Realising potential, together:
The future of the Singapore funds ecosystem
As a financial hub with rising fund flows to the city-state, Singapore’s fund management industry faces a bright future, with the potential of becoming Asia’s most successful regional funds hub. But realising this potential will require market participants to overcome some considerable challenges.
Keeping up with the pace of change in the demand for digital services delivery is one such challenge. The speed of which businesses globally have digitalised their operations in recent years has been astounding—with the pandemic as a crucial driver, particularly in the Asia-Pacific region. A McKinsey global survey showed the pandemic accelerated the region’s adoption of digitised products and services by more than a decade, compared to a global average of seven years.
The pandemic also drove a change in mindset. Digitalisation pre-pandemic was primarily about cost savings, but by 2020 that had shifted—in part to ensure a competitive advantage that included meeting evolving client needs for digital engagement.
These trends have driven rapid change in the funds industry region-wide, not least in Singapore. Market players will need to adjust to rapidly evolving client demand, accelerate the evolution of products and operating models, and collaborate to provide access to digital assets and interoperable platforms.
A dash to cash? That depends…
The first step must be to meet evolving client needs to capitalise on fund inflows. And with the pace of change in recent years, providers need a variety of products to support different investor segments.
For instance, for the past two years, cash solutions have proven crucial, marking a shift from the period to 2021 when private assets were attracting funds. But that doesn’t apply to all subsectors: high-net-worth investors (HNWI) haven’t followed this trend as strongly, and retain an affinity for private assets—one reason the dash to cash isn’t as pronounced in Singapore, which has seen a boom in HNWI fund inflows.
Institutional clients prefer investing into multi-asset products and those with features focused on capital preservation, while private-wealth clients seek products with innovative distribution features.
Recent years have also seen a flurry of interest in digital assets—from cryptocurrencies to central bank digital currencies. While it’s difficult to discern where this is headed, sentiment has for now cooled compared to early 2022.
While so, an area of developing interest is asset tokenisation. This approach brings efficiency, transparency and lower costs; it allows for more innovative products and ensures customisation of funds to cater to evolving and differing investor needs; and it offers complete visibility of the underlying assets, meaning risk can be recalculated in real time. Moreover, as a single source, tokenisation flattens the reconciliation process and disintermediates the custodian function. Indeed, that role is likely to undergo significant change over the next two decades as distributed ledger technology (DLT) becomes more widespread. That said, investors are still evaluating the potential of this avenue.
One size won’t fit all
Tapping the potential of innovations like the tokenisation of funds, however, will require industry-wide collaboration, including between asset owners, asset managers and service providers. As such, the increasing development of digital sandboxes to promote innovation and experimentation remains crucial to the growth in this field.
Although the pandemic has accelerated digitalisation, it is not an evenly distributed phenomenon. Technological extremes are prevalent—some clients want information by fax, others are seeking to invest easily in crypto funds, while many more are in-between.
Indeed, when it comes to digital innovation and adoption, maturity levels vary within the industry—not least due to firms’ different risk appetites and business models. That variance likely explains why a straw poll at a recent event hosted by Standard Chartered saw Singapore’s asset management industry score just 6.2 out of 10 for digital innovation and transformation.
One important route to success is deploying technology in areas like customer interaction to create a better digital experience. But it is also crucial to recognise that enhancing the digital space is a continuous process for all players—and that success requires making the optimal use of an organisation’s data. The right approach brings the opportunity for each business to focus on what’s best for it, including considering distributing offerings through agents, who can interact seamlessly with customers.
For now, though, a seamless experience is hard to deliver. Firms must often piece together different vendor models to create an end-to-end solution. Consensus seemed to be that in the long run DLT will likely dominate, given that it ensures a single source of truth.
Getting the platform right
While the direction of travel is clear, the route to digital transformation requires greater focus from the industry in Singapore to reach its potential. A case in point is data management and technology, where there needs to be greater movement on transformation initiatives both within organisations and across the industry.
A holistic and aligned approach would boost harmonisation and interoperability between digital and traditional assets, as well as across jurisdictions, and would bring economies of scale. Such an approach, however, requires strategic partners.
Also notable is the fundamental importance of data and having the right tools and capabilities to maximise the value that it holds.
From a product perspective, a key challenge is the modes of delivery that can be digitalised—for example, how best to deliver to clients the products they need. That’s often more easily done by collaborating with digital partners, fintech companies and banks that have already invested in digital platforms.
Additionally, on the investment management side, AI and machine learning are important tools that help to empower investment decisions—which reinforces the centrality of data to their operations, including in building the models used to that end.
The future is bright, if hazy
The route into next year remains uncertain with inflation and interest rates staying high, making life difficult for asset managers. But uncertainty breeds positivity, and the fact that players are working together to solve problems is generating positive momentum. It is safe to say that the role of data and digitalisation will remain crucial for the progress of the financial services industry and ultimate success is contingent on an innovative and collaborative approach.
