Asia records $1 trillion of net fund inflows since 2005

Strategic Insight research shows that Asian net flows to mutual funds over the past five years have been nearly as big as in the US, and more stable than in Europe.

Is Asia's mutual-fund business small compared to America's or Europe's?

Is the investing business in Asia more volatile than in other regions?

Do Western firms dominate the funds business in Asia?

If you answered yes to any of these questions, be prepared for a surprise; the data disagrees. Research compiled by New York-based Strategic Insight suggests the answers to all three should be no.

Tracking distribution data over the past five years, Strategic Insight finds that, globally, mutual funds attracted $4.2 trillion in net cash flows, most going into stock and bond funds. Last year, in particular, was a year of strong inflows, despite large-scale redemptions out of money-market funds.

The global funds industry now totals $27 trillion in assets and is slated for growth, given the $60 trillion still parked in bank deposits or money-market funds, earning near-zero yields.

Asia local long-term fund flows -- that is, ex-MMFs -- in the past five years total $850 billion, while Asia-attributable flows to offshore funds add another estimated $120 billion. Combined, then, Asian flows to funds hit $970 billion over the past five years, double the amount in Europe ($430 billion) and not far from those in the US ($1.3 trillion).

"In other words," says Daniel Enskat, head of global consulting at Strategic Insight, "Asia, with only a fraction of US assets under management and only about 5% of mutual-fund household penetration across the region, generated almost equivalent net flows" to the US, which has nearly 50% fund household penetration.

These flows are, in aggregate, also more stable than elsewhere. Although individual holding periods of funds are quite short in Asia, and longest in America, this is not true at the headline level. The region's record inflow of $500 billion in 2007 remained intact during the volatility of 2008-2009, while Europe experienced massive outflows.

Asian long-term flows in 2009 were not very impressive (only $100 billion), but the region has gone through wrenching regulatory overhauls with regards to product distribution, and Strategic Insight expects activity to gradually recover.

It has been largely Asian financial institutions that have benefited from the bulk of these flows. The great majority of flows (90%) have gone into local products and locally known brands.

The top-selling managers of long-term products (that is, ex-MMFs) in Asia over the past five years have been: Daiwa ($52.2 billion of inflows), Nomura ($46.4 billion), Mirae Asset ($44.6 billion), Nikko ($33.5 billion) and Kokusai ($22.7 billion).

Of the next top 20 sellers, four are foreign (Pictet, Schroders, Fidelity and Credit Agricole), two are foreign-owned but have Asian roots (Prudential and JP Morgan) and three are foreign joint ventures (Birla Sun Life, Harvest and Shinhan BNP Paribas).

The rest are from Japan, China and India (in order of flows: Diam, Mistubishi UFJ, ChinaAMC, Sumitomo Mitsui, Daiwa SBI, Birla Sun Life, HDFC, Reliance Capital, Bosera, E Funds, GF Fund and Mizuho).

A dozen firms have enjoyed five-year AUM growth from Asian flows of more than 300%. They are: foreigners Credit Agricole and Pictet; China's Bosera, China Asset Management, E Funds, Harvest and GF Fund; Japan's Sumitomo Mitsui; Korea's Mirae Asset; and India's Birla Sun Life, HDFC and Reliance Capital.

The big question for the next five years is which of these Asian fund managers will have the ability to break out of their home markets and turn themselves into global players.

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