1. Investment Management Industry in Asia Pacific Region
1

2. Contents
Introduction
Market Overview
Forces shaping the industry
Demographic Trends
Regulatory Environment
Market Polarization
2

3. Contents
M&A Activity & Key Challenges
M&A Outlook
Wealth Management Market Sizing
Key Trends
Overall Industry Outlook
3

4. Introduction
Following the dramatic developments in global financial markets since late 2007, the
investment management industry is entering a potentially turbulent period. The tightening of
credit markets has created pressure to deleveraging investments and inflation is threatening
to become a more prominent feature of the world economy
As investment returns fall in numerous mature markets, these developments may in turn
lead to greater attention upon Asia Pacific where the longer term outlook is still bright
For the purposes of this report, the investment management industry refers to entities that
are actively engaged in the management of pooled assets. This includes traditional mutual
fund managers and life insurance companies, along with managers using alternative
investment strategies through vehicles such as hedge funds
The extent of this report extends across the entire Asia Pacific region, including Australasia,
South Asia and North East Asia with a particular focus on the most developed economies
such as Australia, Hong Kong, Singapore, Taiwan and South Korea, along with the two most
significant developing markets in the region – India and China
4

5. Market Overview Asian Assets by Investment Type
An overview of the largest Asia Pacific investment management
markets show Japan and Hong Kong rising in terms of the numbers 10%
of the numbers of funds and fund managers with Japan and
Equities
Australia having the highest quantum of assets under management 19%
Money Market
Australia and Japan are the only markets with significant volumes of Bonds
62%
assets are managed by pension funds. Life insurance companies in 9% Others
Japan have more assets under management than their counterparts
in other countries combined. Equities continue to dominate as the
preferred medium for investment
Number of Companies, 2007 Assets Under Management (USD bn), 2006*
Fund Managers Life Insurance Hedge Funds Fund Managers Life Insurance Hedge Funds Pensions
Australia 175 34 66 763 236 31 900
China 58 46 n/a 477 284 n/a 92
Hong Kong 280 44 118 791 23 20 62
India 33 17 14 122 150 3 59
Japan 134 39 270 679 1,800 22 809
Korea 50 22 n/a 286 280 n/a 66
Singapore 109 12 190 581 66 n/a 94
Taiwan 39 30 n/a 111 15 n/a 4
*To allow more direct and consistent country comparison, 2006 AUM numbers
Sources: Matrix Services Limited., APRA, InvestAustralia/Axiss Australia, Indian Ministry of Finance, Association of
Mutual Funds of India, irasia, Hong Kong Securities and Futures Commission, Office of the Commissioner of Insurance, 5
Taiwan Central Bank, SITCAT, Financial Supervisory Service (Korea), Monetary Authority of Singapore, Japan

6. Forces shaping the investment management industry in Asia Pacific
With levels of middle class wealth rising, the - Growing wealth and prosperity among the middle class
limited existing penetration of structured or
managed products in many markets points to
opportunities for continued growth - Regulatory reforms opening up previously closed
markets
Another factor affecting the Asia Pacific
region is the increased influence due to global - Market polarization within large, branded fund
investment trends. managers and niche institutional investment managers
like hedge funds
Varying regulations pertaining to this industry
pose the biggest hurdle while entering Asia - Difficulty in attracting and retaining key staff
Pacific markets. These challenges range from
staff retention to issues related to
communication and - Asia Pacific region‟s cultural and dialects diversity that
technology, distribution, etc. has implications for market entry and distribution
strategies
Asia Pacific cultural and language diversity
has very real and specific implications.
Regional fragmentation is an unavoidable
reality within this region
6

7. Demographic Trends: A market of Vast Potential
The region accounts for more than 60 percent of the world‟s 6.5 billion population, but remained
underdeveloped in terms of investment management services penetration
Many regions worldwide are responding to the challenges of an ageing or greying population and Asia Pacific
is no exception. Japan and Korea are expected to witness a fall in their population between 2005 and 2015 1
In case of China, the falling birth rate has been altered with the „one child policy‟, while in other countries it is a
product of increased affluence and urbanization. By contrast, two-thirds of India‟s population is under the age
of 35, pronouncing it as one of the youngest countries of the world
Exhibit I entails the growth in percentage of people over 65 years in six Asian countries. Exhibit clearly
illustrates the demographic position confronting some of the large economies. In most countries, the
percentage of people aged over 65 will make up vital proportion of the total population by 2025
The significance of this trend, in reference to the development of the investment management industry within
Asia Pacific region is that the deteriorating demographic position around the region is helping the growth of
governmental programs of pension reform and market liberalization. This should continue to create new pool
of funds for the industry to manage
35 Exhibit I: Proportion & Population aged 65+ in %
30
25
20
1975
15 2000
2025
10
5
0
China Hong Kong India Japan Korea Singapore Taiwan
1 www.global-dem.com
Source: UN Population Department, US Bureau of Census 7

