Despite ongoing market and geopolitical uncertainty, the asset management industry – both globally and in mainland China and Hong Kong – has a number of opportunities for growth in 2019.
A recent KPMG article provides a high-level view of the top 10 trends that could have the greatest impact this year on the global asset management industry. Many of these are also relevant for the industry in mainland China and Hong Kong. Some key trends include:
Competition in mainland China heats up
2019 will be an exciting year for mainland China’s asset management industry. On the domestic front, firms will experience significant competition – and more innovation – as they seek to protect and capture market share. Significant opportunities exist for all players to bring a more consumer-focused and digitally-enabled proposition to the market.
The relaxation of foreign ownership requirements in mainland China’s financial services sector is also creating new opportunities for global asset managers. If foreign companies take advantage of the relaxed ownership rules, mainland Chinese consumers will benefit from greater access to a wider range of products.
In addition, competition will not only come from the financial services sector, but also from mainland China’s home-grown tech giants, which bring strong distribution channels, large amounts of capital and innovative business models.
Sustainability measurement gets more sophisticated
Over the last few years, Environmental, Social and Governance (ESG) priorities have moved up on the asset management agenda. Asset managers are increasingly expected to integrate ESG factors into their investment processes and advice to enable clients to make informed investment decisions. This year, regulators are expected to start to more clearly define their expectations for the industry. Some markets are already working towards creating standardised taxonomies and disclosure requirements. Many are considering how to drive this down to the consumer level to ensure that asset managers are taking their clients’ ESG preferences into account.
In Hong Kong, the Securities & Futures Commission (SFC) has been looking closely at global developments in green finance and the implications for Hong Kong. As part of its strategic framework launched in September 2018 to develop green finance in the city, the SFC will focus on how asset managers communicate clearly to investors how and to what extent they factor ESG criteria into their investment processes and risk assessments. We therefore expect to see more developments and industry dialogue on integrating ESG into asset management in 2019.
Looking for value in technology and data
In 2019, we expect to see more asset managers connect their technology dots in ways that unlock an entirely new level of agility, efficiency and value. For some, this will start with basic cloud enablement – a fundamental requirement for digital enablement to deliver on today’s customer expectations.
Industry leaders will likely spend this year creating roadmaps and executing strategies that drive improved integration across the back, middle and front office. This will allow them to not only unblock process roadblocks, optimise technologies and eliminate redundancies, but should also lead to some strong competitive advantages.
Meanwhile, we expect to see many infrastructure investors continuing to focus on building up the capabilities and experience required to ensure their new basket of diversified assets are delivering the rates of return they anticipated. Data, analytics, scenario planning and a robust investor communication plan will also be key so that they are able to manage the rise of populism and increased public scrutiny as to how they manage public assets.
For real estate investors, data and leveraging technology for analytics will be essential in 2019. Rather than just relying on experience and understanding of the markets and cycles, real estate investors are starting to place increasing value on data-driven decision-making tools and processes.
Some real estate investors will be focusing on finding the right balance of future investments to ride out the next cycle. Others are looking for unexpected trends that may uncover new sources of competitive advantage. Those with operational real estate investments will also be keen to turn their data into operational efficiencies and better yields. Operators will be evolving their business model and new shifts in technology will change the behaviour of both landlords and tenants.
ETF players become more active
The ETF market continues to show strong signs of positive growth and many asset managers are starting to recognise ETFs as an important part of their digital product offering. As of the end of September 2018, there were 104 ETFs (excluding leveraged and inverse products) listed in Hong Kong.1
Conclusions from a recent SFC consultation paper2 also highlight the introduction of active ETFs in Hong Kong, widening the range of ETF products in the city. We therefore expect to see some listings of active ETFs in Hong Kong this year.
Private wealth management growth surges in Hong Kong
The outlook for private wealth management (PWM) in Hong Kong remains strong, with assets under management expected to double to USD 2 trillion by 2022.3 Opportunities in mainland China and the rise of family offices are expected to be the primary drivers of growth, while the next generation and other Asian markets will also be key.
A recent joint KPMG and Hong Kong Private Wealth Management Association white paper4 highlights industry-wide opportunities to transform and grow Hong Kong’s position as a wealth management centre. We continue to see significant progress and collaboration between the government, regulators and the PWM industry on some of the recommendations in the white paper.
In particular, the Greater Bay Area (GBA) is a key focus area to drive growth in the PWM industry. In 2019, we expect to see further discussion on how to capitalise on these opportunities, and possibly some developments around implementing a new mutual wealth management scheme in the GBA.
Technology is a major driving force for change in the industry. Customers are increasingly demanding a seamless omni-channel experience, with more flexibility around how and when they engage with their wealth managers. Leading wealth managers will be the ones that invest in technology to provide digital experiences that exceed the expectations of the next generation of clients. New digital-first and hybrid models will proliferate and, while they may not be disruptive in and of themselves, they will start to raise the bar for client experience and cost which, in turn, will drive increased competition in the industry.
PE continues strong run
The 2019 outlook for PE in Asia-Pacific remains upbeat, with large pools of capital to deploy and an increase in deal activity across a number of geographies and sectors.
A number of factors are expected to contribute to the strong PE deal flow in 2019, including the impact on valuations from a slowdown of some of the biggest economies in Asia-Pacific; the continued carve out of non-core assets and businesses; ongoing deleveraging in the region and the need to raise funds through asset sales to repay debt; and the volatility in capital markets giving rise to an increase in off-market transactions. In addition, the unresolved ongoing trade tensions are also creating opportunities for PE firms to take advantage of the improved investing conditions.
Finally, we continue to see the leading global and regional PE houses raising new multi-billion dollar funds to invest in the region off the back of proven track records of performance. As such, given the large pools of capital raised that need to be deployed, we expect a buoyant PE market throughout Asia over the next 12 months, particularly in some of the more mature economies such as China, Australia and Japan.
3 ‘Hong Kong Private Wealth Management Report 2018’, KPMG China and Private Wealth Management Association, September 2018, https://home.kpmg/cn/en/home/insights/2018/09/hong-kong-private-wealth-management-report-2018.html
4 ‘Hong Kong: A leading global wealth management hub of the future’, KPMG China and Private Wealth Management Association, September 2018, https://home.kpmg/cn/en/home/insights/2018/09/hong-kong-a-leading-global-wealth-management-hub-of-the-future.html
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