion at the end of 2011. Cerulli projects that this figure will continue to climb to more than US$1.7 trillion in 2016. At the same time, addressability will improve from 8.9% in 2007 to a projected 12.3% in 2016.

However, the growing pool of addressable assets translates into neither easier access for all types of asset managers nor greater profitability.

Cerulli's conversations with institutional asset owners show that, over the long term, the mandate universe is developing hourglass characteristics: either very specialized (such as absolute return Taiwanese equities) or very index-driven (such as minimum-volatility global equity index). Both examples are mandates from Taiwan's new Labor Pension Fund in 2012. Indeed, alternatives, single-country, and regional allocations are playing larger and larger roles in Asian institutions' portfolios.

Cerulli's proprietary survey of asset managers in Asia ex-Japan also shows that specialization has gained significance as a criterion for being awarded a mandate: in 2009, it was rated 3 on a scale of 1 to 5 where 5 is most important. This rating has increased in consecutive years to 3.5 in 2012.

Mandates that call for specialized investment abilities, such as emerging market fixed income, Greater China, private equity, or hedge funds, still pay a premium over broad mandates. For instance, institutions award 40 to 80 basis points (bps) for emerging market equities versus 5 bps to 20 bps for local fixed income. As for hedge funds, few investors have been willing to pay the 200 bps management fee plus 2,000 bps performance levy (known as "2 and 20") since the Bernard Madoff scandal; but among private equity funds, the 2 and 20 fee structure meets with much less resistance.

However, instances of fee wars-sometimes down to zero management fees-are appearing increasingly often as external asset managers in markets such as China, Korea, and Thailand attempt to win institutional assets, even if it is at a loss. Sometimes, the institutions themselves or their regulators are encouraging zero management fee structures. In China, for example, Cerulli is aware of the insurance regulator encouraging insurers to consider paying only performance fees to external managers.

"The well-established global asset management firms don't usually participate in these kinds of competition, but there is no shortage of firms that will, especially recent entrants that need the prestige and perceived credibility of managing institutional assets," says Ken Yap, head of Asia-Pacific research at Cerulli Associates. In China, for example, numerous managers of enterprise annuity (corporate pension) assets have been accepting deals at a loss for years.

On the other hand, the largest, most transparent Asian institutions, such as Korea Investment Corporation, the National Pension Service of Korea, and the Employees Provident Fund of Malaysia, are generally willing to pay fair rates for impeccable investment management and servicing, but the assets they outsource to external managers are increasingly niche.

"But the move toward increasingly niche mandates will develop over some time. For now, there are still broad mandates available, and the profitability depends on volume," Yap says. Cerulli's survey of asset managers shows that managing assets from central banks, quasi-government organizations, and pension funds (both government and corporate) yields the greatest profits in institutional business. Family offices are the least profitable, although many asset managers in Asia are keen to work with family offices.

Press release

These findings and more are from Quantitative Update: Institutional Asset Management in Asia 2012.

CLICK HERE to request a press copy of this research.

Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Alternative asset firm YieldStreet surpasses $100m of loans funded in less than 8 quarters[more]

    Komfie Manalo, Opalesque Asia: Alternative asset investment platform YieldStreet reported that it has surpassed $100m in loans funded in less than eight quarters from accredited investors and single family offices. YieldStreet was founded by Milind Mehere and Michael Weisz. In a

  2. Investing - Investor appetite for high-growth IPOs to be tested, Apollo boosts fund's stock allowance for 'diamonds in the rough', Hedge funds uncertain over outlook for Hargreaves Lansdown[more]

    Investor appetite for high-growth IPOs to be tested From FT.com: The US listings market is poised for a busy week with deals that will test investors' appetite for high-growth - but lossmaking - companies. Eight new listings are scheduled for this week, the most since October of 2016,

  3. Hedge funds holding Puerto Rico bonds are looking at a long battle[more]

    Komfie Manalo, Opalesque Asia: Hedge funds which bought Puerto Rico's distressed debt bonds are facing the prospect of a long road ahead to recover their investments as the Caribbean island is attempting to use a U.S. Congress-approved rule that allows it to exploit a bankruptcy-like proceedings

  4. Other Voices: "Winner-take-all" dynamics and hedge fund investing[more]

    A growing stream of thinking in microeconomics is the concept of "winner-take-all" dynamics. The idea seems simple. A combination of networking economics and classic economies of scale creates situations where there are just a few dominant firms or economic agents who are able to capture significant

  5. Investing - How Chipotle's comeback attracted big data robots and value investors alike[more]

    From Forbes.com: When William Ackman's ailing hedge fund Pershing Square Capital Management bet $1 billion on shares in Chipotle Mexican Grill beginning in July 2016, the stakes couldn't have been higher. Pershing Square was reeling from what would eventually be a near $4 billion loss in drugmaker V