Asset managers in Asia-Pacific are faced with a confluence of structural headwinds that hold the potential to upend the industry. Amid these challenges, digitalization strategies will increasingly set firms apart.

The gravitational pull of Asia-Pacific on the global asset management industry has been a well-appreciated trend for the last decade. The region’s world-beating economic growth rate, and the ever-deepening pool of wealth in need of high-quality investment solutions, have driven rising levels of competition and innovation between firms hoping to secure a foothold.

Today, assets under management (AUM) in Asia-Pacific have expanded from US$10 trillion five years ago to US$14 trillion today. Furthermore, Broadridge forecasts that Asia-Pacific alone will drive 42% of net investment inflows into the industry between 2022 to 2031, up from only 26% between 2012 to 2021, as the United States and Europe continue to cede ground as the de facto hubs for asset management.

Although the long-term outlook remains exceedingly positive, effectively navigating the road ahead will be more complex than in decades past. Emerging megatrends threaten to upend strategic growth plans, and will demand more from asset managers targeting the region. Broadridge was the lead sponsor of the Financial Times’ Future of Asset Management Asia 2023 conference, which discussed this topic with other leaders at the forefront of confronting some of the industry's most critical challenges.

Structural Shifts in Asia-Pacific: What is Top of Mind?

Three major issues have started to dominate client conversations over the last couple of years: Asia-Pacific’s “super aging” crisis, climate change, and the geopolitical and regulatory environment. Each of these megatrends will require asset managers to fundamentally reconsider various aspects of their businesses, from product development and distribution to compliance and even investment decision-making.  

First, Asia-Pacific’s “super-aging” crisis can no longer be ignored. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) estimates that within the next 30 years, one in four people will be over 60 years old – three times higher than in 2010. As governments grapple with the repercussions of declining birth rates, rising life expectancy, and slowing growth, the need for innovative financial solutions to support retirement incomes and straining pension systems has never been greater. It is increasingly clear that public retirement systems may struggle to continue providing an adequate livelihood for retirees, as contributions to these plans dwindle and liabilities swell in the coming years. Asset managers have an opportunity to help fill this retirement planning gap with greater access to private alternatives and affordable, multi-asset offerings.

Second, more needs to be done to address climate change. Leaders recognize of the need to further mobilize public and private resources to further the region’s green transition and mitigate climate risks, but a persistent funding gap stands in the way of much-needed progress. Developing Asia needs to invest US$13.8 trillion (US$1.7 trillion annually) in infrastructure from 2023 to 2030 to sustain economic growth, reduce poverty, and respond to climate change. This far exceeds current capital commitments, according to the Asian Development Bank. Asset managers have been quick to connect the growing need for sustainable financing with an expanding pool of investors hoping that want to align their values and investments, public scrutiny is at an all-time high. Ensuring commitments and mandates are measurably living up to the promises made to stakeholders will be critically important.

Finally, expect sustained uncertainty from geopolitical and regulatory environments. Asset managers with experience in the region are aware of their susceptibility to rapid changes in regulatory frameworks and shifting power dynamics. Recent developments, such as pandemic-era policy responses, ongoing geopolitical tensions, and the Russia-Ukraine conflict, have only intensified this uncertainty. As the geopolitical landscape shifts toward a more multi-polar existence, and compliance with overlapping disclosure and investment restrictions become more burdensome, firms must quickly re-evaluate their strategic plans in light of new information and regulatory risks.

Rethinking Digitalization to Empower Success

Although each megatrend are multi-faceted and destined to shape how asset managers design their organizations for years to come, they must also consider the central role digitalization plays in addressing many of these challenges. This is not to say that technology is a panacea for the problems we face today, but it will be an essential part of empowering our industry to deliver long-term value, make better decisions, and foster resilience amid an unprecedented pace of change.

The good news is that C-suite executives across the industry are embracing digital transformation. More than half of senior leaders participating in our third-annual Broadridge Digital Transformation and Next-Gen Technology Study agreed that digital transformation is their company's most important strategic initiative. Firms plan to boost spending on next-gen technology such as artificial intelligence (AI), blockchain, and cloud computing by more than 20% in the next two years. The technology revolution is now mainstream, and the widescale adoption of powerful innovations is poised to ramp up significantly in the next couple of years. We expect a growing bifurcation between leaders and laggards, in the sense of lasting competitive advantage, but also with regards to an organization’s capacity for resilience and adaptability.

Consider China, for example. This market is too influential in the asset management space to ignore. My colleague Yoon Ng, Principal, Asset Management Advisory Services, summed it up elegantly, saying, “When we think about China, the first thing that comes to mind are big numbers.” Ng explained AUM in the market has expanded to more than US$17 trillion to date and Chinese investors will account for a quarter of all new investment inflows into the industry over the next decade.

The market’s sheer size also means these three megatrends are playing out in an outsized fashion compared to other regions around the world. According to a study by the WHO, China will need to care for an estimated 400 million citizens over the age of 60 by 2040 — more than the entire U.S. population. At the same time, government leaders are struggling to close a US$170 billion annual funding gap to meet China’s ambitious carbon neutrality goals in the coming years. Beijing has quickly introduced sweeping reforms to the country’s pension system, green finance frameworks, and economic growth policies— all impacting the competitive landscape facing asset managers.

Panel participants across the various sessions last week agreed that amid all this change, positioning to effectively navigate these megatrends requires a digital-first, data-driven mindset to compete effectively and make informed decisions. Digital is simply table stakes in ensuring the continued viability of any asset management business today. This is particularly true in China.

Take the distribution landscape, for example. Thanks to deep mobile and internet penetration, as well as a surging population of tech-savvy consumers, China is at the forefront of online fund distribution among its global peers. Regional data from Broadridge’s Distribution 360 service estimates that approximately 30% to 35% of funds are already sold through direct-to-consumer (D2C) digital platforms. This has allowed digital-native players to flourish and has forced international asset managers to reimagine the way they build their brands, communicate with customers, and design consumer experiences. More importantly, this superior digital baseline holds the promise of further value-accretive innovation, unlocking greater financial inclusion, more personalized solutions, the democratization of private markets, and much more.

Once firms accept the central role of technology in positioning firms for long-term success, the next natural question that arises is whether current digital transformation roadmaps are prepared for what lies ahead. In our view, more still needs to be done to enable firms to meet the needs of tomorrow.

The Future of Asset Management in Asia-Pacific

Of the many insights from the Future of Asset Management Asia, one predominant takeaway emerged: a strong sense of shared optimism among senior industry leaders. Despite the notable challenges ahead, there is an unwavering commitment to adapt and stay relevant in an increasingly complex world.

The future calls for a harmonious relationship between organizations and technology, with all functions collaboratively driving digital transformation initiatives through a shared vision. It is important to acknowledge the practical challenges that stand in the way of this, such as the absence of a clearly defined digital transformation roadmap, limited in-house digital skill development, a nascent continuous innovation culture, and burdensome legacy systems.

Overcoming these hurdles is essential in ensuring the industry is "Ready for Next," regardless of what the future holds. For those who embrace this process head-on, a wealth of opportunities and rewards will be reaped. The future of asset management in Asia-Pacific hinges on our industry's ability to continue innovating, adapting, and evolving.

The prevailing optimism is an encouraging sign that it is well-prepared to rise to the occasion.