(i) General situation
As of the end of 2022, the scale of the Asian fund industry was approximately $17.7 trillion, constituting around 17.5% of the global total. In comparison to North America, which accounted for 52.8%, and the European region with 26.6%, the Asian fund industry remained relatively less dominant. However, its growth rate was slightly stronger than the other two regions.
Figure 1 Changes in the size of asset management in the world's three main regions
Sources：KPMG，Preqin，ICI
1. Open-ended funds
According to the Investment Company Institute of America (ICI)[1]，Asia's open-ended funds under management declined slightly in 2022 compared to 2021 due to continued inflation, rising interest rates and risk aversion, breaking the double-digit growth in open-ended funds under management during the 2020 and 2021 epidemics. At the end of 2022, the total size of open-ended funds in Asia will be approximately USD 6.57 trillion.
In terms of the size of open-ended funds under management, according to ICI, Asia's open-ended funds showed a downward trend throughout 2022, with the size of funds under management decreasing in most countries, with the Philippines' open-ended funds under management declining by approximately 41.3%, the highest rate of decline of any region participating in the statistics. Japan, Taiwan, China and Chinese mainland decreased by approximately 15.5%, 11.2% and 7.5%. South Korea and India had the lowest decreases, at 3.0% and 4.0%, respectively.
There is no one major channel that dominates the distribution of open-ended funds. In Chinese mainland and Hong Kong, China, retail bank sales account for the highest share, while in South Korea, securities firms are the main sales channel. According to ICI, Asia's open-ended fund sales for the full year of 2022 were not satisfactory, with funds showing a net outflow trend, which may be related to the low confidence of investors to make redemptions due to the downturn in equity markets in 2022. Among the participating regions, only Taiwan, China and Pakistan recorded net growth.
In terms of the number of open-ended funds, the Asia region had a total of approximately 39,524 open-ended funds at the end of 2022, up 3.8% year-on-year and an increase of 1,451 funds from the end of 2021. There is a general upward trend in the number of funds in the region covered by the data, but growth has slowed compared to 2020.
During interest rate hike cycles and economic volatility, investors prefer multi-asset strategy funds and index ETF funds with lower retracement. Equity index ETF funds in the China-Taiwan market continue to attract investors with diversified stock choices. Fixed-income funds in the Singapore market, on the other hand, saw a contraction in size in the third quarter of 2022 as they were hit by rising interest rates.
Figure 2 Open-ended Fund Size in Major Asian Economies, Excluding FOFs, 2022
Sources：ICI
2. Private equity venture capital funds
Compared to the record-breaking performance in 2020 and 2021, the Asian private equity market performance in 2022 is more somber, with deal volume, exit size and fundraising significantly below 2021 levels. Uncertainties such as economic slowdown and geopolitics have made investors more cautious. According to Bain & Company, Asia-Pacific private equity fund deal volume fell 44% to $1.98 trillion by the end of 2022 from $3.54 trillion in 2021. The number of active investors fell by 2%, the first decline since 2015, with the number of institutional investors dropping by 15%. Fundraising also suffered, with the total amount raised by funds focusing on Asian markets falling by 43% to $105 billion. However, the global and regional flagship funds with strong track records and local presence were less affected.
Figure 3 Asia-Pacific PEVC fundraising, deals and exits fall sharply in 2022
Sources:Bain Consulting，Preqin
In terms of private equity VC fund investments, deal value and volume are on a downward trend throughout 2022. PEVC deal value decreased by 28% year-on-year in Japan, 52% in Southeast Asia, and 25% in India due to lower deal value of individual deals. On the other hand, deal value decreased year-on-year due to a sharp drop in deal volume, down 53% in Greater China and 39% in South Korea. The sharp drop in deal volume in Japan and South Korea was also related to exchange rate fluctuations.