8. Regulatory Environment: A kick-start for the
industry
Changing regulations along with new market
structures are being put in place to stimulate more
orderly development in capital markets
Exhibit 2: Relative Size of Pension Assets (USD billion), 2006
Pension Reforms
Australia 900
Reforms to pension systems have been occurring
Japan 809
throughout the region, driven by demographic and
economic trends. Around the region, savings Singapore 94
schemes are being implemented to shift pension
provision from state to individual. Many of these China 92
emerging savings are mandatory, with defined
contribution structures such as Central Provident Korea 66
Fund in Singapore, the Mandatory Provident Fund
Schemes in Hong Kong and the New Pension Hong Kong 62
System for government employees in India
India 59
The development of a strong domestic fund
management industry has been supported by many Taiwan 4
governments in the region as they seek to establish
Other 15
orderly, liquid domestic capital market
0 100 200 300 400 500 600 700 800 900 1000
Exhibit 2 and 3 cites a summary of the key
characteristics of numerous pension schemes
operating in Asia Pacific along with the total assets
under management for each scheme
Source: Matrix Services Ltd., Allianz Dresdner Economic Research and Individual Country Regulators
8

9. Regulatory Developments: A kick-start for the industry continues…
The oldest and most successful mandatory savings programs in the region is Australia‟s Superannuation
Scheme, established in 1992 that necessitate employers to contribute to the employee‟s designated
superannuation fund at least ever three months. Today Australian workers have over AUD 1 trillion (USD 900
billion) in superannuation assets.2 Consequently, they now have more money invested in managed funds per
capita than any other economy globally
The issue in Asia Pacific region, however, is not always of design but rather the level or extent of funding. For
illustration:
Private Public Social Mandatory Voluntary Scheme Name Individual Assets Under
Pensions Security Choice Management
Australia Yes Yes Yes Superannuation Yes USD 900 bn
China Yes Yes NSSF/Enterprise USD 92 bn
Annuity
Hong Kong Limited Yes Mandatory Yes USD 62 bn
Pension Fund
India Limited Yes Yes New Pension Yes USD 59 bn
Scheme
Japan Yes Yes New Corporate Yes USD 809 bn
Pension System
Korea Yes Yes New Corporate Yes USD 66 bn
Pension System
Singapore Yes Central Yes USD 94 bn
Provident Fund
Taiwan Yes Planned Yes New Labour USD 4 bn
Pension Fund
2 Australian Prudential Regulatory Authority (APRA) Source: Matrix Services Ltd., Allianz Dresdner Economic Research and Individual Country Regulators 9

10. Regulatory Developments: A kick-start for the industry continues…
The Chinese pension system is well The Japanese system has undergone a
designed having three distinct pillars or series of reforms. Automatic changes to
elements that are in line with World Bank‟s benefits were introduced for greater
recommendations. The first public pillar flexibility and new corporate pension plans
entails to a state-sponsored pay-as-you-go came into being. The current system
scheme and funded individual accounts. The include the flat rate National Pension
second pillar is a voluntary occupational System and employment related pensions
pension in the form of enterprise annuities, for public and private employees.
whereas the third pillar is based on voluntary
use of private savings Exhibit 4 offers a view on current pension
scheme of seven key markets within the
region along with the estimates of AUM
Hong Kong‟s mandatory defined contribution that are likely to grow by 2015
scheme was introduced in 2000. AUM 2006 Forecast AUM in CAGR
Additionally, there are legacy voluntary (USD bn) 2015 (USD bn)
occupational schemes and a small social
China 92 640 24.1%
safety net for elderly as well
Hong Kong 62 140 9.5%
India‟s pension system is fragmented with
India 59 230 16.3%
very limited or no social security net for the
elderly, though there is a well defined
Japan 809 890 1.1%
benefits pension system for civil servants.
Almost 90 percent of India‟s workforce is not
Korea 66 310 18.8%
eligible for any schemes
Singapore 94 150 5.3%
South Korea enacted legislation to unify its
Taiwan 4 56 34.1%
corporate pension system in 2005, having 2
basic distinctive plans, funded and unfunded Exhibit 4: Forecasted growth in Assets Under Management (AUM)
Source: Matrix Services Ltd., Allianz Dresdner Economic Research
10

11. Market Liberalization
The ongoing competition of Hong Kong
Another regulatory development has been the
and Singapore as regional financial hubs
opening up of financial markets of foreign capital and
in fund management, hedge funds, and
institutions; and has been a significant positive
private wealth management is the most
development for economies and for Asia Pacific
relevant example of this practice
investment management industry, in particular, by:
creating new opportunities for both Asian and
international companies
facilitating exchange of ideas, know-how and
knowledge across the region
placing competitive pressures to improve
performance and effectiveness
promoting the need for better transparency and
corporate governance
creating new capital (international) pools
creating more choice and greater diversifying
opportunities for consumer
Another highly significant trend that is less evident is
the drive to open up markets to foreign participation
through competitive liberalization, where jurisdictions
compete for foreign investment with tax and
regulatory incentives, particularly in East and
Southeast Asia
11

