“One type of partnership that is often neglected is the partnership that [local] managers have with end-investors. With mutual fund penetration rates so low in Asia, managers will do well to consider how to best engage retail investors too,” the study said.
In general, Asia's investor base lacks awareness of mutual funds and those that understand the products tend to have low exposure, making a local partner connected to the retail base highly relevant.
A recent Cerulli survey of about 4,000 retail investors in China, Taiwan, Hong Kong and Singapore showed that about 43% of mass retail investors and nearly 40% of high-net-worth investors are not investing in mutual funds because they do not know what mutual funds are.
“This has contributed to a mutual fund penetration rate, measured as a percentage of household financial assets, of only 5% in Asia.
“It is not ideal, and the time is ripe for foreign managers to build partnerships with end-investors, in order to raise mutual fund penetration rates in the region.”
Partnerships between foreign and local managers tend to vary, ranging from product distribution to sub-advisory services to feeder funds.
The new research suggested that foreign asset managers would find it difficult to go solo in Asia.
“Partnering with local managers looks to be an ongoing theme for foreign asset managers who are genuinely interested in establishing a footprint in Asia. Business models that work well in Western countries tend not to work in Asia,” the study said.
Recent research also revealed that the majority of retail investors in Asia are self-directed and tend not to rely on financial advisers when they make their investment decisions.