Figure 4 PEVC deal value in Greater China and Southeast Asia plummets by more than 50% in 2022
Sources: Bain & Company, Preqin
In terms of invested projects, the internet and tech track remained the most important investment area in Asia Pacific, accounting for 33% of Asia Pacific PEVC deal value, the lowest level since 2017, mainly due to a decrease in the number of deals in China and India, where internet and tech deal value fell by US $65 billion year-on-year, and inflation, which also had some overall growth and profitability impact on the PEVC industry, and as a result investors have shifted to more defensive sectors with more stable cash flows and lower risk, including high-end manufacturing, the energy sector and natural resources. In the energy sector and natural resources, investments in utilities and renewable energy accounted for 60% of total deal volume, reflecting the fact that ESG criteria have become a priority for investment. The number of deals in utilities and renewable energy increased by 47% year-on-year.
Exits are also on a similar downward trend, with PEVC exits in Asia-Pacific falling by 33% year-on-year to $132 billion in 2022, but performing reasonably well compared to the 2017-2021 average (see Figure 4). Four key factors prevented GPs from selling their assets: a weak macroeconomic environment, significant revaluations in the public markets, fewer exit channels due to fewer IPOs, and deteriorating portfolio performance. IPOs remained the main exit channel, accounting for 45% of exits. Equity transfers are the second largest channel at 33%, unchanged from 2021. Exit sizes fell sharply in all Asian markets (see Figure 5). Exit sizes plummeted in South Korea and Japan, mainly due to exchange rate depreciation that weakened company performance and reduced GPs' interest in exits. Sluggish stock markets add to the gloomy outlook for exits. South Korea's KOSPI is down nearly 20% in 2022. China exits fell to their lowest level in three years. India's exit size is down 32%.
Figure 5 Exit size shrinks in all major economies in the Asian region in 2022
Sources: Bain Consulting, Preqin
Asia-Pacific “dry powder” has grown to $676 billion, with Asia-Pacific-focused fund returns remaining strong and private equity continuing to outperform the public markets. Although more than 50% of fund managers believe that the economic downturn will continue until 2024, but institutional investors in the Asia-Pacific region's economic recovery remains confident. In 2022, the U.S. large-scale private equity funds invested in Asia accounted for an increase of 0.7 percentage points, of which the proportion of investment in Chinese mainland and Hong Kong, China, increased by 0.3 percentage points.
(ii) Developments in the fund industry in major economies
1. Chinese mainland
（1）Public funds
By the end of 2022, there were 156 public fund managers in Chinese mainland. There were a total of 10,576 public funds, an increase of 13.87% from the end of 2021; the asset size of public funds was RMB 26.03 trillion, an increase of 1.83% from the end of 2021, equivalent to 21.51% of the total GDP of that year, which is an important part of China's macroeconomy, finance and capital market. Since 2011, when the data on fund liquidity can be traced, public equity funds have maintained 11 years of net fund inflows, with an average annual net inflow of more than one trillion yuan.
As of the end of 2022, equity funds were affected by the volatility of the underlying market, and their share fell slightly to 29% in 2022; money market funds fell from a high of 58% in 2018 to 40% in 2022; bond funds accounted for 16% in 2022; and QDII funds accounted for 1.3% in 2022.
Figure 6 Share of net asset value of each type of public fund at the end of 2022
Source: China Securities Regulatory Commission, China Securities Investment Funds Association
Overall, public funds in Chinese mainland will have the following characteristics in 2022: (1) The concentration of public fund management scale has decreased compared with 2021, but the head effect is still obvious, and the concentration of the top 10 public fund managers is 40.1%. The concentration of equity funds is the highest, with the management scale of the top 10 accounting for 63.1% of all equity funds as of the end of 2022. (2) The proportion of individual accounts in the effective accounts of public funds is high. As of the end of 2022, the number of effective accounts (referring to accounts holding fund shares as of the point of time of statistics) of public funds was 1,522 million, of which only 659,300 were institutional accounts, and this structural feature has been maintained in the past 10 years or so. (3) Affected by the volatility of the underlying market, the size of equity assets held by public funds declined in 2022. (4) In 2022, public equity funds continue to enrich their product lines, launching innovative products such as guaranteed rental housing REITs, hybrid valuation method bond funds, CSI 1000 ETF and carbon neutral ETF.