12. Market Polarization: Room For Growth
Though the investment management industry in the region have seen less M&A activity than
elsewhere, the industry is moving through polarization process, by moving towards two
distinct and opposite approaches.
First category is the „bulge bracket‟ players who gain their competitive advantage through
economies or scale. While they may seek to develop new products and diversity into new
investment strategies, prominent aim remains growth of their assets under management.
Here, size plays quite a pivotal role
By contrast, there are smaller boutique managers who are more focused around alpha
returns. While the concern would still be the same to improve on assets under management,
they also charge higher fees and too often a split in profits or performance fee for specialist
investment advice. Such companies trade on the name and expertise of specific people
Polarization process has numerous implications for investment management industry and
related segments that include:
- the introduction of new business models such as the funds supermarket concept in Asia
Pacific
- pressures on mid market players to adapt
- support functions like administration and custody have had to review their own strategies
- bulge bracket players engaging the services of specialist managers as they adopt a fund
of funds approach
12

13. Hedge funds
The region is already witnessing growth in asset classes such as private equity, infrastructure, real estate and other
structured products. However, it is in the hedge fund segment where the industry has seen exponential growth
The number of hedge funds in Asia Pacific region has increased substantially in recent times. Per one estimate, in
2007 there were 900 dedicated Asia Pacific hedge funds with USD 200 billion of assets under management,
depicting an annual growth rate of 25 percent. These numbers further rose to close to 1,000 in 2008
These numbers do suggest that this region now constitutes for slightly more than 10 per cent of total assets under
management in the global hedge fund industry
Presently, the Asian funds market is characterized by the following: Exhibit 5: Hedge fund strategies in Asia Pacific
- the market is now dominated by institutional investors and the global
allocators are becoming increasingly important.
9%
5%
- the individual hedge funds, on their own, are getting bigger and have 5% Long Short
large asset bases. Per an estimate by GFIA, more than 60 per cent of 5% Multi
Asian hedge funds have more than USD 50 million of assets under 6% 55%
Macro
management that has been from 40 per cent in 2003 Fixed Income
15%
Relative Value
- more and more global funds are establishing a physical presence in Asia
CTA
due to the ever increasing need to be on the ground to identify
Others
opportunities. In particular, Hong Kong and Singapore offer a well
developed regulatory environment, advantageous tax arrangements, and
relatively low barriers to entry Source: Eurekahedge and GFIA
- However, there remains a strong presence of funds focusing on this
region from locations outside (specifically in the UK and the USA), as
exhibit 5 shows
- Long-short equity investments continue to dominate the region, with a majority of Asian hedge funds adopting
it as a strategy. One fund manager believes that for most markets, including China, it may be too early to talk
about the environment for alternative investments 13

14. Mergers and Acquisitions Activity in Asia Pacific
Financial Services
Introduction to Asian Financial Services Cross-border transactions gather Looking Ahead
M&A momentum
Despite renewed concerns over the
Asian financial services M&A declined in Institutions across Asia see M&A as gloomy global economic
2010, but held up well compared to crucial tool in wake of exposure to environment, M&A activity in the
other regions. Deal values for the first higher growth with cross-border deals region is believed to be accelerated
two quarters of 2011 have risen year- expected to accelerate. More mature through 2011 and into 2012, driven
on-year basis. Per one survey markets such as by a supportive long-term macro
conducted by one of the players, in the Australia, Singapore, Japan and environment with a range of strategic
medium to longer term, growth in Asian Korea are being joined by American factors. Some of the specific potential
financial services will continue to be and European groups; and coupled areas for deal activity include – Indian
driven by a range of supporting with the ever increasing prospect of asset management and non-bank
economic and demographic factors that China coming in, this is supportive of finance; trust, life insurance and
include the rapid emergence of middle- increased cross-border activity across asset management in Greater China;
income consumers the entire financial services spectrum Indonesian banking and
insurance, Malaysian
insurance, Australian asset
Strong strategic rationales drive Obstacles and enablers to deal management, and Vietnamese
domestic M&A making banking
Domestic M&A remains the prominent Capital restrictions are emerging as
driver of Asian financial services the leading obstacle to financial
transactions, and is being stimulated by services M&A in the region, with
a range of strategic factors that are not Basel III being the source of concern
limited to domestic along with tighter capital regulation in
competition, increasing pressure on many markets will have an effect on
operational and capital efficiency, and the size and shape of M&A
ongoing divestments by strategic transactions. Legislative intervention
investors from outside the region is a potential threat. Difficulties with
deal valuation are easing, but remain
14
a crucial obstacle in some markets

15. Key Findings
- Asian financial services deals declined in 2010, but the geographic spread of deals
increased
- Asian transactions also help up more strongly than in some other regions
- The Asian macro-economic environment continues to be highly encouraging. Despite
renewed economic concerns in Europe and North America, this is providing support for
business and investor confidence
- Asian financial services markets are expected to expand exponentially in the medium to
long term, supported by demand from the region‟s growing mass affluent
consumers, trade flows and investments
- Most firms in the region report strong revenue growth and bullish projections for the year
ahead
From a support perspective the summary of accompanying figures is as follows:
Exhibit 1: Summary of 2010 Asian financial services M&A transactions by deal value (US$m)
Exhibit 2: Expected level of business growth, next 12 months
Exhibit 3: Likelihood of considering or undertaking material M&A during the next 12 months
Exhibit 4: Sentiment during the next 12 months, 2008-2011
Exhibit 5: Primary motives for considering M&A during the next 12 months
Exhibit 6: Primary drivers of decreasing revenues during the last 12 months
Exhibit 7: Areas likely to attract firms utilizing M&A to expand into new lines of business
Exhibit 8: Most attractive areas for geographic expansion via M&A
Exhibit 9: Likelihood of making a divestment during the next 12 months
Exhibit 10: Primary motives for possible divestment during the next 12 months
15

