City lighted buildings view

Resilience and recovery

Asset Management in Asia Pacific

Resilience and recovery

Bonn Liu | Author,

As clients and their customers adapt to a new reality due to COVID-19, the sustainability of new operating models and customer interfaces in the asset management sector is vital.

In our COVID-19: A guide to maintaining Enterprise Resilience, KPMG professionals look at how enterprises in Asia Pacific are managing — and working towards alleviating — the impact of the pandemic. We cover the three areas of financial, operational and commercial resilience, setting out practical suggestions for short, medium and long-term considerations.

In Asia Pacific, Assets Under Management (AUM) growth is expected to outpace its American and European counterparts. Although AUM estimates vary, there is a consensus in the region’s positive AUM growth prospects.

Demographics have been a key driver behind this projected growth and will continue to be a growth factor in the industry. Despite significant variances among countries and territories in the region, those with more developed economies — such as Singapore and Japan — are ageing quickly. People planning their retirements are relying on the asset management industry to compensate them for any anticipated shortcomings from their governments’ pension plans. The AM industry therefore plays a crucial role.

The considerations mentioned are fundamental growth drivers, and thus, in the long term, should not be severely affected by the COVID-19 pandemic. But in the short to medium term, some disruptions will be inevitable. To counteract these disruptions, asset management firms should pay close attention to methods that can strengthen resilience from the financial, operational and commercial perspectives.

Financial resilience for sustainable, scalable growth

In an already-evolving sector, business disruption has created strategic challenges for firms, including uncertainty around the timing of when economies will reopen. For example, assessing the impact on risk portfolios and valuation is challenging in an environment with limited reliable inputs and where the lack of precedent hampers predictability.

In addition, fee compression will likely continue, driven by more intense competition and rising regulatory costs. These are expected to shift the asset management industry toward becoming leaner, more efficient and more transparent.

Operational resilience: Firms are transforming their operations at an accelerated pace

Due to increasing connectivity, complexity and risk, regulators are expected to continue to scrutinize firms’ operational resilience.

Technology needs have been highlighted in day-to-day operations as more staff are working remotely. This is combined with a rapidly advancing digital environment that must adapt to new market realities such as data modeling, hardware solutions and others. At the same time, there are added risks related to cyber security and data privacy.

The connectivity of the front, middle and back office will likely thus be more relevant than ever to monitor and address these new potential risks, in addition to those already existing on a day-to-day basis.

Commercial resilience

Governments, regulators, asset managers and financial institutions are working together to support markets and protect investors. Many governments have established significant stimulus and support packages, although the information remains scattered, which inhibits efficiency. To that end, KPMG has created a central government stimulus tracker hub, where businesses can find the specific measures each government has undertaken.

Despite economic challenges, customers are still driving change, requiring real-time, multi-channel, personalized services. The expectations of retail and institutional investors, as well as the intermediaries who serve them, have shifted, and asset management firms must adapt.

Market dynamics will continue to drive varying aspects of investment products and solutions development. For example, sustainable finance remains a key topic. While ESG (environmental, social and corporate governance) investing is not strictly defined, data obtained just prior to the pandemic revealed that AUM for ESG exchange-traded funds (ETFs) had reached an all-time high of US$52 billion.1

The momentum for ESG has been strong. A KPMG survey (PDF 2.4 MB) of 135 institutional investors and fund managers revealed that 84 percent of respondents were interested in ESG-oriented funds and strategies. The same holds true in Asia Pacific, with 71 percent of asset owners investing to increase ESG knowledge and expand related investment capabilities.2 Even COVID-19 has not slowed down the ESG-investing momentum: KPMG research found that tech companies in Asia have been placing more importance on ESG factors in the wake of the pandemic.

Creating more ESG investing is therefore one area — among others — that the asset management industry should seriously look at to fortify its commercial resilience. Finally, opportunities in the asset management industry are expected to continue as digital increasingly becomes the norm.

KPMG member firms are standing shoulder to shoulder with clients to help ensure you receive timely, informed and practical guidance, drawing on the latest industry insights and experience from specialists across the global KPMG network. You can complete an interactive questionnaire to help you assess the completeness of your immediate response to COVID-19. Questionnaire responses are kept anonymous, so do share your report with your KPMG contacts if you’d like to discuss the results. Explore COVID-19: A Guide to maintaining Enterprise Resilience.

Footnotes

1 source: CNBC

2 source: The Asset