One of the major breakthroughs in China's pension system in 2022 was the implementation of the third-pillar pension system. As at the end of 2022, the number of participants in personal pensions was 19.54 million, the number of contributors was 6.13 million, and the total amount of contributions was RMB 14.2 billion. Third-pillar pensions are mainly invested in public funds by account owners on their own, and as at the end of 2022, there were 133 Y-class shares of pension target funds set up and operating as personal pension funds, with a total size of 2.006 billion yuan in Y-class shares.
In July 2023, the public fund fee rate adjustment policy was released, the management fee rate and custodian fee rate of newly issued active equity funds were uniformly reduced to no more than 1.2% and 0.2% respectively. In August 2023, 20 floating rate funds in three categories, namely, those linked to fund size, those linked to fund performance and those linked to investor's holding time, were approved. In October, the first performance-linked floating fee rate public fund product was officially put on sale, and several headline public fund managers made announcements that they would reduce the management fee rate and custodian fee rate of some of their ETF products. In addition to the public fund fee rate, the adjustment policy also includes lowering the commission rate of public fund securities transactions and standardising the charges of public fund sales. This initiative is not only in line with the interests of investors, but also conducive to the long-term healthy development of the public fund industry itself.
(2) Private equity funds
By the end of 2022, there were 31,523 private equity investment funds in Chinese mainland, with a fund size of RMB 11.11 trillion. 3,331 new private equity investment funds were filed in the year of 2022, with a filed fund size of RMB 244.835 billion, accounting for 34.71% of the newly filed private equity funds of all types in that year. The average size of private equity investment funds was about RMB 352 million. In terms of the organisational form of private equity funds, the number and size of partnership-type funds accounted for the highest proportion, at 83.64% and 81.25% respectively. In terms of the average size of funds of different organisational forms, the average size of funds of the corporate type was the largest, amounting to 2.491 billion yuan.
As at the end of 2022, among the various types of investors in private equity investment funds, the number of resident investors accounted for 73.73%, but the proportion of related capital was only 8.12%; the number of corporate investors accounted for 21.27%, and the proportion of related capital was 61.34%; and the number of investors in various types of asset management plans accounted for 4.96%, and the proportion of related capital was 27.58%.
Figure 7 Percentage distribution of investor contributions to private equity funds at the end of 2022
Source: China Securities Investment Funds Association
By the end of 2022, private equity funds had invested the largest amount in the equity of domestic unlisted and unquoted companies, totalling 5.79 trillion yuan, accounting for 50.10%t of the size of the various types of assets held; 2.56 trillion yuan, or 22.16%, was invested in asset management plans; and 823.384 billion yuan, or 7.13%, was invested in cash-based assets.
Figure 8 Distribution of private equity funds by actual direction of investment at the end of 2022
Source: China Securities Investment Funds Association
In 2022, there were 7,078 new exit cases in the year, 10,034 exit actions occurred, and RMB 439.606 billion in principal was exited. Among them, there are 3,355 cases of complete withdrawal, with 4,271 withdrawals and the principal amount withdrawn is RMB 301.684 billion. Exit methods mainly include "agreement transfer", "enterprise buyback", "dividend distribution by invested enterprises", "repayment by financiers" and "New Third Board listing", with the above methods accounting for 86.65% of the total number of exits.
(3) Venture capital funds
By the end of 2022, there were 19,353 venture capital funds in Chinese mainland, with a fund size of RMB 2.90 trillion, and the average size of each fund was about RMB 150 million. Venture capital funds filed in that year were generally smaller in size, with the size of individual funds mainly concentrated in the range of RMB 10 million to RMB 20 million (not included) and RMB 20 million to RMB 50 million (not included). In terms of the organisational form of Venture Capital Funds, the number and size of partnership-type funds were the largest, with RMB 18,389 and RMB 2.67 trillion respectively, accounting for 95.02% and 91.88% of the total respectively.
