The Asian asset management industry is undergoing a rapid transformation, propelled by evolving regulations, technological advancements and a surge in cross-border investments, according to a recent report.

As part of this transformation, firms face both challenges and opportunities, which collectively paint a dynamic picture of an industry at the crossroads of innovation and globalization, finds global funds network Calastone’s Global Diversification and Digitalisation: The Future of Asian Asset Management report, which surveyed the views of, and offers insights from, asset managers and servicers, and fund distributors, from across Asia.

Regulation needs uniformity

The biggest contemporary challenge for asset managers, the report notes, is navigating Asia’s fragmented regulatory landscape. More than half of those surveyed identified cross-border investment and market access as key concerns, highlighting the need for greater standardization.

Singapore is leading regulatory innovation with its Global Layer One project, a digital infrastructure designed to streamline cross-border transactions. Hong Kong, meanwhile, is expanding its Wealth Management Connect scheme, though investment restrictions still pose challenges. Despite some progress, the lack of regulatory alignment across Asian markets continues to make fund distribution complex.

As cross-border investments increase, settlement systems, the report reveals, are becoming more than just a back-office function. They are now seen as a strategic enabler of growth, and seamless and efficient settlement processes will be critical in unlocking new investment flows across the region.

Beyond domestic markets

Another major trend is the increasing focus on global diversification. Asset managers in Asia are looking beyond domestic markets, the report says, with Singapore leading the way, 77% of its assets under management ( AUM ) comes from international investors, and nearly 89% of that capital is deployed overseas.

Hong Kong has also maintained strong international participation, accounting for over half of its total AUM in the past five years. However, access to global markets remains limited for many local investors due to regulatory and technological barriers.

Digital, sustainable

The rise of tokenization is another transformative force in the industry, offering greater efficiency and liquidity. Singapore is at the forefront, with 60% of asset managers planning to launch tokenized investment products in the next two years.

Hong Kong, while making some progress, such as issuing tokenized green bonds in early 2024, lags behind, with only 30% of firms actively working on tokenized products. Regulatory initiatives like Project Guardian, led by the Monetary Authority of Singapore, are driving innovation in this space.

Sustainability is also a growing focus, but there is a noticeable gap between regulation and investor demand. While nearly half of asset managers cite environmental, social and governance ( ESG ) compliance as a major regulatory issue, 80% of investors rank ESG at the bottom of their selection criteria.

Despite this disconnect, regulators are pushing for greater transparency through initiatives like Singapore’s ESGenome, a digital ESG disclosure platform.

Cost burdens growing

Asset managers, the report also highlights, face rising cost pressures. Compliance burdens are increasing, competition from digital wealth platforms is intensifying, and firms must continuously invest in technology to stay ahead.

In Singapore alone, the number of fund management firms grew from 1,194 in 2022 to 1,250 in 2023, making the industry more competitive than ever. Many firms see automation and digitalization as essential tools to enhance efficiency and manage costs.

Overall, the wealth management industry, the report points out, faces exciting opportunities involving innovation and global expansion but at the same time increasing challenges around regulation, interoperability and cost efficiency.

The future of asset management in Asia, according to Calastone, will depend on how well firms adapt to these opportunities and challenges while leveraging technology to stay competitive in an increasingly interconnected market.