Thomas Gardner, head of sales, financing and securities services, Hong Kong, at Standard Chartered, explains how Asia’s asset growth is highlighting the importance of regional custodians
The search for yield is bringing more global asset managers to Asia, even as the local industry is growing quickly. Global investment houses and local funds are seeking to invest in Asian assets on behalf of global and regional asset owners to gain access to the growth opportunities there. Many of these institutions are discovering that Asia’s markets are more easily navigated in partnership with a custodian bank that specialises in the region.
Resilience in diversity
In recent years, the focus on APAC assets has intensified. Global assets under management (AuM) crossed the US $100 trillion mark in 2020, and between 2009 and 2019, AuM in Asia, excluding Japan and Australia, posted a ten-year average growth of 16 per cent, against 7 per cent and 6 per cent in North America and Europe respectively. China was the main driver. That trend looks set to continue.
Despite a couple of difficult years for China, the region’s lodestone, its medium and long-term prospects remain positive — given the size of its internal market and the still-rising prosperity of its middle classes. The diversity and strength of regional economies beyond China bodes well for Asia’s resilience, bolstering its appeal to global investors.
At the same time, asset owners are no longer predominantly invested in just the US or Europe; there is a growing demand for regional asset managers focused on Asia, something that has been encouraged by the region’s regulators. Key Asian markets have eased market entry requirements and launched various schemes to support their local industry.
New vehicles such as Hong Kong’s open-ended fund company (OFC) and Singapore’s variable capital company (VCC) have made it easier for fund managers to establish local fund structures, preserve client confidentiality and access grants and incentives. By June this year Singapore had registered 590 VCCs, despite the vehicle type only being established in 2020.
Managing the complexity of legacy
Asia’s diversity might be a source of economic resilience, but it also poses an administrative challenge for investors and asset managers. While local custodian banks exist, they may only service plain vanilla funds with primary exposure to a single market. On the other hand, whilst also servicing domestic managers effectively, regional custodian banks are more suited to providing solutions to manage the complexity that global asset managers face, through a strong regional footprint, advanced reporting and multi-faceted service capabilities.
Some of Asia’s biggest asset owners tend to be national in nature and perspective. Asia’s insurance industry, for instance, evolved at a country-by-country level.
While regional insurers have emerged as a result of cross-border acquisitions, their portfolio companies usually remain quite separate, with their own management teams, technology stacks, operational flows, fund administrators and custodians.
This creates a web of complexity for custodians in Asia. Insurers’ legacy companies have their own individual systems that interact with each other via improvised technological fixes, in order to achieve reconciliations. Standard Chartered’s experts can work with such insurers to mitigate the latency and risk of inherent errors to this kind of arrangement.
Standard Chartered, as a regional custodian, has spent time with clients in the region to understand Asia-specific challenges, looking at how it can leverage its focus on innovation and data to drive more efficient operational and reporting processes. The strength of its solutions is derived from its physical presence in these markets.
Its teams have extensive local knowledge and experience, often fostered through industry working groups and continuous engagement with Asia’s regulators, asset owners and managers. This also allows regional custodians to share local trends and insights with their clients. Standard Chartered’s organisational structure is designed to give a local, regional and global view.
Its strategic investments are also aligned to service regional relationships and offer flexibility and interoperability in servicing its clients’ operating models.
This includes its regional custody infrastructure, which gives its clients a real-time update of their holdings across markets via a shared ledger concept.
Additionally, its data strategy focuses on providing clients with a suitable channel of choice to enhance data quality and connectivity – channels such as application programming interfaces, chatbots and more.
Understanding Asia’s regulators
Asia’s regulatory environment is another source of complexity for global funds entering the region. While they may have a good understanding of the regulators in their home country, getting to grips with their counterparts elsewhere can be time consuming. Each regulator operates independently, and each market has its own nuances – Taiwan is very different to Korea, which in turn is very different to the Philippines.
This is where Asia specialists can help — leveraging decades of experience for the countries in question. As a pioneering custodian bank in Singapore, with more than 80 years of custody presence, Standard Chartered has had a unique vantage point to understand the evolution of Asia’s most important markets – and help its clients navigate through it.
Custodian banks with a longstanding regional footprint can illuminate the current regulatory context to clients and assist with administrative processes, for instance by pre-populating documentation.
Regional specialists are also able to foresee and even shape how regulations will change. For example, the COVID-19 pandemic made exchanging physical signatures very difficult due to social distancing rules.
Through its existing relationship with the Taiwanese regulator, Standard Chartered advocated for e-signatures to be accepted in local documentations. Being on the ground, and having a strong market presence, enables regional custodians to advocate for clients more effectively.
Such relationships don’t just help surmount regulatory hurdles, they also make it possible to perceive opportunities at an early stage. Standard Chartered was recently appointed custodian for Singapore’s first authorised VCC T+0 money market fund by iFAST, a demonstration of its long-standing partnership with iFAST in Asia and the expertise of Standard Chartered’s financing and securities services business.
Asian markets are rapidly evolving, with changes that have direct implications for foreign investors’ market access. By partnering with institutions that have a deep-rooted understanding of the region and a strong, continent-spanning physical presence, global investors entering Asia can accelerate their plans and gain exposure to the region’s tremendous growth potential.
