New research from State Street has identified access to distribution data as a major challenge for asset managers; understanding the impact of local regulation on strategy the biggest challenge for product launches.
State Street has released its findings from research surveying asset managers globally and analysing the sector’s development of cross-border strategies, including the factors influencing their choice of fund vehicle, passport and domicile location.
The survey found that 64 percent of asset managers have an increased appetite for launching cross-border products in the next five years. The US, UK and Europe were the top distribution markets for study participants. Japan was found to be the top distribution market in Asia, followed by China.
However, 88 percent see distribution-related data as a major challenge: “The access to distribution data remains a challenge for the asset management industry,” said David Suetens, head of State Street Luxembourg. “According to our survey clients are looking for a flexible, scalable information technology infrastructure that ensures a fast and accurate delivery and execution throughout the investment lifecycle.”
With that in mind, asset managers consider the S-VACC (Singapore Variable Capital Company), ARFP (Asia Region Funds Passport) and Hong Kong’s OFC (Open-Ended Fund Company) regime the most effective cross-border distribution initiatives in Asia Pacific.
Most asset managers are planning to expand their product suite into more complex asset classes during the next five years, with 85 percent planning to offer hedge funds, 83 percent planning to offer real estate funds, and 83 percent planning to offer private equity funds.
However, understanding the impact of local regulation on asset management strategy was cited as the biggest challenge to launching new products. Trade and transaction reporting requirements (MiFIR, EMIR, SFTR) was seen as the top regulatory challenge (37%), followed by governance and transparency (24%), tax and financial reporting (20%), and regulatory reporting and filing requirements (16%).
In particular, it was noted that MiFID II will make product distribution more difficult in Europe, with many respondents (36%) believing that Europe will lose ground to Asia as a hub for cross-border fund distribution.
“As asset managers expand their product suite and the number of markets their products are distributed to, they are also becoming less dependent on intermediaries; with nearly half (44 percent) expecting to increase their volume of direct sales,” said Suetens. “The effect of regulatory reform and technology may thus change the nature of distribution of funds.”
The survey also found that more than half (57 percent) of respondents were concerned about disruption from technology-driven challengers who threaten incumbents’ distribution models.
According to State Street’s EMEA chief Liz Nolan, “whether it is alternative investments, UCITS or cross-border mutual funds, investment in technology will become critical for asset managers to efficiently deliver products to their clients.”
“As the world continues to innovate, the blurring of lines between man and machine will persist, and emerging technology such as artificial intelligence will be of increasing importance for asset managers to achieve their ambitious goals for growth,” she added.
The survey was conducted by Oxford Economics. Respondents included 250 responses from 15 countries, from asset management firms distributing products outside their home markets or considering doing so.