By the end of 2022, among the various types of investors in venture capital funds, the number of resident investors accounted for 66.50%, with 21.00% of the relevant funds; the number of corporate investors accounted for 26.67%, with 48.54% of the relevant funds; and the number of investors in various types of asset management plans accounted for 6.60 %, with 27.39% of the relevant funds.
Figure 9 Distribution of the proportion of contributions from different types of investors in venture capital funds at the end of 2022
Source: China Securities Investment Funds Association
In terms of quantity, 28.89% of venture capital funds are 100% funded by institutional investors, with the size of such funds accounting for 55.93%; in terms of the size of a single fund, the average size of a fund that is 100% funded by institutional investors amounts to RMB 290 million. In terms of specific investment directions, the largest size of assets invested in the equity of domestic unlisted and unquoted companies amounted to RMB 1,695.097 billion, accounting for 56.11% of the size of all types of assets invested.
Figure 10 Distribution of actual investment direction of venture capital funds at the end of 2022
Source: China Securities Investment Funds Association
(4) Private equity investment funds
By the end of 2022, there were 88,721 self-issued private securities investment funds in operation, with a total size of RMB 5.04 trillion, and the average size of a single fund was RMB 56.7808 million. 24,989 self-issued private securities investment funds were filed by the Fund Industry Association in 2022, and the initial size of the newly filed funds was RMB 191.406 billion. The phenomenon of "large number of funds, small average size; high proportion of small funds, low proportion of large funds" is still prominent in private securities investment funds. In terms of product types, equity funds and hybrid funds are the most important components of private securities investment funds (excluding FOFs), accounting for 36.14% and 53.41% respectively. In terms of the distribution of fund organisations, contractual private securities investment funds accounted for the absolute majority in terms of both number and size.
As at the end of 2022, among the various types of investors in private securities investment funds, the number of residents accounted for 83.97% of the total, with 44.13% of the relevant funds; the number of various types of management plans accounted for 12.83% of the total, with 41.81% of the relevant funds; and the number of enterprises accounted for 3.15% of the total, with 13.47% of the relevant funds.
Figure 11 Proportionate distribution of investment size of each type of investor in private equity investment funds at the end of 2022
Source: China Securities Investment Funds Association
At the end of 2022, approximately 50.22% of private securities investment funds were funded exclusively by residents, and approximately 25.38% of private securities investment funds were funded exclusively by institutional investors, with the share of institutional investor funding rising slightly by 0.75% compared to 2021.
From the specific investment direction of private securities investment funds, the scale of investment in domestic equities is the largest, with a total investment scale of 1.99 trillion yuan, accounting for 37.27% of the scale of various types of assets held; followed by asset management plans, with a total investment scale of 1.43 trillion yuan, accounting for 26.69%.
Figure 12 Private equity investment fund investments at the end of 2022
Source: China Securities Investment Funds Association
In 2022, the scale of Chinese mainland's private equity venture capital funds investing in emerging technology industries increased significantly, of which the semiconductor industry had the largest scale of new investment; the concept of green investment is getting more and more attention, with nearly 30% of equity institutions investing in green industries.
2. Japan
According to the Japan Investment Trust Association, by the end of 2022, the total size of funds in Japan will reach $2.04 trillion, with a ratio of approximately 48.45% to GDP over the same period. The total size of funds is the eighth largest in the world, accounting for 4.3% of residents' assets, which is still insufficient compared with developed countries in Europe and the United States. Among them, the size of open-ended public funds is about $1.20 trillion, accounting for 59.4% of its total fund size, and the size of private equity funds is about $0.82 trillion, accounting for 40.6%.
Japan's asset management institutions are mainly divided into three categories: brokerage firms, banks and investment trusts, of which the top three public fund management companies are all brokerage firms (Nomura, Daiwa and Nikko, with assets under management of JPY22 trillion, JPY14 trillion and JPY10 trillion, respectively, as of the end of 2022). The head public fund companies have a concentrated share of the ETF market, achieving high growth in management scale against the backdrop of a high increase in the size of ETF products.
