The highly fragmented investment markets in the Asia-Pacific region require detailed knowledge of each market’s unique characteristics and framework.
Asian investment fund markets have seen strong growth over the past few years with both investor demand and new, sophisticated fund products on the rise. Regulatory changes coupled with investment incentives from local governments have further strengthened this positive trend. Nevertheless, different investment cultures, complex regulatory frameworks and unique market conditions continue to make market entry in the Asia-Pacific region a challenge for many European asset managers.
The markets in this region represent diverse levels of financial maturity − from emerging markets to mature markets − and offer vastly different investment patterns, cultural norms, and business rules. Detailed knowledge of each individual jurisdiction is not just recommended, but a “must have” for a successful distribution strategy.
Complex market conditions put aside, the significant potential represented by Asian fund markets is rarely called into question. The Asia-Pacific region now holds 30 percent of global private financial wealth, but only accounts for 17 percent of assets under management, and only 13 percent of assets in regulated investment funds. The GDP in the region is expected to grow significantly in the short and medium term. Another promising development is that countries in the APAC region are now implementing policies expanding access to foreign funds in response to calls from local investors for greater exposure to foreign assets.
Given the intricacies of the APAC markets, the success of an Asian fund distribution strategy is not guaranteed. Notwithstanding the various Asia-Pacific passporting initiatives, the most significant risk factor is arguably the extent of market fragmentation, and the apparent lack of detailed market knowledge on the part of many asset managers active on a cross-border basis. Asia-Pacific investment markets require a bespoke approach and a unique strategy for each jurisdiction; what works well in one market may not fly in a neighboring country. Asset managers need to identify, analyze and adapt to the specific market characteristics of each jurisdiction, and gain in-depth knowledge of the key distribution channels, investor expectations, product development, business customs and applicable regulations and tax rules in each market.
For asset managers set on overcoming the obstacles to market entry, the growth potential in the region is substantial. The levels of household savings are significant and governments are starting to implement incentives to encourage more investment. Local investors demand greater investment choice, with more innovative products and increased transparency as a result.
In response to the complexities of the Asia-Pacific investment markets and the general need for market insights, Deloitte has released a report dedicated to the APAC region. The “Navigating Asia – Investment Fund Distribution” report provides precious market insights and a comprehensive overview of seven jurisdictions: Australia, Hong Kong, People’s Republic of China, Japan, Singapore, South Korea and Taiwan.
The report provides crucial information and perspectives for fund managers striving to gain a foothold in the Asia-Pacific region, and gives fund managers already present in Asia the necessary tools to improve their existing distribution footprint.
Knowledge is key, even more so when it comes to fund distribution in Asia.
To explore the content or to order a copy of the report, go to www.deloitte.com/lu/navigating-asia.
Lou Kiesch, Partner, and Marc Noirhomme, Director, at Deloitte Luxembourg
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