Asian Institutions Power Ahead in the New Digital Norm

October 27, 2020 — Singapore

Managers need to stay agile in their institutional sales approaches to meet asset owners’ increasing sophistication and digital adoption

Asian institutions are increasingly leveraging technology to improve the pace and efficacy of their investment decisions and manager selection, according to Cerulli’s latest report, Institutional Asset Management in Asia 2020: Setting the Stage for a New Era. As more institutions harness data analytics and generate insights to improve returns, deal sourcing, and manager selection, managers could face tougher selection requirements, expectations, and greater monitoring, going forward.

Cerulli’s findings suggest that managing risk-return expectations and fee pressures are the top challenges faced by institutional managers when dealing with asset owners in the region, and the low-yield environment has brought about greater fee scrutiny. This underpins the fact that outsourcing relationships have become increasingly collaborative and require a holistic approach towards portfolio management. Managers have responded by developing bespoke digital platforms, and some are taking a step further by forming partnerships or making acquisitions to create multi-functional, one-stop solutions, covering the full spectrum of operations from front- to back-end.

Furthermore, the pandemic has raised concerns about how Asian institutions can generate sufficient yields while ensuring liquidity to meet their liabilities. Especially among insurers, investing within regulatory limitations and risk capital charges is another major challenge to overcome. Thus, digital tools that can assist in asset-liability management are viewed as among the most effective ways to win pensions’ and insurers’ mandates, Cerulli’s survey shows. For other types of institutional clients, digital infrastructure that could help reduce costs and manage cash flows are of great importance.

“For managers, digital solutions can bring about cost efficiencies and at the same time, allow for more consistent and objective portfolio construction and management, due to the lower reliance on portfolio managers and their tenures in the event of turnovers,” says Jaslyn Ong, analyst at Cerulli. “Nonetheless, digital platforms are designed based on varying capital market models and assumptions, human capital and house views. As we navigate through this low-yield environment, this could act as a stress test and differentiator for managers and their underlying models.”

On top of that, managers are looking to commit more resources towards portfolio management services. According to Cerulli’s survey, having dedicated relationship professionals is the most important factor in increasing the chances of winning institutional mandates. “Building relationships eases the flow of communication and allows both sides to gain familiarity with one another’s workflows, expertise and needs.” Ong adds. “This is especially relevant amid travel restrictions; difficulties in conducting onsite due diligence has stalled most new mandates issuances this year, and institutions have found comfort in re-investing with existing managers.”

Therefore, aside from outstanding performance track records, managers will need to adapt and evolve in the ways they maintain relationships and service their clients, as the industry heads toward a new digital norm, post-pandemic.

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