According to research data from Guotai Junan, the growth of Japan's public investment trust industry in the last 10 years has been mainly driven by ETFs, with trust banks being the main holders of ETFs, executing the central bank's directive to purchase ETFs, and holding ETFs on behalf of the central bank. The growth in the size of ETFs contributes 67.5% of the growth in the total size of public investment trusts in the period from 2013 to in 2022. The ETFs are mainly held by trust banks in order to execute the central bank's ETF purchase program to hold ETFs on behalf of the central bank.
As Japan enters an era of low interest rates, medium- and long-term government bond funds have disappeared after interest rates turned negative in 2016. As of the end of 2022, among fixed-income funds, only MRF funds (Money Reserve Funds) and long-term bond funds remain in the Japanese market. In 2000, the size of equity funds in Japan was JPY 14.6 trillion and bond funds were JPY 34.8 trillion; in 2022, equity funds grew to JPY 142.7 trillion, while the size of bond funds shrank to JPY 14.5 trillion yen.
3. Singapore
According to MAS data, Singapore's asset under management will reach S$5.4 trillion by the end of 2022, with 78% of funds coming from offshore and 90$ reinvested offshore, and a total of 1,108 fund managers registered in Singapore, including 425 private equity venture capital structures. About half of the world's top 50 alternative asset managers and the top 5 global hedge fund managers have set up offices in Singapore, and these managers see Singapore as an Asia-Pacific financial hub.
Singapore's position as one of the world's leading domiciles for private equity funds is due to its flexibility in recognizing fund organizational structures. Various fund structures such as Variable Capital Companies (VCCs) and Limited Partnerships are available for alternative fund managers to use as investor-facing pooled vehicles and investment master funds. In particular, VCCs can be used for both open-ended funds with liquid strategies and closed-ended private funds. As a corporate structure, VCCs can benefit from Singapore's extensive Double Taxation Agreement (DTA) network for investments in the region. There are currently around 800 VCC structured fund managers in Singapore.
Private credit funds are the blue ocean of Singapore's alternative investment market. Globally, private credit funds are more developed in Europe and the US, with headline organizations including Blackstone and Carlyle, and the size of private credit funds has nearly tripled over the past 10 years, from US$ 342 billion in December 2011 to US$ 1.4 trillion in June 2022. The number of private credit fund managers has also doubled, from 104 in 2010 to 222 in 2022. Correspondingly, the total amount of capital raised annually has increased from US$ 44.6 billion in 2010 to nearly US$ 210 billion by the end of 2022. But private credit funds are still in their infancy for Asia, and Singapore is one of the pioneers in the region.
4. Hong Kong, China
Hong Kong, China is an integral part of the global financial system and plays an important role in communication between Chinese mainland and the world. In 2022, the Hong Kong Securities and Futures Commission (SFC) registered and filed a total of 175 fund products, 69 open-ended fund managers were incorporated in Hong Kong, China and there were a total of 2,939 funds in Hong Kong's stock. As of 31 March 2023, there are 131 open-ended fund managers with 913 funds registered in Hong Kong, China, recording a net inflow of US $7,859 million from March 2022 to March 2023, with a stock of assets under management of approximately US $174.5 billion. Hong Kong, China is the largest private equity hub in Asia outside of Chinese mainland, with total private equity funds under management of about US $208 billion at the end of 2022 and about 630 private equity firms operating in Hong Kong, China.
For the Exchange Fund managed by the HKMA, 2022 was the only year in nearly half a century in which bonds, equities and major non-US dollar currency exchanges all recorded negative returns at the same time, due to the exceptionally volatile investment environment in Hong Kong, China. The Hong Kong, China, stock market suffered a sharp decline in 2022, with the Hang Seng Index ending the year at 19,781 points, 15.5% lower year-on-year and the third consecutive year of decline. The Exchange Fund recorded an overall negative investment return of 4.5%, with the total nominal value of outstanding Exchange Fund paper and debt amounting to approximately HK$ 1207.5 billion at the end of 2022.
In July 2022, the Mainland-Hong Kong ETF Connect was launched, greatly expanding the scope of fund interconnection and increasing north-south trading volume.