16. Exhibit 1: Summary of 2010 Asian financial services M&A transactions, by deal value (US$m)
Target No. of Deals Banking Securities & Mutual Funds Insurance Others Total (US$m)
Country Cap Markets & Asset Mgt
China 78 10,823 1,960 2,666 672 613 16,733
Australia 104 258 46 1,654 8,300 185 10,442
Japan 104 1,239 491 67 5,363 1,047 8,207
South Korea 29 4,479 61 28 1,520 426 6,514
Hong Kong 39 1,410 207 327 3,143 366 5,453
India 88 829 254 553 19 399 2,054
Thailand 17 1,122 - 9 - 194 1,326
Malaysia 18 - - 0 911 1 912
Indonesia 51 704 17 4 44 30 799
Taiwan 15 98 429 6 183 - 716
Singapore 16 - 4 228 313 2 547
Pakistan 8 279 - - - - 279
Philippines 8 181 - - - - 181
Kazakhstan 5 131 - - - - 131
Bangladesh 3 55 - - 17 32 104
New Zealand 17 - - 31 2 48 81
Vietnam 23 11 45 3 11 - 69
Uzbekistan 3 17 - - - - 17
Sri Lanka 13 2 3 2 2 - 9
Azerbaijan 2 2 - - - - 2
Total 641 21,640 3,516 5,578 20,498 3,341 54,574
16
Source: Thomson Reuters, Industry analysis

17. Exhibit 2: Expected level of business growth, next 12 months (%)
27
High growth: Greater than 10%
37
34
Medium growth: 5-10%
39
29
Low growth: 0-5%
19
10
Negative growth: Less than 0%
5
Source: Industry Analysis, 2011
0 5 10 15 20 25 30 35 40 45
International business Domestic business
Exhibit 3: Likelihood of considering or undertaking material M&A during the next 12 months (%)
Under consideration 31
Most likely 27
Have not decided 22
Highly unlikely 13
No, M&A has been ruled out 7
Other (please specify) 1
Source: Industry Analysis, 2011
0 5 10 15 20 25 30 35
17

18. Exhibit 4: Sentiment regarding material M&A during the next 12 months, 2008-2011
22
2008 40
0
38
0
2009 58
0 Don't Know
42
Negative
13
2010 8 Neutral
25
54 Positive
1
2011 20
21
58
Source: Industry Analysis, 2011
0 10 20 30 40 50 60 70
Key Findings
- Firms are particularly keen to offer a full service
- Growing competitive pressures acting as a spur to spectrum to their corporate and high-net –worth
domestic consolidation in many Asian financial clients
services markets
- Pressure to consolidate is particularly strong for
- M&A is also seen as an effective way to accelerate small and medium sized firms facing capital and
customer acquisition, even in fast growing markets profitability pressures
- Cost synergies mean that same-sector mergers - Market specific factors remain highly influential in
remain the easiest to sell to shareholders and terms of regulatory attitudes and the role of other
regulators government bodies
- Large Asian financial groups are increasingly - Deal activity is being supported by non-core
targeting a financial conglomerate structure disposals and the increasing interest of non-
financial groups in financial services ownership 18

19. Exhibit 5: Primary motives for considering M&A during the next 12 months (%)
Increase market share and business growth 55
Enhance products or customer experience 36
Focus on geographic expansion/footprint 35
Expand into new business lines 28
Respond to board/shareholder directive 10
0 10 20 30 40 50 60 Source: Industry Analysis, 2011
Exhibit 6: Primary drivers of decreasing revenues during the last 12 months (%)
Competition or falling margins 35
Lower levels of fee income 30
Customer Churn 28
Prior year disposals 11
Proprietary trading losses 7
FX-related losses 2
Other (please specify) 2
0 5 10 15 20 25 30 35 40 Source: Industry Analysis, 2011
19

20. Exhibit 7: Areas likely to attract firms using M&A to expand into new business lines (%)
Investment banking 50
Investment management 46
Capital markets 36
Retail banking 32
Corporate banking 32
Life insurance 31
Private banking 30
Reinsurance 20
Private equity 18
Outsourcing provision 18
Non-life insurance 17
Other 1
Source: Industry Analysis, 2011
0 10 20 30 40 50 60
20

