The traditional fund distribution model – namely selling products through intermediary channels such as banks, wealth managers or independent financial advisers (IFAs) – is looking increasingly outdated, especially as digitalisation sweeps through the wider industry.
Millennials are perhaps the demographic most associated with disruptive technologies and it is an audience which asset managers are looking to target, and for good reason. While the funds’ industry has successfully accumulated assets from older investors, its capital raising track record is less impressive among younger people. If managers are to future proof their businesses, they need to leverage tech to win mandates from millennials.
The opportunity in Thailand
While not the biggest market in Asia-Pacific (APAC) by any stretch, Thailand offers a lot of potential for asset managers, fuelled in part by its burgeoning, tech-savvy young population.
Technology is ubiquitous among Thai millennials, and this shows no sign of abating whatsoever. According to a study by Vocalink, 35% of young people in the country send money abroad using mobile platforms, which is roughly double that of either Singapore or Malaysia.[1]
In addition, the study found Thai millennials are significantly more likely than their peers in Singapore and Malaysia to use mobile platforms to pay for their P2P transactions, financial commitments, transport and general consumption.[2] Elsewhere, Thai millennials are among the most active users of social media in the region, with 90% telling Vocalink they looked at Facebook on a daily basis at least.[3] If asset managers are to win investment mandates from Thai millennials, they will clearly need to embrace technology.
Thai allocators – in general – are becoming more open to foreign investment as well. While most assets continue to be managed locally by domestic firms, offshore funds have been generating traction ever since restrictions on foreign investment were lifted back in 2016. Data shows that Thai assets controlled by foreign fund managers grew by a staggering 60% and now totals approximately $17 billion.[4]
Moving forward, regional asset managers are also poised to target the expanding Thai investor community as a result of the ASEAN CIS framework, a passporting initiative designed to make it more seamless for managers located across Thailand, Singapore and Malaysia to distribute fund units across all three markets.
Big tech and its transition into funds
Even though the Thai market is ripe for asset managers, a failure to adopt new technologies risks putting investment firms at a competitive disadvantage. Increasingly, big technology companies are looking for ways to diversify their businesses, and they are transforming financial services in the process.
Companies including Amazon, Samsung , Baidu, WeChat, Google and Facebook have all launched digital wallets and online payment facilities, while some are beginning to offer financing to small enterprises. Facebook is even attempting to create a digital currency in what could – presuming it is given regulatory approval –seriously challenge the payments and correspondent banking networks.
Regional initiatives are also gaining momentum. Hong Kong is currently issuing virtual banking licenses as its regulator looks to promote financial inclusivity and cement its digital innovation credentials. Several major tech firms including Ant SME Services; ZhongAn Virtual Finance and WeLab Digital have acquired these licenses as they look to provide online banking services to consumers in direct competition to traditional banks.
Funds are not exempt either. While Silicon Valley is yet to develop fund distribution capabilities, tech giants in China have, and with impressive results. In just five years, Ant Financial – an offshoot of Alibaba – challenged the funds’ model by taking an existing brokerage business and leveraging the Alipay payment processing platform.
Ant Financial now runs one of the world’s largest money market funds – Yu’E Bao – which currently looks after $168 billion in AuM. Not only has Ant Financial made it simple for people to invest in its funds, but the company developed a platform enabling third party managers to target users too. Earlier this year, Invesco won $14 billion worth of investor mandates as a result of its partnership with the Alipay platform. This has not gone unnoticed within the industry.
Evolving with the disruptors
Right now, funds are facing a number of challenges. Their fee structures are under scrutiny from clients as is their performance. Furthermore, regulations such as MiFID II (Markets in Financial Instruments Directive II) and RDR (Retail Distribution Review) are having a detrimental impact on margins too.
By adopting disruptive technologies and expediting the fund distribution process through a Blockchain-supported distributed market infrastructure (DMI), managers will not only benefit from significant operational savings, but they could even widen their appeal to a broader range (i.e. millennial) of investors, many of whom are often deterred from purchasing funds due to the sheer inefficiencies and complexities involved.
Moreover, DLT can also be used to tokenise mutual fund units enabling investors to buy lower denomination amounts of the underlying assets. A paper by Deloitte acknowledged as much too, stating that tokens are highly divisible, which means “investors can purchase tokens that represent incredibly small percentages of the underlying assets.” [5] In short, this could democratise the whole investment process, enabling managers to make their funds available to larger – albeit less cash rich – consumer pools. Given that Thai retail investors are already very open to fund investing, tokenisation of mutual fund units could help accelerate inflows even further.
With big tech companies vying to disrupt financial services, the funds’ ecosystem needs to urgently change its historic ways of doing business otherwise it puts itself at risk of disintermediation. By leveraging disruptive technologies to streamline distribution, the industry will instantly become more accessible and appealing. As younger investors in markets such as Thailand become increasingly tech-savvy, managers have little option but to move with the times, and digitalise their operating models.
[1] Vocalink – The Millennial Influence
[2] Vocalink – The Millennial Influence
[3] Vocalink – The Millennial Influence
[4] Fund Selector Asia (August 29, 2018) Thailand’s foreign fund assets continue to surge
[5] Deloitte – The Tokenisation of assets is disrupting the financial industry: Are you ready?
