The Asia Pacific (APAC) investment management market is a colossus on the rise. Over the coming decade, the region is expected to become the global leader for assets under management (AuM) growth, as populations explode, economies open to the rest of the world and Industry 4.0 delivers paradigm-shattering digital developments one after another. The number of AuM across the APAC region is set to grow faster than any other region globally. A report by PWC released last year estimates that the total value of AuM in the region will rise, from US$15.1trn in 2017, to as high as $29.6trn before the end of 2025.
As international investment firms start to place greater stock in the region, and the area’s traditional investment hubs of Singapore and Hong Kong are joined by emerging titans, investment in everything from AI and fintech to infrastructure and property will skyrocket. According to by Doug Dannemiller and Sean Collins at Deloitte, “From a geographic diversification perspective, most European firms have been looking to expand into Asia, while many US-based investment managers have focused on increasing their presence in both Europe and Asia,” while another estimates that this is the decade where “Shanghai, Sydney and Tokyo deepen their hold as large domestic market centres.”
Change is coming, and investment management professionals and their firms across the region need to be ready to meet new challenges and seize new opportunities if they are looking to survive. Powerful new digital solutions have the potential to be powerful tools for investment managers, but also threaten to remove intermediaries from the market entirely as new platforms allow individuals to better manage their capital directly. AI will also step into the decision-making process, playing an increasingly essential role as investors become more comfortable acting on computer-generated insights. In short, the next decade will render the APAC investment management market a drastically different environment compared to today. This month, Business Chief is taking a look at some of the leading analysis of the trends facing the market and exploring their potential impact on a multi-trillion dollar industry.
Digital: disrupt or be disrupted
It’s 2020. By this point, the far-reaching implications of Industry 4.0 are well known quantities: AI and big data will transform the ways that companies understand and draw insights from the world around them; these insights, along with increasingly sophisticated machine learning capabilities, will drive levels of automation that were once confined to the realms of science fiction; 5G will usher in a new era of connectivity and communication capabilities; this in turn will cause an exponential explosion across the internet of things (IoT), driving the digital world closer and closer to the network edge, as homes, cities and entire world become smarter, safer and more comfortable places to live. General and sweeping statements like this come as no shock to anyone who’s been paying attention.
However, what does Industry 4.0 mean for the investment management industry? Investment management touches every vertical from telecommunications to taco franchises, so it’s obvious enough that understanding the effects of digital disruption on adjacent markets (particularly property and infrastructure development in APAC) is essential for the firms looking to succeed.
More importantly, though, digital transformation is going to touch the internal strategies and external relationships that make up the industry itself. In a , which drew results from more than 33,000 financial services consumers in 18 markets, found that 78% of respondents would be comfortable using entirely automated, computer generated support for investment advice. The report adds that “The overwhelming majority in each country also said that sharing data should ensure that they are delivered personalised products and services for their investments.”
The growing power of data
Accenture’s report found that “The wealth management industry has responded to the digitisation trend by investing heavily in building digital channels and solutions, and by introducing a wide range of self-service advisory and portfolio management methods— from risk-based and thematic investing to goals-based advisory.” However, while investment management firms have accrued vast amounts of relevant data, the report also found that the majority of industry players don’t yet have adequate means to fully make use of this information. Altering this state of affairs is going to be necessary if firms expect to more fully understand the needs and wants of their clients. “Understanding today’s client behaviour requires much more than knowing an existing or prospective customer’s assets under management (AuM) or the data from the know-your-customer (KYC) process,” states the report. “At the same time, wealth managers want to understand their clients better, and are keen to get away from the one-size-fits-all approach and offering low-risk, vanilla products.” APAC investment management firms are aware of the need to harness data more effectively and those that are successful in this goal will be the ones to stand out from the crowd in coming years.
BOX OUT: Data & Analytics (DNA)
Based in South Korea, uses AI and machine learning to tackle vast datasets of seemingly inconsequential information in order to create powerful insights and build investment portfolios. The company’s neural network engine can tailor its predictions to various markets and verticals and combines its analytics with a proprietary Robo-Advisor, which delivers these insights in a digestible fashion. “The DNA solutions can process complex, structured, or unstructured data by creating meaningful and usable insights from them in any industry,” said NDA CEO Kyung Soo Kim in an . “Our strength lies in the fact that our engine learns from various industrial markets, and thus we can provide forecast data promptly.” Currently, DNA has a presence in 160 markets.
Disintermediation and Acceleration
Two of the trends with the largest possible consequences for the investment management industry are disintermediation and acceleration. The two play off of each other, and have the potential to create serious challenges for the market. Disintermediation refers to the growing availability, power and accessibility of digital platforms that allow individuals to invest with a level of ease and accuracy that reduces the requirement for wealth and asset managers to oversee a portfolio. Simply put, if you have an app that lets you easily oversee your own investment portfolio and uses AI and machine learning to provide you with data-driven insights that let you make similar decisions to an investment manager taking 5-10%, why do you need that investment manager at all? Accenture’s report speaks to this trend, noting that “Intermediaries will be squeezed as common platforms allow direct access. Individuals can invest by themselves rather than using a wealth manager to manage a portfolio, investing for instance in exchange traded funds to achieve diversification at low cost.”
In the past, these platforms haven’t been able to muster the kind of power at a sufficiently low price point to compete with intermediaries, but this is where the other trend comes in. Acceleration refers to the fact that technology is becoming increasingly flexible and cheap. It “allows the rapid deployment of new products and services. In the wealth management industry, adapting financial technology has driven the development of digital wealth management services and platforms.”
This doesn’t spell the end of investment management as an industry by any means, but firms will need to elevate their value propositions as more basic offerings are replaced with a more DIY, app-driven approach. Many of these new solutions are using Robo-Advisors to support their platforms.
The next few years are going to be epoch-defining for the APAC wealth, asset and investment management space. Technology is going to have an increasingly disruptive effect on the industry itself, as well as the verticals it touches. Democratisation of AI-driven apps and platforms is going to place pressure on legacy firms to elevate their offerings or be left behind. In a recent interview, , notes that while, “on the surface, the numbers might appear to tell a story of steady growth and of stability. But when you look at broader developments within and beyond the industry, there are signs that [APAC] is facing significant change.”