Fund distribution: looking at Africa, Latin America and Asia

2017 has seen many markets make a comeback. Meanwhile, prospects have been boosted by the resumption of worldwide growth and the weakness of the US dollar. Emerging nations are entering an era that favours them. These markets will present fund managers with some excellent opportunities in the near future. With the ALFI Global Distribution Conference in full swing, we’re having a look at the future perspectives of fund distribution brought by Africa, Latin America and Asia.

Africa’s fund distribution is transforming

African economies have embarked on the path to diversification. Raw materials and export sectors are now supreme, enabling the continent to speed up its structural reforms. Case in point: the majority of foreign investment – rising continually – is now aimed at projects in the service sector.

Africa’s fund-distribution landscape is dominated by large banks. For as long as the continent’s economic conditions favour a tradition of saving, the pension-fund and insurance market is expected to grow, except South Africa. While banks remain the biggest suppliers of funds, the growth rate of their assets over the next few years is predicted to be lower than that of assets in other sectors. This should benefit new businesses and structural reforms.

Within Africa, the fund and wealth-management industry is in African hands. It is through acquisitions and partnerships that foreign stakeholders are able to break into domestic markets. This is a real godsend for local distributors, as they can legitimately promote their investment strategies on international markets while distributing foreign funds at home.

As far as investment vehicles are concerned, pension funds have seen rapid and constant growth since 2006. This trend should continue in the years to come, despite the current penetration rate reaching barely 3.5% of GDP. However, this is expected to change once the African economies mature and private pension schemes become more widespread.

Market diversification has led to the emergence of new platforms and direct sales channels. This is true for local banks and their asset-management branches, which are increasingly going paperless with the advent of mobile services.

Africa has dived head-first into digitisation. If current trends continue, mobile services are set to surpass traditional channels. This groundswell will undoubtedly make the financial sector more efficient. It will also benefit a population that uses mobile banking a lot, e.g. Kenya and South Africa. The emergence of these solutions not only grants distributors easy access to a large number of clients, but also helps them save costs.

Latin America: asset diversification going global

With more than 300 bn USD of new assets under management (released for voluntary disclosure programmes), Latin America urgently needs an investment strategy. For instance, asset-management stakeholders in Brazil are struggling to respond to new clients’ demands due to a lack of investment vehicles. Owing to a combination of rapid wealth accumulation and the emergence of a new generation of clients, both local and international businesses need a favourable environment. Meanwhile, a new investment culture – based on regulated and/or closed-end funds – should be nurtured. Latin America’s largest economies (e.g. Brazil, Mexico, Argentina, Colombia, Chile and Peru) are on the right track. These markets are currently working together on a regional capital markets initiative. It aims at seizing the increasing demand for long-term financing and regional investment strategies.

The overall regional fund distribution model is one of the possibilities for giving local investors international strategies to bridge the gap in asset categories. Hence, offering diversification. At the head of the pack, Argentina has embarked on a reform of its capital market to make it easier for capital to flow internationally throughout regulated investment vehicles. If this shake-up bears fruit, Argentine investors can expect to unleash an investment capacity that could reach approximately 500 billion USD, which is the estimated total asset under management hold overseas.

Asia is consolidating

Asia is a vast continent, and the trends there vary greatly. Yet, Singapore, Taiwan and Hong Kong share UCITS in common. Conversely, banks, independent consultants and other family offices hold the lion’s share on relatively institutional markets, although the (U)HNWI segment is gradually taking shape.

In terms of clients, China is a huge wealth pool of (ultra) high-net-worth individuals. This segment could radically change the current face of distribution:

• A multifold increase in distribution through private banking. The entire industry should aim for greater sophistication in order to meet the pressing needs of these (U)HNWIs, who are hungry for returns.
• Internationalisation: for as long as China’s development continues unabated and its market has not yet reached sophistication, its population will secure their investments abroad by investing through family offices in Hong Kong and Singapore.
• Creating an ecosystem that is more favourable to asset management. The country is taking numerous initiatives to stimulate the fund industry to respond to these clients’ needs. International stakeholders could use such an ecosystem to set up in China, thus cementing its influence.

China stands out due to its size, and tends to set the tone for the group of less sophisticated markets, e.g. Malaysia and Vietnam. While banks remain essential for classic fund distribution, digital distribution platforms are exploding; the ubiquitous Alibaba is proof of this new shift.

In addition, faced with an ageing population, China is banking on the pension fund. Indeed, it is a safety net for ordinary people, and one that could bring returns and attract asset managers in the future.

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