5.Vietnam
Vietnam's economy has been surging in recent years, with real GDP growth remaining stable at around 6% since 2010, making it one of the fastest growing economies in Southeast Asia. The Ho Chi Minh Index has risen by more than 130% between 2020 and 2022, making it the best performing index among the major Southeast Asian stock market indices, and its capital market is increasingly attracting attention from international investors. The Vietnam Stock Exchange (VSE) is a member of the ASEAN Exchanges and has a market capitalization of about US$ 170.2 billion by the end of 2022.
Vietnam's financial sector is organized on a separate operation and regulatory basis, with the banking, securities and insurance sectors under the supervision and management of different government departments. Among them, the State Securities Commission (SSC) is subordinate to the Ministry of Finance and is responsible for exercising state supervision over securities and the securities market. The National Financial Supervisory Commission (NFSC) assists the Prime Minister in analyzing and forecasting financial markets, macroeconomics and economic policies, and coordinates the supervision of the national financial markets (banking, securities and insurance). According to the NFSC, as of the end of 2022, there were 78 securities companies and 47 fund management companies in Vietnam's capital market. By the end of the first quarter of 2023, the total market capitalization of Vietnam's stock market totalled US$ 233.28 billion, and the size of government and corporate debt was US$ 78.16 billion, with the combined size of stock and debt accounting for approximately 77% of GDP.
In recent years, the net value scale of fund products in Vietnam has grown in line with market fluctuations. The fund industry in Vietnam has developed late, with the first ETF traded and listed on the Hanoi Stock Exchange only in 2014, from SSI Asset Management. According to the State Securities Commission of Vietnam, as of the end of the first quarter of 2023, a total of 99 fund products in five categories existed in the Vietnamese stock market. Of these, 52, 2, 32, 12 and 1 are open-ended funds, closed-ended funds, private equity funds, ETF index funds and real estate funds, respectively. The combined net size of fund products reached US$ 3,724 million in 2021, at an all-time high, before contracting in 2022 in line with market conditions. Currently, the types and number of fund products in Vietnam are still small, and there is much room for the Vietnamese fund industry to improve in the future.
6. Indonesia
With a population of 270 million, Indonesia ranks as the most populous country in Southeast Asia and the fourth most populous country in the world, and with a relatively youthful demographic structure, Indonesia may be poised to enjoy a huge demographic dividend in the coming decades.
Currently, Indonesia's financial market is mainly governed by the related regulation of the Law No. 8 on Capital Markets of 1995 and No. 21 Financial Institutions of 2011, and is under the jurisdiction of four major regulators: the Ministry of Finance, Bank Indonesia, the Financial Services Authority (FSA) and the Deposit Insurance Corporation (DIC). Of these, the Indonesian Financial Services Authority (FSA) exercises regulatory responsibility for financial services activities in the banking, capital market and non-banking financial sectors.
According to the Indonesian Financial Services Authority (AFSA), in 2022, the size of the total market capitalization of the Indonesian stock exchange was US$ 610.3 billion, ranking second in ASEAN stock exchanges, with 1.31 million daily trades, making it the first in ASEAN countries in terms of trading activity. There were a total of 824 listed companies in Indonesia in 2022, with a total market capitalization of approximately US$ 600 billion, and 59 companies carried out stock exchange IPOs, and the number of capital market investors increased to 10.3 million that year, a 10-fold increase from 2017, with 55% domestic Indonesian investors, 45% foreign investors, and 50% each of institutional and individual investors. Deloitte Consulting said Indonesia's IPO fundraising in the first half of 2023 accounted for 70% of total IPO fundraising in Southeast Asia.
II. Characteristics of the Fund Industry in Asia
(i) Decline in the size of asset management
Since 2022, global asset management growth has weakened and shrunk by nearly US$10 trillion due to the spread of epidemics, currency depreciation, geopolitics and high inflation, and Asia has not been an exception. Open-ended funds under management (OEFM) in Asia declined slightly in 2022 compared to 2021, breaking a two-year streak of double-digit OEFM growth in 2020 and 2021. In 2022, private equity fund deal volume, exit sizes and fundraising in Asian markets are all significantly below 2021 levels. By the end of 2022, Asia-Pacific private equity fund deal value falls to $1.98 trillion from $3.54 trillion in 2021, the number of active investors falls by 2% and the number of institutional investors falls by 15%. Both open-ended funds and private equity funds under management in major economies show varying degrees of decline.
