Pension funds are seeking more holistic and collaborative services from asset managers in the midst of greater insourcing and fee pressure, while digitalization and government initiatives to build cost-effective solutions are being seen in the retail retirement market.

In this low-yield environment, mounting performance concerns have led pension funds to examine their fees paid to managers. Pension funds are also building their in-house capabilities, as part of their efforts to reduce costs. While this may signal fewer outsourcing opportunities and reduced revenues for asset managers, challenges posed by insourcing—including the need for talent and infrastructure support, as well as the long approval process—are likely to support the need to outsource. However, their nature is evolving.

As pension funds increasingly build their foreign exposure and specialized strategies, such as alternative and environment, social, and governance (ESG) investments to better meet future liabilities and improve risk management, they are likely to seek managers’ expertise, network of investments, risk management services, and databases on ESG ratings and alternatives to guide them in navigating these areas. In addition to having outstanding institutional performance track records, Cerulli’s survey of pension plans and asset managers indicates that having dedicated relationship professionals is key in improving the chances of winning mandates.

“While dedicating resources to build and maintain relationships with pension funds helps them better understand the managers’ capabilities and offerings, it also allows managers to know the exact needs and strategies of the pension funds. This allows strong rapport to be built and suitable solutions to be recommended by managers,” said Della Lin, a senior analyst at Cerulli. “Indeed, having such connections is especially advantageous to managers now, with travel restrictions hindering onsite due diligence."

On the retail front, while managers are keen to expand the use of banks to promote retirement strategies across most Asian markets, digital initiatives are being introduced at varied paces to retail investors. These initiatives have common aims of streamlining operational processes, enhancing user experience, lowering operational and investment costs, and achieving wider outreach. Some managers have also partnered with fintech firms to build robo-advisory solutions.

“While it is still too early to measure their success, the digital push is expected to bring benefits, including better understanding and awareness of retirement needs, and affordable long-term commitment, to retail investors,” said Lin. “However, this could suggest pressure on managers’ margins, as the declining fee trend calls for low-cost mutual fund products. Managers should promote mutual funds’ lower fees compared to insurance products, and the roles these funds can play in retirement planning.”