Growth strategy for asset managers in new markets 1 by Sutherland Global Services

Growth strategy for Asset Managers in New Markets

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Content

Defining New Markets

Where is the growth in New Wealth creation and outlook on the product suite

Determining Right Market Entry Strategy

Regulatory and Cultural landscape

Optimal Execution Model

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Defining New Markets – Factors to be considered before embarking on overseas business expansion Macroeconomic/Industry Factors Professionally Managed Assets in 2012 (AUM in USD trillion)

Global wealth forecast in 2017 In USD trillion

Equity-Market Performance (MSCI Index Performance) 2008-2012

Share of Global GDP (2008-2012)

Size of Middle class (People in millions)

Wealth Concentration by Number of adults in ‘000 (Wealth : $0.1--1 mm)

North America

$30.3

$48.0

10.8%

Year 2008: 29.2% Year 2012: 27.9%

Year 2009 : 338 Year 2020 : 333

85, 730 (24.9% of the total)

Europe

$17.5

$44.6

5.7%

Year 2008: 37.6% Year 2012: 30.8%

Year 2009 : 664 Year 2020 : 703

143, 275 (41.6% of the total)

Latin America

$1.5

$5.9

9.4%

Year 2008: 5.1% Year 2012: 6.1%

Year 2009 : 181 Year 2020 : 251

12, 402 (4% of the total)

Asia-Pacific (excluding Japan and Australia)

$3.8

$48.1

12.0%

Year 2008: 15.4% Year 2012: 21.8% Year 2008: 10.2 Year 2012: 11.2 Year 2008: 2.6% Year 2012: 2.2%

Region

Japan & Australia

$6.3

Japan: $18.2

Japan: 5.3% Australia: 10.7%

Middle East & South Africa

$1.2

$6.5

Middle East: 1.7% South Africa: 13.2%

Year 2009 : 525 Year 2020 : 1,740

Year 2009 : 105 Year 2020 : 165

53, 087 (15% of the total) 63, 195 (18% of the total) 6, 352 (2% of the total)

Other Key Factors

Political Risk

Ease of Regulation

Maturity of Distribution Channels

Long Term Investment Needs in Infrastructure

Investment Talent Availability

Sources: Sutherland Research, BCG, Credit Suisse, World Bank

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Where is the growth in New Wealth creation and outlook on the product suite •

A study asserts that global middle class with constitute around 50% of the total world population by 2030; Two-Thirds of this global middle class will be residents of Asia Pacific region and at the upper end of income bracket.

Wealth Growth in 2012

Asset Class Growth Outlook (2012-2016) 25

2012~ (2011)

X% (~y%)

+7.8% (+3.6%)

Global Private Financial Wealth

~9.8 $trillions

Passive products/ETFs3

Fixed-income ETFs

Alternative products1

+ High Growth World

Mature Growth world

+12.9% (+11.6%)

+5.9% (+0.8%)

CAGR 2012-2016 (%)

15 Equity ETFs

Infrastructure

• • • •

Asia-Pacific (ex Japan) Eastern Europe Latin America Middle East and Africa

• • •

North America Western Europe Japan

~4.5 $trillions

~5.3 $trillions

Equity specialties5 Fixed-income Specialties4

Fund of funds

Newly created wealth

Existing assets

Newly created wealth

Existing assets

~2.5 $trillions

~1.9 $trillions

~1.4 $trillions

~3.9 $trillions

Private Hedge equity funds

Traditional actively managed products2

-5 0

50 100 Net Revenue Margin* (basis Point)

150 200

Note: ETFs = exchange-traded funds; LDIs = liability-driven investments. 1 Includes hedge, private-equity, real estate, infrastructure, and commodity funds. 2 Includes equity specialties (foreign, global, emerging markets, small and mid caps, and sector) and fixed-income specialties (credit, emerging markets, global, high yield, and convertibles). 3 Includes passive fixed income, passive equity 4 Includes credit, emerging market, and global debt, high yield bonds, and convertibles 5 Includes foreign, global, emerging market equities, small, mid caps, and sectors

Source: BCG, Sutherland Research

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Determining Right Market Entry Strategy

Acquisitions

Build a New Footprint

JV / Alliances

Distribution

Investment Management

Operations â&#x20AC;&#x201C; Middle Office

IT & Infrastructure

Support

Product Design

Regulations

Core Competencies

Sutherland Research shows that traditionally 2 out of 3 Asset Managers have taken the route of Joint ventures to enter in to Emerging Markets ÂŠ 2014 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.

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Regulatory and Cultural considerations are important to succeed in new markets

Challenges

Key Factors to Consider

• Licensing requirements • Tax complexities

Regulatory Environment

• Restrictions on Product offering • Regulatory reporting

• Repatriation of funds • Local Capital Market Regulations

• Varied investor preferences and strategies

• Differing investor relations

Cultural Factors

• Varying investor expectations around value-added • Variations in investment horizon • Differing Product demand • Multiple language requirements

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Optimal Execution Model Product Distribution and Front End Model Empowered Independent Boutiques

Virtual Asset Managers

• Local expertise

• Product Leadership

• Entrepreneurial Spirit

• Skills expertise (Differentiator)

• Agility & ﬂexibility to manage

• Secret sauce can be leveraged

cultural nuances • Investment Talent

• Brand leverage • Network mindset

• Product expertise and innovation

Supported by Strong Enablers and Competency Centers Cost-income ratio in % +12 p.p. 80% 60% 40% 61%

73%

20% 0% 2007

2012

• Cost-to-Income ratios continue to remain high. As compared to pre-crisis levels Cost-to-Income ratios are still 12 percentage points higher • Sutherland’s experience shows that the following catalysts are key to attaining sustainable reduction in Cost-to-Income ratios : – Align compensation models based on client profitability – Create agile business model structures that allow changing the business dynamics (product design, marketing, risk management, reporting, etc.) in line with investor preferences – Create competency centers with shared services that allow scaling of operations in the times of growth without high fixed costs – Leverage global sourcing to achieve most efficient comp ratio levels – Align the service levels of middle office functions based on client profitability