Tim says new numbers published this week by Stradegi and PricewaterhouseCoopers (PwC), with 34 Asian asset managers' COOs in tow, suggest differences in capability and direction in this still-burgeoning region.
Along with the robo-advisors, which I wrote about last week, another somewhat under-the-radar development we've seen in 2015 was Asia's entry into the fintech innovation space, often with two confident and very well-funded feet.
From wealth managers raving about reversing the global flow of technology innovation, now running from Asia back to Europe and North America, to Singapore's MAS announcing millions in startup and incubator funding and the ASX actively considering blockchain for its entire trade settlement system, the Asia-Pacific region has truly heated up.
Competition among fund and asset managers—and among jurisdictions—is intense here, too. But the first Asia Investment Managers COO Survey from Stradegi consultants and PwC, published earlier this week, tells a rather different story about their technology prowess.
Namely, they're still lagging behind their global peers in a number of areas—sometimes glaringly.
If I'm an investor, what do I care about more: the freshly-minted blockchain the exchange is using, or the basis points I lost executing at one venue over another?
The inaugural study used comparative data from an international array of managers to highlight differences across the front, middle, and back offices at 34 investment houses in Singapore, Malaysia and Hong Kong. They varied evenly in size from boutique to more than $50 billion in assets. Several interesting results emerged.
Two front-office areas—transaction cost analysis (TCA) and soft-dollar oversight processes—came in with a sub-60 percent adoption rate in Asia, with TCA in place at only half, and soft-dollar oversight in place at only 55 percent of shops. Global asset managers reported 86 and 79 percent, respectively.
Middle-office ops capabilities were more closely aligned across regions, while the back office saw even greater gaps.
In this area, six different categories, exactly half of the 12 queried—including project management governance, technical development governance and outsourcing oversight—came in at or below the six-in-10 threshold, with some scraping 40 percent or even lower.
In several cases, this created a significant gap of 30 percent or more between Asian managers and their peers. For example, technology development governance (call it dev gov) was reportedly in place at a startlingly low 40 percent in Asia; 71 percent elsewhere.
So why disparities, and why the conflicting news on Asia? The report argues that many of the areas where Asian managers lag also happen to lack regulatory mandate.
In the back office, most of the "regulated areas"—information security, and pricing and performance error reporting, to name two—have a much higher-percentage capability (though notably, they're all still somehow under 90 percent, meaning a handful of firms willingly admit that they're out of compliance).
Another area the authors highlight is outsourcing, and the comparatively lighter use of it in Asia than elsewhere. If you're not outsourcing or exposed to that many vendors, your governance and dexterity around these areas will, of course, be weaker.
This is certainly an argument we've heard before, too. Despite buy-side assets under management exploding in the region, many technology providers have only dipped their toes in Asia, making the cost of service for certain functions higher for end-users in an easy case of low supply and increasing demand.
Here, the reasons why are also well-tread: Regulatory fragmentation makes it difficult to do business; cultural differences abound; and clients simply aren't mature enough to need the higher-cost wares, making an Asian foray uneconomic, among others.
All of that may be true. Still, it really amazes me that 50 percent of representative Asian managers are running without proper TCA, or that a full 70 percent lack a process to determine fund jurisdictional structure. No way around it: those are staggering numbers in 2015.
The only way either of those things works in practice is if a) your investments are in a single, broadly lit and unfragmented national market, and b) if your funds are all domiciled in the same place.
Neither seems likely at a time when even the smallest Asian emerging markets (EM) managers have their eyes on at least three or four markets, and when the prevalence of Ucits and diverse fund structures makes domiciling much more complicated. It could be done, sure, but you would be greatly inhibiting any pathway to growth as a result.
And if that sentiment sounds like the complete opposite of the "Fintech in Asia" story, that's because it is. While payments and settlement ledgers and high-net-worth client portals all take a leap forward, it should serve as a reminder that other crucial functions in the institutional space get left behind.
If I'm an investor, what do I care about more: the freshly-minted blockchain the exchange is using, or the basis points I lost executing a huge block at one venue over another?
For me, it's an easy answer. But at the moment, that's not where the money's going.
Jesse Lund talks about real uses for DLT in the capital markets, lessons learned while rolling out IBM's blockchain platform, and what’s ahead for 2018, and into 2019.Subscribe to Weekly Wrap emails