Cheap labour
argument wears thin
Adding more people to back offices as
investment fund volumes grow is not a longterm solution because labour costs in Asia are
starting to rise, argues Euroclear’s Carlo Minieri.
Access to new local Asian market investment opportunities will be marred by high costs
and risks if the capital market infrastructures in these areas do not move to automate
fund transaction processing. The argument that cheap Asian labour costs negate the
need for fund distributors to automate is wearing thin.
There is always a tipping point and, in fact, labour costs are starting to rise in the region.
Automation can help channel the region’s wealth into foreign and domestic investment funds.
“The argument that
cheap Asian labour costs
negate the need for fund
distributors to automate
is wearing thin.”
Carlo Minieri,
Director, Euroclear Bank Hong Kong
For cross-border fund flows, automation means being able to make it financially viable for
non-Asian fund managers to operate successfully in the area.
Getting distribution right is vital to achieve critical mass. Automation goes a long way to avoiding
concerns such as: Will the manual handling of fund orders – and their reconciliation – lead to
hefty market claims? Is it worth trying to tap into a local investor base if there are abnormally
long settlement cycles or delays?
Given the small ticket sizes of retail orders in some Asian markets, if manual processing costs eat
away most or all the asset management margins, is it right that a foreign fund manager does
business in this market?
Recently, there are examples of large European fund managers entering growth markets such as
India and exiting shortly after. Finding an abundance of wealth potential is one thing. However,
under-developed processing practices can turn into costly misadventures. More automation,
particularly from the distribution side, will lead to more opportunities for them to invest.
There are good efforts taking place to promote greater levels of automation in investment fund
processing. But it takes time and is often implemented on a country-by-country basis.
Despite the work of the Asian Fund Automation Consortium, among others, the adoption of
automation has been confined to a handful of distributors in Singapore and Taiwan.
One noteworthy exception is the Hong
The recent evolution of the renminbi and
Kong Monetary Authority’s Central
the dim sum bond market can be twinned
Moneymarkets Unit processing platform,
with a maturing mutual fund industry.
which was launched in 2009.
Asian economies are also attracting
The Korea Securities Depositary took a
Western investors to explore opportunities,
different approach; it linked its domestic
as shown by the success of offshore
fund processing platform, FundNet, to
renminbi investment funds. According
Euroclear’s FundSettle platform. A similar
to research firm Cerulli Associates, there
model has been launched by Taiwan
were five offshore renminbi funds with less
Securities Central Depositary.
than US$800 million under management
between them; one year later there were
The strong sense of market cooperation
36 funds with more than US$4 billion
between fund processing experts and
under management.
Asian central securities is making the long
road to full processing automation
The appetite of Asian investors to buy
a reality – one that could maximise trillions
into funds from other regional markets,
of non-captured wealth.
especially European investment funds, is
likely to increase interest in globally sold
By some estimates, there is US$14 trillion
European Ucits beyond the 15% that
of private wealth in Asia, excluding Japan.
Asian investors currently hold.
Yet less than $3 trillion of this is invested in
financial instruments.
A rapidly growing Asian middle class and
a new generation of investors in China
inheriting ‘old money’ suggests that
the region’s capital markets are facing
fundamental changes.
There are opportunities for local and
foreign firms to help manage this wealth.
Carlo Minieri,
Director, Euroclear Bank Hong Kong
Economic growth in Asia is also prompting
new foreign money inflows.
This article was first published in Funds
Global Asia, Sept 2012 edition and
appears here by kind permission
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MA2757
“Labour costs are
starting to rise in Asia.
Automation can help
channel the region’s
wealth into foreign
and domestic
investment funds.”
www.euroclear.com