Investor savvy may mean boutique fund firms struggle

Asian investors are becoming savvier in their approach to portfolio allocation, which could eventually pose a challenge for boutique asset managers, suggest market participants.

“Asian investors have come a long way. Some have come up the learning curve quite a bit,” says Peter Ryan-Kane, Asia-Pacific head of portfolio advisory at Towers Watson based in Hong Kong.

In the early 2000s, many investors in the region didn’t properly evaluate their asset and liability management (ALM), although this trend is changing as investors gain more confidence, he tells AsianInvestor.

“A lot of the anguish is gone, and not just because markets are up. [Investors] have more confidence now. They can distinguish between a good manager and a bad manager, a good strategy and a bad strategy,” says Ryan-Kane. “They’re more purpose-driven now than I’ve ever seen them. Most have a mission.”

Astute investors may choose to manage some money in-house as opposed to outsourcing, for example, which could eventually be a challenge for boutique asset managers, he adds.

“It will become harder for asset managers with a narrower offering. They can’t just take products around and flog them,” he says. More niche managers won’t be able to “just start every marketing conversation with, ‘How can we help you?’ anymore”.

Many in the market, from consultants to investors, point out that the time of early-stage firms raising substantial assets in Asia without a decent track record or infrastructure are gone. Asset owners – and regulators – want to see fund managers demonstrating strong, institutional-quality operations.

This seems to be reflected by a greater risk awareness among asset owners and fund managers, both in Asia and globally, according to a new survey from State Street.

Almost eight in 10 Asia-Pacific respondents (76.5%) said their organisation had a very risk-aware culture today, compared with just 31% that made risk their highest priority in 2007. That compares with 78% and 30% globally.

“It’s hardly surprising that risk awareness among asset owners and asset managers has increased since 2007,” notes the report. “But the extent of this increase is startling.”

Of course, the sentiment may be there, but whether firms are following through to the same extent is another matter.

Interestingly, Asia is ahead in terms of rewarding compliance/risk professionals for meeting risk targets, according to the survey. Nearly two thirds (65%) have such rewards, compared with 54% in Europe and 51% in North America.

Another area where Asian entities seem to take a tighter approach is with regard to chief risk officer responsibilities. While around the same proportion of respondents in each region (69-70%) said their CRO sits on the executive board, 78.9% of Asian firms said he/she plays a significant role in formulating strategy and business planning, compared to 67.3% in North America and 65.3% in Europe.

However, respondents were significantly less confident about the quality of risk information in Asia-Pacific, with just 20% rating information they receive from internal sources on risk as “very good”. That compares to 36.4% for North America and 30.6% for Europe.

Some 39% of survey respondents were headquartered in Asia-Pacific, 33% from Europe and 19% from the US. They included nearly 300 executives from investment institutions, 48% being asset managers, 35% asset owners and 18% intermediaries.