21. Exhibit 8: Most attractive areas for geographic expansion via M&A (%)
China 37
Singapore 23
Hong Kong 21
Malaysia 19
Thailand 17
Japan 17
India 16
Australia 14
Taiwan 13
Indonesia 11
South Korea 10
Vietnam 10
Phillippines 9
Other Asia-Pacific 3
Africa or the Middle East 1
North America 1
Latin America 1
Europe0
Source: Industry Analysis, 2011
0 5 10 15 20 25 30 35 40
Exhibit 9: Likelihood of making a divestment during the next 12 months Exhibit 10: Primary motive of possible divestments during
(%) the next 12 months (%)
Under consideration 25
Focus on core business 52
Most likely 22
Free up capital 31
Have not decided 22 Unlock higher shareholders' value 25
Dispose of underperforming business 23
Highly unlikely 20
Compliance 18
No, has been ruled out 11
Divest to a strategic partner 18
Other (please specify) 1 Respond to board 6
0 10 20 30 40 50 60
0 5 10 15 20 25 30
21

22. M&A Activity: Key Deterrents
The idea here is to understand some of Public Sector Intervention Uncertainty
the factors that can act as enablers in
getting transactions a success after Public sector intervention – direct or The more pervasive impact is to
exploring some of the motives driving indirect – with an ever increasing create an atmosphere of uncertainty.
financial services M&A activity in Asia involvement of governments and the This can take place through a range
Pacific region regulators is seen as representing a of factors such as issuance of
crucial deterrent to financial services licenses, the speed of regulatory
Capital Restrictions M&A in the region approvals, inconsistent
supervision, or perceptions of local
More than two years after financial It occurs when specific deals are bias or political risk
markets began to rebound, capital blocked that may reflect competition
restrictions are identified as the concerns
Valuation Problems, Pricing Gaps
largest single obstacle to M&A in the
Regulators, too, have a direct impact and Poor Information Management
industry, which was followed by a
lack of attractive targets on this activity by imposing limits on
foreign ownership of financial There is an enormous concern about
(32%), government or regulatory
services companies due to which the bidder competition and price
intervention (30%), and valuation
local group gets protected from expectation gaps which were
problems (27%)
predatory takeovers; but as an identified as 22% each as per one
Basel III Requirements enabler, it can also increase the study
medium-term logic for M&A by
This has been taken as a particular restricting the inflow of new entrants Lack of attractive targets
source of concern on uncertainty and and expertise
is expected to have a widening and Per one study, 32% rank this problem
direct impact on bidder behavior, by as the second greatest deterrent. A
increasing demand for a smaller Post-Deal Challenges lack of domestic opportunity scores
deals at the expense of larger ones. high too and can be considered as
Per one survey, this will stimulate Post deal barriers are of high major source of obstacle
greater focus on targets‟ liquidity concern, particularly in terms of
profiles (35%) and increasing interest human capital. Cultural and people
in the quality of targets‟ risk challenges can be hard to manage in
management controls (28%) any industry completely 22

23. Exhibit 11: Current Principal Obstacles in Asian M&A (%) Exhibit 12: Expected Effects of Basel III on M&A in Asia (%)
Price Expectation Gaps 22 Encourage greater focus on capital efficiency of
51
Capital restrictions 34 transactions
Lack of attractive targets 32
Regulatory intervention 30 Increase demand for smaller deals 37
Valuation difficulty or uncertainty 27
Lack of domestic opportunities 25 Greater emphasis on targets' liquidity profiles 35
Poor external finance availability 22
Excessive competition 22 Stimulate divestments to release capital 33
Restrictions on equity ownership 20
Poor target information 18 Increase focus on targets' risk management
28
framework
Weak shareholder value creation 17
Reputational risk 11 Lead to longer due diligence processes 22
EPS dilution 10
Distraction from core activities 10
Other (please specify) 2
Other (please specify) 1
0 5 10 15 20 25 30 35 40 0 10 20 30 40 50 60
Exhibit 13: Management challenges during and after M&A (%)
Culture/People issues 51
Technology integration issues 42
Regulatory approval and compliance issues 40
Operational and/or process issues 39
Synergy creation issues 35
Customer retention issues 25
Brand management issues 22
Business strategy issues 21
Other (please specify) 1
0 10 20 30 40 50 60
Source: Industry Analysis, 2011 23

24. Exhibit 14: If the primary motive for acquisition is to expand into new
business lines, which of the following areas might attract the
organization (%)
Investment management 71
Private equity 71
Outsourcing provision 57
Capital markets 43
Retail banking 29
Corporate banking 29
Investment banking 29
Private banking 29
Life insurance 29
Non-life insurance 29
Reinsurance 29
Other (please specify)0
Source: Industry Analysis, 2011
0 10 20 30 40 50 60 70 80
M&A Activity in Asia Pacific Financial Services: Outlook
The overall outlook for Asian financial On a short term basis, there is an
services M&A is highly encouraging. uncertainty arising out from the
Key considerations for this include sovereign debt markets of Europe and
positive demographic trends, increasing the US, which could create additional
levels of domestic consumption and opportunities for mergers and
rapid expansion in the numbers of acquisitions in the region. A range of
mass-affluent consumers along with the strategic priorities point to increasing
increasing Eastward shift to the global appetite for deal making
wealth management industry
24