(ii) Southeast Asian markets favoured by foreign investors after the epidemic
Major countries in Southeast Asia have resumed economic normalization after the epidemic, with appreciating exchange rates, slowing GDP growth, retail growth, and a revival of the tourism industry, which has helped to mitigate inflation and promote economic growth, and has sustained its rapid development in recent years. By the end of 2022, the ASEAN stock exchanges (Singapore, Indonesia, Thailand, Malaysia, the Philippines, and Vietnam stock exchanges) together had a total market capitalization of about US$ 2.6 trillion, ranking 12th among the world's major stock exchanges.
Southeast Asia attracts 10% of the world's foreign direct investment (FDI), mainly due to the fact that countries such as Singapore, Malaysia and Thailand all have favorable tax breaks for foreign investors and are more liberal with foreign ownership. In addition to this, Southeast Asian e-commerce is a blue ocean in the eyes of investors from various countries, with e-commerce platforms such as Shopee and online car rental software such as Grab and Gojek, and the total market capitalization of the e-commerce industry in the six Southeast Asian countries (Singapore, Thailand, Indonesia, Malaysia, Vietnam, and the Philippines) is more than US$ 137 billion in 2022. According to Bain & Company, PEVC deal volume in Southeast Asia declined by 52% in 2022, but this improved in 2023, with Singapore & Indonesia attracting more than 80% of the investment capital.
After China's rising labor costs, Vietnam, Indonesia and other emerging economies in Southeast Asia seeking to become China's second largest manufacturing country, Southeast Asia for Samsung, Canon, Honda, Toyota and other large global companies are quite attractive, South Korea's business community on Vietnam's processing and manufacturing industry is quite high, that it has the advantage of labor resources at the same time, the country's political situation is stable, and economic integration into the international degree is high. However, Southeast Asia is inexperienced in high-end manufacturing, and despite attracting more foreign investment, the industry chain is still dominated by the middle and low-end.
(iii) ESG becomes a necessary consideration when investing
In 2022, China's green financial policies developed considerably. In April 2022, the Securities and Futures Commission ("SFC") issued the "Carbon Financial Products" standard, which put forward normative requirements for the classification of carbon financial products and the implementation of carbon financial products. In July 2022, the China Green Bond Standards Committee issued the China Green Bond Principles, which preliminarily established a unified green bond standard on a par with the international standards. the year also witnessed the promulgation of corporate standards, including Technical Guidelines for the Preparation of ESG Reports of Listed Companies, Guidelines for Corporate ESG Evaluation, Guidelines for Corporate ESG Disclosure, General Rules for Corporate ESG Disclosure, General Rules for Corporate ESG Evaluation, and Specification for Corporate ESG Evaluation. The Hong Kong Stock Exchange (HKEx) has issued the Guidelines on Climate Disclosure, which aim to help listed companies meet the recommended requirements of the Task Force on Climate-related Financial Disclosure (TCFD), and that companies in the relevant sectors must meet these requirements by 2025. In Taiwan, China, the Financial Supervisory Commission (FSC) formally released the Pathway Map for the Sustainability of Listed Companies in March 2022, which requires all listed companies to complete the disclosure of their greenhouse gas emission inventories by 2027 and to verify them by 2029.
The biggest ESG challenge for Asian markets, and global markets in general, is how to maintain profitability during the transitional transition. In order not to lose company performance, internal corporate governance and portfolio management will need to undergo significant adjustments to ensure a smooth transition to a sustainable future. The transition period will need to last for some time and may result in losses from a short-term perspective; however, from a long-term perspective, sustainable investments will enhance the robustness of the portfolio.
