Asset management for the next generation

One of the six “big ideas” discussed in the recent EY Reframing the Future of Asset Management study is headlined “Maximize areas of growth”, and that’s certainly something that resonates with me. There are two big growth opportunities for asset managers in Asia-Pacific right now, and they’re closely related: the demand for managing intergenerational wealth, and the growth in alternative investments. So how can global firms capitalize on these?

Having lived and worked in Asia for almost 10 years, I’ve seen the rise of the new middle class, as whole industries developed that weren’t previously part of the landscape. A lot of family-owned businesses have created huge wealth in the last two generations, and how that wealth then gets managed in a professional way and at a professional scale — is one of the key questions they face.

We’ve seen our asset management clients accumulate assets from these high-net-worth individuals to invest. Those individuals are often keen to diversify away from where they made their money. For example, if their business was in consumer products, they may now be investing in traditional real estate, but they also want to know how to move into institutional investing for the next generation.

Alternative opportunities

So, there is a huge opportunity in Asia-Pacific in alternative asset classes for these high-net-worth investors. What’s more, all the pension providers around the world want to diversify their investment horizon beyond equities and bonds into these alternative classes, be that direct investments, private capital, credit or equity.

?Southeast Asia, in particular, presents a huge opportunity for asset managers to take financial services into that space. And it’s a unique opportunity, in that you can potentially do it through a new business model that didn’t exist before. These are mobile-led countries that have skipped the traditional brick-and-mortar sales process. Companies there are taking financial services to the masses, but in a different format — a digital one.

This presents a challenge for asset managers because the cost of acquiring these customers doesn’t fit the traditional model. Moreover, though individuals may not have so much to invest, the number of potential customers is much larger.

Buy and build

The big question is, how can asset management firms — globally, not just those already active in Asia-Pacific — capitalize on these trends?

?What we’re seeing at the moment is that the big firms, the behemoths of asset management, are getting even bigger. At the other end of the scale, there will always be a space for boutique firms — that’s probably not the appropriate term, because some of these “boutiques” manage billions of dollars, but they’re much smaller in terms of people and more niche in their products. They’re making good margins, and their aim is to protect them. They aren’t necessarily looking to merge with anyone else.

So, what do you do if you’re a European or US asset manager and you’re halfway between the two extremes? Can you cover the full range of asset classes and geographies that investors are looking for? If not, you’re probably not going to get there through organic growth — it’s too expensive, and if you don’t have the brand recognition in market, it's hard to grow. You’ve got to have the right talent on the ground, too. You can’t go into Indonesia, say, and practice business the same way you practice it elsewhere.?

Whereas asset managers who’ve gone down the acquisition route—buying an existing business, adding it to their platform and growing from there — have succeeded in getting that critical mass in Asia.

That’s a trend that I think will continue, and it applies to asset classes as well as geographies. If you’re a large asset manager that’s focused on public markets, and you think there’s more growth opportunity in alternatives, then starting from scratch and building a team is a long road. Buying an existing team and adding it to your platform has the potential to be a much more successful pathway.

The views reflected in this article are the author’s and do not necessarily reflect the views of the global EY organization or its member firms.

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