25. Having a look at the strategic rationale Furthermore, the growth potential of A range of strategic priorities point
for further growth, there are certain asset management in to increasing appetite for deal-
predictions made for India, Greater China, coupled with increasing making in the region going forward
China and Australia along with the demand for cross-border
potential areas of opportunity for investment, to stimulate crucial
financial services transactions asset management M&A activity
within Greater China during the next
few years
The Indian financial services market While private equity firms are still
offers strong potential for a trigger in viewed with suspicion by regulators in
this activity. The asset management a number of regional markets, the
and non-bank financial sectors offer post-crisis phase of economic and
clear scope for further consolidation financial recovery in Asia could offer
where both are open to foreign attractive opportunities for private
bidders seeking exposure to Indian equity investors
growth prospects
Potential areas for financial services transactions
Despite the maturity of Australian
financial services, it is expected from Life insurance in Mainland China with Mid-sized Indonesian banks offering
the country to generate crucial M&A investment opportunities for product attractive investment opportunities to
activity, which entails both outbound development skills of offer routes to strengthen capital ratio
deals by the largest Australian offshore markets
financial groups along with increasing
inbound investment in fast growing
asset management sector City commercial banks in Mainland Asset management and brokerage in
China with some opportunities for Taiwan where recent transactions
domestic mergers or foreign investors could prompt further round of
consolidation
25

26. Wealth Management: Market Sizing
Global Overview
Global private financial wealth grew by 1.9 percent in Globally, the amount of private wealth held in equities
2011 to reach a total of $122.8 trillion3 (Exhibit 15). The declined by 3.4 percent, driven by both negative market
rise was considerably weaker than in either 2009 or performance and asset reallocation. Wealth held in
2010, when global wealth grew by 9.6 percent and 6.8 bonds grew by 3.3 percent and cash and deposits rose
percent, respectively by 5.2 percent
The evolution of private wealth varied by region in In reference to household segments, the highest growth
2011, highlighting how the year‟s economic turbulence rate was in the ultra-high-net-worth (UHNW) segment
affected the developed and developing worlds. North (households with more than $100 million in wealth) that
America, Europe and Japan lost the private witnessed an increase by 3.6 percent – compared with
wealth, while the rapidly developing markets in Asia average growth of 1.7 percent across all other
Pacific and Latin America managed to sustain double- segments
digit growth they have experienced in recent years
The Middle East and Africa continued to grow but at a
more moderate rate than in past years, owing
particularly to regional political instability
To support this view, the summary of accompanying
Overall, global wealth in private wealth is clearly being figures is as follows:
driven by rapidly developing economies and not by the
already developed world (Exhibit 16). In BRIC Exhibit 15: The Growth of Global Wealth Slowed in 2011
countries, for instance, where nominal GDP growth was Exhibit 16: “New World” Drove the Modest Growth in
15.5 percent on weighted-average basis, wealth Global Wealth
increased by 18.5 percent in 20114
Equity markets suffered across most of the world in
2011, with positive showings in only a few countries.
Europe‟s equity markets were hurt the most, the
Greece‟s falling by a staggering 52 percent 26

27. Exhibit 15: The Growth of Global Wealth Slowed in 2011
Private financial wealth ($tri)
41.5
38.3 38.0
35.6
2009 2010 2011 2016 E 1.7 1.9
2.9
1.4 2.9
1.4 1.7 1.9
36.7
32.2 33.6 33.5
North America 2009 2010 2011 2016 E
2009 2010 2011 2016 E
Eastern Europe
2009 2010 2011 2016 E
Japan
Western Europe
6.1
3.9 4.3 4.5
2009 2010 2011 2016 E
40.1
5.4
2.9 3.2 3.5 19.0 21.4 23.7
Middle East and Africa 151.2
112.9 120.6 122.8
2009 2010 2011 2016 E 2009 2010 2011 2016 E
Latin America
Asia Pacific (ex Japan) 2009 2010 2011 2016 E
Global
Source: BCG Analysis
Note: Private financial wealth numbers for all years were converted to US$ at year-end 2011 exchange rates to exclude the
effects of currency fluctuations. Percent changes and global totals are based on complete numbers. Calculations for 2009 and 27
2010 are based on the same methodology

28. Exhibit 16: “New World” Drove the Modest Growth in Global Wealth
Drivers
Growth in 2011
GDP growth +3.2%
f
Newly created wealth1
Savings rate 4.7%
“Old World” -0.9%
• North America
• Western Europe f
• Japan
Equity performance -12.2%
Existing assets2 f Savings rate -1.6%
Equity performance ~0%
Global
private +
financial
wealth
GDP growth +11.3%
+1.9%
Newly created wealth1 f
Savings rate 5.1%
“New World” +10.0%
• Asia Pacific (ex Japan)
• Eastern Europe f
• Latin America
Equity performance -11.7%
• Middle East and Africa
Existing assets2 f Savings rate -0.7%
~0%
Note: All growth rates are nominal, including GDP growth rates. Performance averages are unweighted Equity performance
and reflect domestic market development
3 New private financial wealth, generated primarily through income 28
4 Growth in asset value Source: BCG Analysis

