Are asset managers in danger of failing millennials?

June 23, 2022 06:00
Photo: Reuters

After recording three consecutive years of decline, fund raising activities in the Asia-Pacific (APAC) region picked up slightly in 2021. However, challenging macro conditions – together with a difficult fundraising environment, fee compression, mounting competition from cheap passive providers and rising operating costs – are all creating problems for active asset managers.

This is evidenced by EY’s analysis – which found a cohort of the largest asset managers saw their operating margins slip by 1.7% in 2020, with margins expected to shrink further, the fund management industry is at an inflection point. The traditional investment landscape is also being reshaped by forces that have attached a much greater significance on the democratisation of access, as well as sharpening the focus on sustainability at the same time.

Simply put, stocks, bonds and mutual funds may not necessarily hold the same appeal due to their conservative nature and high barriers to entry for an emerging demographic where their spending power will soon be greater than any other generation – the millennials. In response, there is a need for the industry to look for ways by which to rejuvenate itself. So how can asset managers capture the ‘millennial moment’ and retain their relevance to a new demographic which is calling out for greater levels of access and personalisation?


At this year’s Fund Forum International, the topic weighing on everyone’s mind was distribution. Already, the warning signs of disintermediation are there. Our recent white paper – “The Future of Fund Management” – highlights 93% of APAC fund managers reported they had lost customers to digital competition in 2020. The accelerated shift to digital investment platforms is only expected to increase and fund managers need to commit more resources into improving their distribution process and customer engagement activities.

Given how much technology is shaping the consumption patterns of millennials, there is a need to offer a more personalised service to help them grow and manage their portfolio. Solutions which gained a lot of traction among speakers at the Fund Forum included aggregating data on investor trends and buying patterns, and then using ML (machine learning) or AI (artificial intelligence) to gather useful insights from that information. Through this, asset managers can tailor their distribution models and expand their reach to millennials.

At the same time, asset managers need to acknowledge that people’s buying habits have irrevocably changed. Our white paper argues this could result in managers increasingly incorporating D2C (direct to consumer) into their distribution strategies, while also offering more investment advisory-like services which have traditionally been the domain of wealth management.


As of now, the cryptocurrency market is on a bearish streak – coinciding with some spectacular price volatility in the crypto-currency market, fuelled by the collapse of two so-called StableCoins.

While some of the more conservative institutions are eschewing cryptocurrencies altogether, citing concerns about volatility; price opacity and regulatory risk, this is not true of younger retail investors. Despite the crypto market losing momentum, one study notes that 56% of Generation Z adults and 54% of millennials are currently looking to include cryptocurrencies and non-fungible tokens (NFTs) in their long-term retirement strategies.

It is clear that it is no longer just about buying Bitcoin or Ethereum today. The sophistication of millennial investors has redefined how value is understood and transferred across digital platforms that often appear complex to most – with yield farming and liquidity mining some of the more innovative, albeit risky ways of generating a decent return on their investment.

The key takeaway from this underline the fact that tech savvy millennials will invest in assets if the process is both straightforward and enjoyable, a feat which digital asset providers to their credit have enabled. Especially when we consider how the last few decades have been marked by strong equity performance and falling bond yields, a 60/40 portfolio will become increasingly more expensive to most people. These are lessons which should be onboarded by conventional fund distributors and asset managers, and rectified in a regulated environment.


But digital assets do not comprise of just dicey cryptocurrencies. A recent announcement by the Monetary Authority of Singapore (MAS) regarding Project Guardian, a pilot involving the financial industry exploring the use cases of asset tokenisation offers clear evidence how traction is quickly building in this nascent space. In our view, tokenisation is a type of digital asset that could be leveraged by asset managers to help grow their assets under management (AuM) share among younger investors, especially those who have less disposable income.

Tokens are highly flexible and can be traded 24/7. As tokens can be broken down into smaller pieces, they are more accessible, and this can be applied to fund structures too. As fund structures comprised of tokens linked to underlying assets are divisible and fully digital, it will become cheaper and more efficient for retail allocators to invest – at least in comparison to a traditional mutual fund – in what could precipitate a potential increase in inflows. Tokenisation will also open up new investment channels – including digital exchanges and peer to peer networks – which could improve the overall fund buying experience too.

In addition to democratising investment and enabling allocators to access a wider range of asset types – including illiquids and exotics – operational savings could also be realised through tokenisation as a new, more streamlined, DLT-enabled (distributed ledger technology) fund servicing model is likely to emerge off the back of it.

So what does this mean for asset managers? It is clear that the existing fund structures could be challenged by the emergence of tokenisation. Those responsible for product manufacturing will therefore need to take into account the impact of tokenisation when creating funds if they are to be successful over the next few years.


Apart from leveraging on millennials’ comfort with the ever-evolving technology landscape, it is also imperative that asset managers consider how they are set to take the lead in ESG investing as well. According to a UOB survey, 91% of those surveyed in Southeast Asia want their financial institutions to offer more sustainable investment solutions. These sentiments are well aligned with the global narrative on ESG investing, where our Fund Flow Index found that two thirds of the HKD 15.2 billion in inflows which went into global funds in April 2022, was allocated into ESG funds.

Although demonstrating a commitment to ESG has helped managers raise funds, experts have expressed concern that the asset class is potentially open to abuse. In APAC, the regulation of ESG investing is somewhat uneven, while the abundance of ESG and sustainability standards has created enormous complexity, particularly when gathering and analysing data from underlying issuers. In turn, this has allowed green washing to proliferate in funds.

Nonetheless, appetite for ESG investing will continue to grow in 2022 and beyond. Moreover, ESG is something which is close to millennials’ hearts, with many younger allocators investing into funds, whose values correspond with their own. If confidence in the asset class is to be retained and greenwashing avoided, asset managers must be wholly transparent with clients about their ESG strategies and objectives to differentiate themselves from the rest.


Asset managers are at a critical juncture, but the industry has reason to be optimistic. Despite many asset managers previously deriding millennials and Generation Z’ers as being short on cash and long on financial illiteracy, young people are starting to invest. Moreover, a number of younger investors are also likely to benefit from an unprecedented wealth transfer from older generations, and this money will need to be invested if people are to properly insulate themselves against looming inflationary risk.

Through digitalisation and adoption of innovative technologies such as tokens – together with a thoughtful approach towards ESG – investment managers will be able to target a wider demographic. This will be critical in helping managers future proof their businesses moving forward.

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Head of Global Markets at Calastone