Demographic Trends in Asia – Impacts on the Asset Management Industry
Over the past decade, countries within the Asia Pacific region have seen fundamental shifts in their population demographic profiles. These shifts are driving significant impacts on the Asset Management industry in the region, and are poised to continue doing so in the coming years. This article explores how notable present trends – population ageing and rising affluence – have translated into remarkable tailwinds for the Asset Management industry in Asia.
In the coming decade, population ageing is a core demographic shift expected within many countries in the Asia Pacific. Japan, currently with one of the most elderly populations in Asia, presently has citizens above 65 years old making up 28% of the population (compared to just 16% and 19% for the US and the EU respectively). Present projections indicate that the populations of other Asia Pacific countries (Singapore, China and South Korea, to name a few) will follow a steep ageing trend in the near future. By UN predictions, the number of persons aged 65 or older in East and South East Asia is poised to more than double from 260.6 million to 572.5 million by 2050.
This trend is driven primarily by broad, rapid socio-economic development within the APAC region. The increase in overall population affluence coupled with accompanying improvements in relevant physical and social infrastructure together drive this demographic shift through:
1. Raising life expectancy through enhanced health management, superior medical care, and more favourable Social Determinants of Health
2. Lower fertility rates associated with an increased level of education and greater socioeconomic stability.
The impact of this demographic shift on the Asset Management industry is manifold, with core considerations including:
Ascent of the Asian Healthcare Industry
Population ageing presents a compelling backdrop for the growth of several industries and market segments, perhaps most notably the healthcare industry. The MSCI AC Asia Pacific Health Care Index, which tracks 128 large and mid-cap healthcare securities across 14 Asia Pacific countries, has outperformed its corresponding indices for the broader market (e.g. the MSCI AC Asia Pacific Index) over the past decade.
Fig. 1: Relative Outperformance of Healthcare Sector
Whilst a multitude of factors need to be considered in security selection by asset managers, a robust, sustainable industry tailwind driving a favourable environment for top-line expansion is amongst the core factors supporting the appeal of an asset. As such, appealing demographic trends have positioned quality Healthcare assets as a mainstay in asset managers’ holdings and research coverage. With this demographic shift very much still taking shape, we can expect this industry tailwind to be broadly sustained in the coming decade.
Growing in Pension Fund Holdings
With population ageing raising the proportion of wage-earners and savers of wealth within the population, there has been an increased funnelling of funds into the Asset Management industry, with the impact falling most directly on Pension Funds.
This trend is exemplified in a notable rise in total pension fund assets under management in the APAC region. Of the world’s 20 largest pension funds, 7 are already in countries within the APAC region – the region further accounts for ~26% of assets within the top 300 pension funds in the world. In terms of AUM growth, Asian pension funds have witnessed an impressive annualised growth rate of 5.2% from 2013 to 2018, trailing only funds in North America (5.8%).
Pension funds typically look to diverse asset managers, such as Hedge Funds, Index Funds, and Private Equity Funds to invest these assets on their behalf. This is due to:
Superior specialised expertise of different asset managers: channelling capital into diverse funds allows pension funds to attain portfolio diversification without spreading its own investment team too thinly across different asset types
Enhanced access to foreign markets: by channelling capital into asset managers in foreign markets, pension funds also enhance geographical diversification of their holdings, while gaining exposure in markets they themselves might not understand well
As such, this rise of pension fund assets presents a significant source of funds for diverse players across the APAC Asset Management industry.
Growth in Population Wealth
The past decade has also seen a growing number of wealthy individuals in the APAC region. The number of millionaires in Asia is expected to rise from ~7.5 million in 2019 to just over 11 million in 2024 – a 47% increase. Concurrently, the number of UNHWIs (defined as individuals with above USD 50 Million) is expected to increase from 44700 to 66000 over the same period, with China accounting for just under half of this hike. This mirrors the broader ascension in wealth and economic output within these economies – the Asia Pacific region’s share of global GDP has climbed from ~30% in 2000 to ~45% today, and is poised to see continued expansion in the coming decades.
With most HNWIs turning to professional money managers to manage their holdings, this becomes a robust funding driver for the regional AM industry, with asset managers increasingly able to tap on this enlarged pool of capital investors.
To the future
Being long-term developments, the full impact of these demographic changes on the Asset Management industry and in the various markets they invest in is yet to be seen. It is clear, however, that they underpin vital, sustainable tailwinds for the industry. The opportunities for asset managers in the region are thus abundant, and it would be of particular interest to see how they adapt their operational and investing strategies in view of these developments.