29. Private wealth is expected to post a compound annual growth rate of 4 to 5 percent over the next five years
to reach more than $150 trillion by the end of 2016. As per one estimation, equities will be the fastest
growing asset class, with a projected CAGR of 4.9 percent. By end 2016, the share of global wealth held in
equities should be 34.0 percent of the total, still below the precise share of 38.5 percent
Additionally, over the next 5 years, the amount of wealth held by all clients with more than $1 million in
wealth should show a CAGR of around 6 percent, driven prominently by an increasing number of
households in this segment in Asia Pacific. Average wealth of such households is expected to increase just
marginally; however, this segment will continue to grow the fastest over the next five years, by a projected
CAGR of 8 percent
Regional Variation The growth of private wealth varied widely across all regions in 2011
North America5 Western Europe6
Private wealth in North America declined by a Though the region didn‟t suffer as much as
0.9 percent in 2011 to $38 trillion. Overall, the North America, the euro debt crisis took its
amount of wealth in equities and bonds toll, and private wealth declined by 0.4
decreased by 3.6 percent and 2.1 percent to $33.5 trillion, due to which the
percent, respectively. The share held in cash region remained as the second wealthiest
and deposits grew by 3.5 percent worldwide
A near default on U.S. government Equities lost a 2.1 percent point
debt, combined with the euro debt share, constituting 28.5 percent of the
crisis, made 2011 an unpleasant year for the region‟s financial wealth at the end of 2011
US economy. All this, along with the
downgrade of the nation‟s credit rating has Extreme levels of both government and
led to significant investor uncertainty. North private debt, including the threat of
American wealth is projected to post a CAGR bankruptcy faced by numerous European
of 1.8 percent over the next five years to Union countries, led to double-digit stock
reach $41.5 trillion by the end of 2016 market declines in some of the region‟s
largest economies 29

30. Offshore wealth declined by 2.2 percent CAGR of 11.1 percent, touching $40.1 trillion
thereby reducing the share of total private by the end of 2016, at which time it will have
wealth to 7.6 percent. Per an estimate, it is slightly overtaken Western and Eastern
projected to show a CAGR of 1.8 percent to Europe (combined). These gains should be
reach $36.7 trillion by the end of driven largely by sustained strong GDP
2016, primarily driven by moderate equity- growth in China and India and overall
market recoveries in the largest economies stronger stock market performance
Asia Pacific (ex Japan)7 Japan
Private wealth in Asia Pacific (ex Japan) Private wealth in Japan decreased by 2.0
increased by 10.7 percent in 2011 to $23.7 percent in 2011 to $17.8 trillion. The value of
trillion, enabling the region to widen its gap wealth held in equities fell by 7.6
with Japan as the third wealthiest area percent, while amounts held in bonds and
globally. The strongest growth was in the cash along with deposits remained flat
higher wealth bands, with the share of total
wealth increased to 48 percent Drivers of the overall decline included the
lingering effects of March 2011 tsunami and
The amount of wealth in equities grew by 4.1 earthquake – and the subsequent Fukushima
percent, a weaker performance than the nuclear plant – along with poor stock market
annual growth of 17.7 percent witnessed over performance. Per one estimate, private
the previous five years. Wealth held in bonds wealth is projected to post a CAGR of 0.8
rose sharply by 17.5 percent, and cash and percent to reach $18.5 trillion by the end of
deposits increased by 13.4 percent 2016
Despite poor stock market performance in Eastern Europe8
several large countries, notably Indian and
China, strong GDP growth driven primarily by Russia, with GDP growth well above
high levels of government and private that of most mature economies, was the
consumption led to new wealth generation. primary driver of the 2011 increase in
Wealth in the region is expected to continue Easter European wealth that rose by
growing at a double-digit rate with a projected 14.4 percent to $1.9 trillion
30

31. Eastern European wealth is forecast to grow largely as a consequence of continued GDP
way faster than Western European wealth – expansion in oil-rich countries
at a CAGR of about 8.7 percent over the next
five years, reaching $2.9 trillion by the end of Latin America10
2016, with the bulk ($2.0 trillion) held in
Russia The region‟s private wealth grew by 10.6
percent in 2011 to $3.5 trillion, driven
These gains will be driven primarily by the primarily by strong GDP growth in Brazil and
region‟s status as the world‟s largest oil Mexico. Also, the region‟s stock markets were
producer and its continuing GDP momentum
less affected by global economic uncertainty
than those in many other economies, with
Middle East and Africa9 regional wealth held in equities rising by 2.8
percent
This region‟s stock markets suffered from the
political instability due to the uprisings across Wealth held in bonds soared by 16.6
the Arab world in 2011. Still, the region percent, and cash and deposits rose by 9.2
managed to improved upon its private wealth percent
growth by 4.7 percent to $4.5 trillion, primarily
driven by high savings rate and strong Private wealth in the region is project to post
double-digit GDP growth in oil-rich countries a CAGR of 8.9 percent over the next five
years to touch $5.4 trillion by the end of 2016.
Though the amount of wealth held in equities This will be in wake of the onshore offerings
decreased by 2.6 percent, the amount held in that are becoming more sophisticated as
bonds rose by 13.3 percent and cash and international players enter the market
Notes:
deposits grew by 5.1 percent GDP data are from Economist Intelligence Unit (EIU)
This looks at three asset classes: equities, bonds, and cash and deposits
5. United States and Canada
Wealth in the UHNW household segment 6.
grew exponentially, posting 9.0 percent driven Germany, France, UK, Ireland, Italy, Spain, Portugal, Switzerland, Austria, Netherlands, Belgi
um, Norway, Sweden, Finland, Denmark, and Greece
by the government programs benefiting large 7. Taiwan, China, Australia, South Korea, Hong
family conglomerates. Private wealth in the Kong, India, Singapore, Indonesia, Thailand, Malaysia, New Zealand, Philippines, and
Pakistan
region is project to show a CAGR of 6.6 8. Russia, Poland, Czech Republic, Hungary, and Slovakia
percent to reach $6.1 trillion in 2016, 9. Saudi Arabia, UAE, Israel, Turkey, South
31
Africa, Kuwait, Iran, Egypt, Algeria, Qatar, Oman, Morocco, Lebanon, Bahrain, Tunisia, Syria,
Yemen, and Jordan
10. Mexico, Brazil, Venezuela, Colombia, Argentina, Chile, Peru, and Uruguay

