Thursday, July 11, 2019 Stamford, CT USA — Asian institutional assets, which traditionally have been concentrated in the portfolios of a relative handful of behemoths, are spreading to a broader universe of institutions. That’s good news for global asset managers competing for business in Asia, who will be less reliant on relationships with a few powerful gatekeepers and who expect the flattening of the market to increase the pool of “outsourced” assets up for grabs.
The bulk of Asian institutional investment assets are held by a group of two dozen mostly government-sponsored investors such as sovereign wealth funds, central banks, and public pensions and social security funds. However, the share of total assets held by the region’s 20 biggest institutions declined by about 10 percentage points over the past year to approximately 65%. That decline is driven by a more meaningful degree of outsourced assets seen among a bigger group of Asian institutions, ranked roughly 21-50 in terms of AUM.
Leading Asset Managers Building Out Asian Presence
This shift is important to asset managers for two reasons. First, the spreading of assets among a broader group of institutions will help democratize the Asian institutional marketplace. Over the past 24 months, the top asset managers in Asia have been building out their regional capabilities to sell to and service a wider and more dispersed universe of clients. This has contributed to the growth of many managers, including Morgan Stanley Investment Management and PIMCO, the 2019 Greenwich Quality Leaders in Asian Institutional Investment Management.
“In the past, asset managers who made major investments to scale up their businesses in Asia faced the real risk of simply being shut out by the small number of gatekeepers who controlled most institutional assets,” says Markus Ohlig, Greenwich Associates Managing Director and co-author of Good News for Managers in Asia, as Assets Spread Beyond the Largest Institutions. “With a bigger and broader universe of mid-tier institutions with meaningful assets to invest, investment managers can build their businesses more confidently.”
Reduced Market Concentration Means More Outsourced Assets
The second major implication of the flattening of the marketplace is its potential to fuel the growth of outsourced assets. The pool of Asian institutional assets available to external asset managers grew from just 16% in 2012 to 23% in 2018.
Greenwich Associates expects that growth to accelerate going forward, driven in part by the de-concentration of the marketplace. “Simply put, mid-tier institutions have fewer resources with which to build internal investment capabilities and, generally, less desire to take on the challenging task of managing large portfolios of equities and other risk assets,” says Parijat Banerjee Greenwich Associates Principal and co-author of the report. “As a result, as assets flow to smaller institutions, they should also flow to external asset managers.”
Portfolio allocations will also fuel growth in outsourced assets. Over the next three years, Asian institutions participating in the Greenwich Associates study are planning to significantly expand allocations to infrastructure, private debt, private equity, and international/global equity and fixed income. All of these asset classes, especially the alternatives, are areas in which institutional investors are least likely to attempt internal management and most likely to hire external managers.
Click here for the list of 2019 Greenwich Leaders: Asian Institutional Investment Management.