Asian institutions internalising management of assets
07 Sep 2012
Asian institutional investors are internalising more of their asset management functions and cutting the number of external managers in response to global trend and current market volatility.
A closer focus on the fees and returns they pay and receive from their active versus passive managers in the context of their overall budgets is driving a return of large allocations to passive core investing, Justin Balogh, State Street Global Markets' Senior Managing Director said. "Institutional investors are now becoming more precise about their strategies today. Recent significant market events have made them look at the reducing the number of external asset managers."
Larger clients like sovereign and pension funds, family offices and insurance companies can capture substantial savings. Balogh estimates that a manager can reduce their total fees by as much as 40% (based on AUM of between $10bn-$20bn) through in-house management.
"There is a return to passive, core investing," he said. A growing focus on using specialist benchmarks for portfolios in volatile markets, particularly in fixed income, is driving a need for efficient rebalancing.
According to Balogh the need for "portfolio transition management" - the managing of portfolio rebalancing exercises, is growing in Asia. The 2009 financial crisis created large demands for these types of rebalancing, consulting services.
Using a specialist consultant could result in significant efficiencies and savings especially in current market conditions. "We optimise the entire allocation and transition process."
As much as $500bn of portfolio assets globally have been being transitioned annually by State Street with Asia accounting for about 25%. Balogh estimates consistent 10%-15% growth in the number of these mandates particularly in Japan and Southeast Asia. Typically, their mandates have ranged from $10m to $25bn.
Besides planning and executing the trades, portfolio transition also involves meeting today's complex information needs. "Clients normally employ an in-house trader, which creates near real time information demands when we transition assets."
By reducing shortfalls and inefficiencies in the implementation of securities transactions while restructuring or rebalancing their portfolios, asset managers can significantly cut down overall transaction costs. These costs can be significant, representing the difference between a portfolio's actual versus its calculated returns.
Author: Peter Guy