Asia ex-Japan mass retail investors are the client segment that fund houses are keenest to tap, according to a recent annual survey conducted by Cerulli Associates.
This category of clients overtook high-net-worth investors (HNWIs), who had been a priority in the past few years.
The survey, which Cerulli conducted in March this year as part of the latest iteration of its flagship annual publication, Asian Distribution Dynamics 2014, has found that mass market investors scored highest on the agendas of firms in Taiwan, India, and China.
HNWIs – still a key source of assets for now and the foreseeable future – are placed second or third on the priority lists of managers in Singapore, Taiwan, India, Korea, and China.
"Low-hanging fruit such as private banks, are getting harder to access. It makes sense as fund managers expand their footprints to look at mass market clients, which often form the bread-and-butter of any retail business. However, managers will need to remember the cost of acquisition for this client segment is high and returns are often long-term," says Yoon Ng, Cerulli's Singapore-based Asia research director.
Ng notes that the retail-focused survey was also targeted at heads of distribution or retail business, which likely also explains why the results show a greater priority on retail, rather than institutional, clients.
Still, cracking Asia's retail segment increasingly requires commitment and patience, on top of getting the right distribution and products. A large part of this is driven by regulations. For example, managers keen to sell funds in China through the Hong Kong-China mutual recognition agreement have to register the products locally. Hong Kong-based firms are also encouraged to groom more local investment talent.
Similarly, Taiwanese regulators increasingly expect foreign managers to help contribute to the development of the local funds scene, while Indian authorities have moved to raise fund companies' capital adequacy by five times, as well as requiring them to seed their open-end funds at one per cent of the amount raised.
The increased regulatory focus on developing local markets is likely to prompt global fund houses to reassess their priorities and determine whether they can or want to dedicate extra resources to meet the requirements. This will eventually separate the wheat from the chaff, which bodes well for the fund industry.
"Global fund houses will increasingly need to show that they are in the business for the long haul, and not just to make a quick buck," says Chin Chin Quah, a senior analyst with Cerulli who led the report. "Ultimately, demonstrating an ability to stay committed to a local market can boost a firm's relationship with regulators, distributors, and end-investors."
