The Asian Distribution Dynamics 2011 report from Cerulli Associates shows that banks’ share of the mutual fund market in 2009 stood at 55.7%, falling to 54.4% by the end of 2010 and down again to 53.6% by the end of June this year.
Ken Yap, Cerulli’s head of Asia Pacific research suggest this is a result of several factors, including regulatory pressures in the financial hubs of Singapore and Hong Kong alongside a deliberate move by fund managers to diversify distribution.
“We think that insurance, via unit-linked insurance products, is the most viable channel currently,” he said. “Indeed, their share of AUM has risen to 3.6% in June 2011, from 3.3% in 2009.
“The industry needs to rethink its place in the distribution chain, which has so far been mostly ‘upstream’, as a manufacturer detached from the rest of the processes occurring ‘downstream’. Closer distributor relations and client communication will become increasingly important amid a tougher fund industry.
“Intensifying competition and escalating costs have been putting pressure on operating margins. Margins in China, Korea, and Singapore are in line with the global average of 31% to 33%, while margins in Taiwan and India were below the global average."
The report concludes that banks will continue to be the largest distribution channel for the foreseeable future, but insurance firms and independent financial advisers will gradually rise in importance.
Mutual fund assets
While banks’ market share is on the decline, Asia ex-Japan’s mutual fund assets continue to climb and are expected to reach $1.1trn by the end of this year before growing to $1.8trn in 2015.
The forecast rise to $1.1trn follows a 3% fall in the first half of the year to $1trn, owing largely, according to Yap, to poor market performance and net redemptions in China (down 7.9%) and Korea (6.6%).
“Asia ex-Japan’s mutual fund market still presents terrific opportunities for fund managers, but the road is far from smooth. For example, the two fastest-growing markets – China and India – are also, ironically, among the most challenging for global fund houses.
“Offshore funds are not allowed, and investors generally prefer to invest in domestic equities, which local fund houses have a competitive edge in,” said Yap.
