Long-term asset holders, such as pension funds, sovereign wealth funds and insurers, hold their capital – and with it the retirement, security and educational dreams of their customers – in conservative financial instruments in perceptually safe markets. These investments are closely pegged to underlying asset classes that have historically proven to be safe, somewhat predictable and almost entirely held in mature, highly liquid advanced economies. Whether these are municipal bonds, commercial property or blends of mature domestic stocks, long-term asset managers are prized for their steady hands and unflinching commitment to a long-term investment horizon. This much is required by the investment mandate to protect, preserve and build wealth.
Robo-advisers are forecast to take at least 15% market share of the Asian wealth management industry in the next seven years. Platform providers highlight the innovations that are driving the industry forward and debunk common myths about the financial technology. Robo-advisory platforms have grown exponentially in Asia in the past two years. Innovations have resulted in enhanced and more sophisticated offerings for investors. This will only propel the growth of the industry. Bhaskar Prabhakara, co-founder and CEO of Singapore-based robo-advisory platform WeInvest, expects robo-advisers to take at least 15% market share of the Asian wealth management industry by 2025. "There is a strong case for this. We went to many countries to talk to regulators and look for partners and everywhere we went, people acknowledged the fact that the robo-advisory wave -- a digital wealth tsunami -- is coming," he says.
We usually hear about artificial intelligence (AI) being used to improve self-driving cars, but AI and Machine Learning (ML) are well on their way to transforming the investment management industry. We have already seen it impact retail investing, highlighted with the rise of robo advisors looking to displace expensive financial advisors. Firms like Wealthfront and Betterment pioneered the wide adoption of AI as a means to build retail investor portfolios, and more recently, Schwab launched its own version to bring robo investing into the mainstream.
OW Tai Zhi, co-founder and chief investment officer of AutoWealth, was working for a family office in 2013 when a friend walked in, plonked a S$200,000 cheque on his table, and asked him to invest his money. "I'd been helping rich people get richer," Mr Ow says. "A lot of friends and family around me kept saying: 'Help us, we are the people who deserve more help'." Out of that formative experience grew the realisation that perhaps there was something revolutionary he could bring to the asset management table. There was already a high level of frustration directed against capitalism's standard-bearers: the fund managers who invest our money in unit trusts, the banks and insurers who take a hefty cut for distributing these products, and the wealth advisers who require high minimums. The solution, for forward-thinkers like Mr Ow, was software.
There are broadly five prevailing themes shaping insurers' investment strategy. First, the approximately $15trn or 25% of the global government bond market trading at negative yields is unprecedented. The challenge from a lower return outlook has encouraged insurers to diversify traditional strategic asset allocations seeking out higher risk-adjusted returns on capital. Notable strategic asset allocation trends include increased exposure to alternatives such as private markets and investment-grade private credit. Investing in illiquid investments or non-traded assets offering higher risk-adjusted returns with diversification from public-market exposure can additionally improve liability matching and return on capital metrics.