Asian private equity funds have begun to pay attention to ESG investments and have made positive progress in green and sustainable investment directions. According to the China Securities Investment Funds Association, as of the end of 2022, there were 1,357 public and private equity funds with green, sustainable, ESG and other investment directions in Chinese mainland, with a combined size of approximately RMB 906.5 billion. Among them, there are 296 public equity funds with a management scale of over RMB 403.7 billion, and 1,061 private equity funds with a management scale of RMB 502.8 billion, of which the scale of equity venture capital funds accounts for more than 90%, and the power of green and sustainable investment has initially emerged.
III. Prospects and outlook of the Fund Industry in Asia
Asia has become the world's second largest private equity fund gathering place. In 2023 May, the International Monetary Fund released the Economic Outlook for Asia and the Pacific, the report predicts that in 2023 Asia and the Pacific region will contribute 70% of the global economic growth, of which China and India contribute 50%. Thanks to the sustained economic growth in Asia and the increase in the global contribution rate, coupled with a large population size, the concept of globalisation and the promotion of openness policies, Asia's Internet, technology and other emerging industries, manufacturing and other traditional industries, as well as the Asian financial markets, are to the global hedge funds and PE / VC show a strong attraction. Especially like Chinese mainland, Hong Kong, China, Singapore, India and other places to become a hot spot for capital and investment.
China's share in the size of the fund industry in Asia has been steadily increasing. Review the development of the fund industry in the past decade, China's public and private equity funds showed explosive growth, ten years of growth of nearly 9 times; the contribution rate of the fund industry in Asia has also increased significantly, as of the end of 2022, China's open-ended funds accounted for more than one-third of the major economies in Asia, nearly ten years to enhance more than 20 percentage points. In the future, with the further release of China's economic development momentum, the fund industry will provide investors with a variety of investment opportunities and strategic choices, and the opening up of the capital market also provides channels and paths for the industry's global allocation. The accumulation of residents' wealth has led to an increasingly strong demand for asset preservation and appreciation, creating a good opportunity for the development of the fund industry, while also posing a challenge for asset management institutions to meet diversified and personalised demands.
Low-risk and stable investment products are more popular. With the gradual dissipation of the Covid-19 epidemic, the fund side is still concerned about the uncertainty of future expectations, and has shown a preference for low-risk and stable assets in its investment choices. In the case of Chinese mainland, in 2022, the incremental household deposits accounted for 15.8% of the average balance during the year, and the net inflow of public funds accounted for 6.5% of the average asset size during the year; among the net inflow of funds from public funds, the money funds and bond funds together accounted for 86% of the total net inflow of funds. Looking at the situation in 2023, public fund net inflow of funds is still mainly composed of money funds and bond funds. Robustness may be the main consideration for investment allocation for a long time to come.
Hard technology, artificial intelligence, and green and low-carbon sector investments are getting more and more attention. Technological upgrading, industrial replacement is the focus of the development of major regions in Asia, the fund industry investment field also follow the development trend, especially private equity funds, become an important source of funds in the field of hard science and technology, artificial intelligence, green and low-carbon. The acceleration of economic and social structural transformation and changes in the policy environment have led to the emergence of new investment areas, such as science and technology and low-carbon industries, which can provide better investment and financing co-operation opportunities and generate excessive yields, and are one of the new focuses of investment in the fund industry.
[1] The Investment Company Institute (ICI) data on open-ended funds in Asia do not include FOF and cover China, Taiwan, China,India,Japan, South Korea, Pakistan and the Philippines.
【This article is AFCA Working Paper No. 2024-18/181】
Expert Biography
Zhang Xuanchuan is the Asian Financial Think Tank Deputy Director Fellow and Director of Research at the Asset Management Association of China. He graduated from the School of Public Policy and Management of Tsinghua University in 2011 with a Doctor's degree in management. From 2011 to 2013, he worked as a postdoctoral researcher at the Institute of Finance and Banking of the People's Bank of China. From 2013 to now, he worked at the Asset Management Association of China.
Shi Tan and Liu Tianyu contributed to this report.
About AFTTC
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