The active fund-management industry in Singapore is pulling together to try to attract global fintech companies that might have useful solutions – and to provide a way to smooth fintech sales across a fragmented set of firms.
The traditional funds industry is beleaguered by competition from ultra-low cost passive fund managers and an inability to consistently provide the alpha to justify active-management fees. In Asia, the business is totally reliant on wholesale channels for retail business, but feels similar challenges on the institutional side as well.
So far the industry’s answer has been consolidation. In Singapore, however, key firms are using the local industry association to try to change the conversation. (See here for a similar attempt in Japan.)
“There are fewer fintechs offering services to asset managers than there are for banks or insurance companies,” said Carmen Wee, CEO of the Investment Management Association of Singapore, and former head of Natixis’s Asia funds business. “That may be because individual asset managers can’t offer the same kind of scale. We think IMAS can fill that role, and galvanize the industry.”
Calling all fintechs
The association is inviting fintechs to apply for an accelerator program: applications close April 8, and the shortlisted firms will enter a KPMG-led mentoring program and then present to IMAS at an industry conference on May 9.
“We’re using this to step up and provide leadership in Asia,” said Eleanor Seet, president of Nikko Asset Management’s Asia ex-Japan business. The aim is to help fund execs get past the ephemeral call to “do digital” and point fintechs at specific problems.
These include how to help firms monitor regulatory changes across Asia; how to leverage data for product development, risk analysis and portfolio performance; explore the possibility of industry utilities for compliance; reduce operational costs; improve customer experience; and cyber-security.
Our challenge is how to get fintechs interested in AsiaJessica Shearer, Schroders
Jessica Shearer, Schroder’s regional lead for digital strategy and propositions, says global fund houses with a big Asia business are looking to affiliates in Singapore or Hong Kong to develop solutions. Asia offers the prospect of increasing volumes and deep mobile penetration. The weight of the industry is tilting to Asia and so there’s scope to develop Asia-led tech strategies.
“But a lot of fintech talent sits in Europe and the Americas, so our challenge is how to get them interested in Asia,” Shearer said.
The dreaded “D” word
The implications of IMAS’s initiative are substantial changes to the buy-side business model. Fund executives are coming to realize that it’s the end-investor with a smartphone that is going to dictate product taste.
Fund managers have left it to their intermediaries to drive product, commissions, and customer relationships. They now find themselves unable to answer customer needs, even around bread-and-butter things such as retirement and pensions.
Execs such as Seet and Shearer didn’t quite use the “d” word. But the logical conclusion of what IMAS is attempting to kick off is “direct to consumer” capabilities, at least for a few buy sides. (As DigFin has argued for a while.)
Such a direction is fraught with costs and risks, not least KYC and AML issues that the industry has also left to banks to handle. There are other complexities in such a shift that technology wouldn’t solve.
We can galvanize the industryCarmen Wee, IMAS
But banks also face fee pressure in the face of zero-commission digital competition and surging demand for passive products. They will not remain static in how they select what investment products to offer their depositors.
Asia has been shielded from this reality for a while, thanks to banks’ dominant positions in many regional markets. They have resisted adding ETFs to their shelves, for example, which may explain why takeup of passive products has been less in Asia. But the IMAS initiative suggests buy-side executives now see the writing on the wall.