In our second Insight discussing the challenges and opportunities facing APAC asset owners, we examine regulatory headwinds and their impact on asset owner operating models and growing reporting obligations.

By Peter Sherriff , Director, Product Strategy, Asia Pacific
Charles River Development

APAC is home to some of the world’s largest pension funds, insurers and sovereign wealth funds (SWFs). Pensions in Japan and Australia rank second and fourth respectively in terms of total assets, with Japan’s Government Pension Investment Fund (GPIF) currently the largest pension fund globally, with approximately $1.6 trillion in assets under management.

While the impressive growth of SWFs and pensions has historically served countries and beneficiaries well, APAC asset owners face a number of challenges. Rapidly aging populations and lower birth rates in developed APAC countries place significant stress on pension funds’ ability to meet future obligations. For example, with only 1.8 workers for every retiree, Japan has one of the highest dependency ratios in the world.

Given asset owners’ central role in underwriting societal benefits and providing for policy holders and retirees, these challenges have resulted in increased regulatory scrutiny and structural changes. Most recently, the liquidity crunch brought on by the global pandemic has added further stress to pensions dealing with government-sanctioned redemption requests for temporarily unemployed pension members.

In our conversations with asset owners across the region, we find growing interest in technology solutions and consultative expertise to support emerging regulatory reporting, compliance and risk management requirements. A consensus is emerging that manually maintained spreadsheets, point solutions and legacy systems are no longer appropriate to address regulatory mandates.

Both regulatory reporting and risk management benefit from robust data collection and aggregation capabilities that can capture data at the frequency, granularity and detail mandated by regulations. Likewise, properly enriched data can supply organizations with a holistic view of internal and externally managed assets, enabling timely and accurate “look through” functionality across multiple asset managers and sub-managers.  This also helps asset owners more easily generate portfolio and risk analytics and perform solvency and liquidity related stress tests to better inform their investment, de-risking and asset allocation decisions.

Another area where asset owners are turning to technology to help meet regulatory obligations is delivering transparency for their members and beneficiaries. Regulators are demanding funds become more transparent about where they are investing, their performance and associated fees. This level of obligation is being enforced by country specific organisations such as The Australian Prudential Regulation Authority (APRA) through to supranational regulations such as MiFID II that span the globe. Consistent, accurate and actionable data is imperative for meeting those obligations in a timely manner.

An emerging area of regulatory focus that will inevitably have implications for asset owners globally is addressing the shift in investor preference toward socially responsible investing. Organisations including the European Securities and Markets Authority (ESMA) are working towards a regulatory framework governing sustainable investing.  Such a framework has the potential to have systemic consequences for APAC asset owners like we have seen with other inter-regional regulations.

While rapid demographic, regulatory and economic changes are impacting asset owner operating models and driving up compliance and regulatory reporting costs, engaging with a trusted technology and asset servicing provider can help organizations evolve into more resilient and sustainable entities.

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