32. Trends Shaping The Industry
The landscape in this industry will change The economics of wealth managers will
fundamentally over the next ten years as continue to be strained. Growth will be
competitive dynamics, regulatory constrained due to tighter
oversight, client behavior, and technology regulations, stricter compliance
continue to evolve. A broad set of trends is requirements, and greater interest in
already in place nonfinancial investments
Revenue margins will be compressed by
Emerging markets will fuel the growth of
stronger competition through disruptive
global wealth. In India and China, private
business models, increased product
wealth is projected to increase at a CAGR
commoditization, limited trading
of 19 percent and 15 percent, respectively
activity, and a slow recovery of demand
from the year end 2011 through 2016 –
for complex products
significantly faster than the global forecast
of about 4 to 5 percent annually.
Margins will also be affected by rising
China, alone will account for 35
costs, new infrastructure
percent, while India will account for 10
requirements, and the scarcity of top
percent in global wealth
talent
This is likely to foster the development of
More broadly, wealth managers should
onshore investment opportunities and
continue to protect their revenue streams
new wealth management sectors
by working on high value and higher
margin solutions
Emerging markets are still very diverse in
terms of their nature, size and maturity
levels. Few, such as Brazil are already
Clients will become more sophisticated
characterized by clear and transparent
and more self-directed regarding plain
regulation, highly developed capital
products and services. It is expected that
markets, and keen private banking clients
from HNW and UHNW to increasingly use
alternative channels to execute simple
transactions 32

33. All client segments will become more Products will become simpler and more
discerning, demanding tailored advice and modular. More flexible, transparent, and
solutions based on a comprehensive view of modular products will gain prominence as
their financial needs. Wealth managers must investors seek simple solutions to
strengthen their capacity to provide highly increasingly sophisticated problems
customized solutions, permitting a more cost-
efficient service model
Multichannel capabilities and social-media
Pricing will become more transparent and presence should be developed further.
closely linked to service models. In Though online wealth managers and
response to regulatory changes and also community banks will not be major
to changes in client behavior, wealth competitors in the foreseeable future, the
managers must continue to makes trend toward online services, increased
prices, fees, and commissions more channel integration, and greater use of
transparent. They also need to create a social media will have an impact –
sharp distinction within high-and-low-cost creating more transparency
offerings
Advanced technology and infrastructure
Pricing, in general, will become a pivotal become more essential. Wealth managers
level for improving and bolstering client must enhance their IT capabilities in order
acquisition and retention to keep up with client expectations. In
order to provide a consistent and
Risk management capabilities are critical. seamless experience across multiple
Having tighter regulations and a higher channels, they will need a fully integrated
profile in the mainstream media, players technology platform that has modular
must reinvigorate risk management. applications. To offer tailored
Stricter internal guidelines often lead to products, they will have to have a more
time-consuming processes and higher modular product architecture
costs. Overall, the right acts in reference
to risk management must be strongly A break up of the value chain is
embedded – bringing value to the client expected, leading to an increase in
while also protecting from operational and outsourcing to third parties for IT and
reputational risk operations 33

34. Outlook
The investment management industry in Asia Pacific has been through
an extraordinary period of change and growth in recent years. There
remain some significant short-term challenges to the industry, including
management of performance in volatile markets, the on-going battle for
talent and the fragmented nature of the Asian marketplace.
However, the long-term prospects for the industry remain
bright, particularly as investment managers continue to exploit the shift in
economic activity towards the region
The asset management industry continues to be highly attractive
compared to other financial services sectors. However, in an era of
elusive growth and deepened profitability, strategic decisions concerning
where and how to compete have never been more crucial. Overall, the
environment will be tougher, with few players enjoying the growth rates
and profitability
Wealth managers will still need to continue their cost-cutting and pricing
initiatives, refocus on client discovery, master the ever-shifting regulatory
environment, bolster risk management, and find ways to use alternative
business models to their advantage. Only those wealth managers that
take action, as opposed to wait-and-watch attitude, will be in a position to
thrive regardless of which direction the markets ultimately take
34