April 2016

Posted by Anton Murray Consulting on . Posted in 2016

Three Big Challenges in Asian Asset Management

The financial centres of Singapore and Hong Kong have emerged as key locations for asset managers wanting to both access and dominate Asian markets. Each city is a powerful distributor and importer of funds management, with Hong Kong catering to the north of Asia, and Singapore to the south.

In Hong Kong, new opportunities for asset managers are being uncovered by increased access to mainland China and by reforms to the territory’s Mandatory Provident Fund state insurance programme. Demographic forces such as ageing populations will impact both Singapore and Hong Kong as investors in Asia look for savings options to support longer retirement.

But while asset managers are wanting to capitalise on these opportunities, they also face a number of substantial challenges – in particular the three below:

Compliance costs

Hong Kong and Singapore have caught the global bug of growing compliance coststhanks to the strong presence of European and American asset managers in both markets. Fund managers find themselves having to redirect capital away from growth investment to pay for new regulatory costs and maintain their already rigid compliance frameworks.

Labour costs in compliance are also increasing as firms seek new compliance specialists to meet their regulatory requirements. With these trends expected to continue, asset managers in Singapore and Hong Kong will need to look at cost reduction systems such as higher automation of compliance procedures.

Skill shortages

Another challenge, which is more prevalent in Hong Kong and Singapore than in Western markets, is a talent shortage. With their new obligations in risk and compliance, asset managers are struggling to find the people they need. In Singapore the Fair Consideration Framework has limited the supply of foreign candidates (and therefore the overall talent pool) and has put further pressure on an already tight job market in asset management.

The effects of this talent shortage in Hong Kong and Singapore have been widespread. Our analysis of the asset management industry in Hong Kong suggests that while demand is greatest for compliance positions, there’s also strong demand for front-office distribution and business development roles. Singapore faces similar pressures and is seeing robust demand for portfolio managers specialising in local Asian ex-Japan funds.

The front-office space requires candidates with exceptional education, and an exposure to diverse markets is often advantageous. Candidates should also consider developing their client-relationship skill because having a good balance between communication and analytical skills is becoming increasingly important in Asian asset management.

Alternative cities

The third major challenge for fund managers, in particular those in Hong Kong, is the emergence of alternative Asian hubs. While Hong Kong has a strong foothold on access to China, in the near future more fund managers may look to establish mainland relationships directly. Further pressure is being applied with the growth of mainland centres such asShanghai, as well as new alternative distribution channels in China that limit the significance of physical location.

The asset management industry in Singapore and Hong Kong remains strong. Fund managers, however, should look at dealing with the three challenges above in a proactive manner. Faster and more effective distribution channels need to be sought. The respective governments should also consider leveraging their current dominance as Asian hubs – by promoting passport initiatives and relaxing corporate taxes, for example. Without a quick response, both Singapore and Hong Kong could lose their status as the leading forces in the Asian funds management industry.

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