Asset managers in Asia could see revenue double by 2022 on growth in China, Southeast Asia, says McKinsey
China accounts for about 37 per cent of assets under management in the industry today and is expected to grow at a pace of more than 17 per cent annually for the next five years, according to consulting firm
Revenue is expected to nearly double at asset managers in Asia over the next five years as more money from mainland China becomes available for investment, and as a rising number of affluent and high-net-worth individuals in Southeast Asia creates new opportunities for wealth managers, according to a new report by consulting firm McKinsey & Co.
The report comes as asset managers and banks with significant wealth management and asset management arms, including Credit Suisse, are increasingly turning to the Asian market as a driver for future growth.
Asset managers in Asia reported US$66 billion in revenue last year, according to McKinsey. This number is expected to grow to US$112 billion over the next five years, the consultant said.
The region has been the fastest-growing asset management market in the past five years, accounting for 45 per cent of global inflows over the period, McKinsey said. Assets under management in Asia increased by 11 per cent on a year-on-year basis to US$16 trillion last year.
“The flows are not just coming from existing assets, but actually a lot of untapped pools across Asia,” said Anu Sahai, a senior adviser at McKinsey in Singapore. “That is a huge opportunity for asset managers to tap into. A lot of that is what drives this growth as well. It has been driving growth and will continue to drive growth going forward.”
About 87 per cent of the US$110 trillion in financial assets in Asia is held outside the asset management industry, either as unmanaged assets in bank accounts by retail investors or high-net-worth individuals, or within institutions, such as pension funds or insurance companies, according to McKinsey.
That compares with about 60 per cent of assets in the United States and about 70 per cent of assets in Europe being held outside the industry.
Mainland China is a key driver of the expected uptick in asset managers in Asia, as McKinsey estimates more than US$6 trillion in additional assets will become available for investment.
China accounts for about 37 per cent of assets under management in the industry today and is expected to grow at a pace of more than 17 per cent annually for the next five years, according to McKinsey.
The biggest opportunity will be for overseas firms to be able to serve investors and institutions in China by having an onshore presence through the introduction of majority ownership in joint ventures and through wholly owned foreign entity licences.
“Obviously, things are moving in the right direction,” said Sahai. “I think the desire to create a true investment market has been shown by policymakers in China.”
Since joining Credit Suisse in 2015, Tidjane Thiam, the bank’s chief executive, has placed greater emphasis on wealth management as part of his efforts to reshape the bank, with a particular focus on Asia and other emerging markets.
In a conference call with analysts in July, Thiam said the onshore market in China was potentially a “huge upside, which really we have not even touched”. The bank operates an onshore asset management joint venture with the Industrial and Commercial Bank of China. “The numbers there over five, 10 years can be very, very, very large,” he said.
The bank’s wealth management business topped 206 billion Swiss francs (US$205 billion) in assets under management in Asia in the second quarter of this year. The wealth management business had 784 billion Swiss francs in assets under management in the quarter.
Much of the growth in China has come despite capital controls that restrict the ability of investors to move money outside the mainland, said Sahai.
“As capital controls relax, perhaps, do we see faster growth? Yes,” she said. “What is the timing of that? It’s hard to say.”
In Japan, Australia and other mature markets, another US$1.2 trillion in assets may become available as an ageing population and reforms in state pension systems open the door for more third-party asset managers in the next few years, according to McKinsey.
Another area of opportunity for asset managers is in Southeast Asia, said McKinsey.
Indonesia, Malaysia and Thailand account for about US$600 billion in assets under management, but “are expected to grow rapidly”, according to McKinsey. The rising number of affluent and high-net-worth individuals in Southeast Asia and India in the next few years could account for more than US$2 trillion in inflows, the consultant said.
There is a rising number of affluent investors in each of these markets. “Just given the demographics and the economies’ growth rates, We think the opportunity is immense,” said Sahai.