The rapidly growing mass-affluent and affluent segments in Asia have created significant opportunities for the asset management industry, with the wealth pool of this group projected to hit USD 4.7 trillion by 2026, up from USD 2.7 trillion in 2021 according to McKinsey analysis GAM Investments’ Head of Asia Rossen Djounov explores the opportunities and challenges he believes the asset management industry in Asia is likely to face in the years ahead.

Shifting demographics

Life expectancies, fertility rates, and mortality rates all vary significantly across Asia. Many developed Asian countries, particularly those in northeast Asia, are facing aging populations which is likely to increase demand for retirement products. While we have seen China’s recent reopening restore the consumer and luxury sectors in the short term, the Chinese government’s efforts to move to an olive shaped distribution of wealth, with the majority of the population falling into a middle-income bracket, is likely to also increase demand for wealth management services.

South Asian economies such as India and Indonesia tend to have younger populations, who are prepared to take on greater risk for higher returns. As these younger, ‘digitally native’ generations become more affluent and financially savvy, they will likely demand a more personalised experience, comprised of bespoke and innovative investment solutions and services, which they can access digitally.

Technological disruption

As in most areas of business and daily life, the asset management industry is being disrupted by technology, a trend accelerated by the Covid-19 pandemic. Established financial firms are increasingly being challenged by new ‘digitally native’ and disruptive entrants to the market, such as online banks, brokers, robo-advisers, and digital wealth management firms, which tend not to be weighed down by legacy systems or outdated thinking. Asset managers will need to adapt to these changes and evolving consumers preferences to stay competitive and remain relevant.

Increased focus on ESG and sustainability

Sustainable investing has continued to accelerate in global markets, with China having overtaken the US as the second largest climate funds market in the world last year. Environment, social and governance (ESG) investing is also becoming increasingly important to younger generations, with research having shown that millennial and Gen Z investors are far more eager than Gen X or the Baby Boomer generations for fund managers pursue ESG objectives.As such, I believe the younger generation is more likely to seek investments in alternative asset classes, such as emerging technologies and innovative industries which support the climate transition.

Asia has made significant progress over the last five years in terms of sustainability considerations, but, in my opinion, Singapore stands out as a leader and has become a sustainability hub for many companies, including for us at GAM Investments. This has been enabled by an increasing amount of regulatory support, particularly in relation to climate change. We have also seen the delivery of policy instruments such as green bonds to direct capital to green technologies, as well as improved corporate disclosure to assess the costs and risks of externalities. I believe the next phase of progress will focus on green taxonomies and ESG fund labelling, both of which are under development, or established in Singapore, but which remain highly fragmented across the wider region.

Geopolitical risk

It would be remiss when discussing the future of the industry in Asia not to mention rising geopolitical risk in the region. While any major conflict would likely cause significant market volatility and impact investment returns globally, the regional impact would undoubtedly be amplified.

In summary, Asia's asset management industry faces several challenges, but many of them also present significant opportunities for innovation and growth. Asset managers need to remain cognisant of these challenges and to prepare accordingly for the changes on the horizon in order to remain competitive and relevant.

Important disclosures and information

The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers