Where is the industry going to grow most in the coming years. The answer varies for a number of the leading investment managers around the world.

Let’s take a look at a few examples.

Flipping assets away from home

Despite being London headquartered, Schroders in the last decade flipped its asset mix from 30% international and 70% UK-based to the opposite today (for a total of $305 billion). And, according to Vice Chairman Massimo Tosato, the firm sees the best opportunities for the next half decade in Asia, and, notably, the U.S. A quarter of total assets from Asia today are expected to reach one third in the next five years, driven by demographic trends and income growth.

A similar story can be seen for giant Franklin Templeton. Net cash flows in the last five years have been two thirds from outside of the United States, with UCITS vehicles outselling 1940 Act funds. Notably, the retail focused firm also has seen greater participation from institutional clients post-crisis, blurring lines of demarcation for channels. Blurring lines even further, the recent acquisition of fund of hedge fund manager K2 is indicating similarly blurred lines for products towards absolute return and investment solutions on an institutional level to shape up the house view.

And Swiss wealth and asset manager Julius Baer, faced with regulatory, investor and market uncertainties at home, considers Singapore its new home market, and recently acquired Merrill Lynch’s ex-US wealth management business to push hard into Asia.

Asia all the rage

Markets such as Taiwan have proven very profitable for international fund managers. Alliance Bernstein with its high yield product landed a blockbuster product, and firms ranging from UBS to Franklin Templeton, Pictet and Schroders see great growth on the intermediary business in the country, with tens of billions of dollars in flagship strategies. As such, a presumably tiny market such as Taiwan can be far more sustainable and profitable than other larger brethren, China for instance, where profitability has been hard to come by. Indonesia is another opportunity set, but competition is getting more intense as well.

More broadly, most of the new middle class will come from emerging markets such as China, Indonesia or India, as well as Latin America. And on the high end of the market, Asia for the first time on record last year surpassed North America in terms of number of wealthy investors according to the World Wealth Report. As retail business has dried up post 2008, firms are focusing on the complex but lucrative demands of private wealth clients. Stay tuned for a detailed overview of private banking needs in Asia in an upcoming white paper between BBH and Strategic Insight.

As Asia is looking for income streams, Schroders last year was able to launch a top cash flow product for the year, a multi-asset income fund domiciled in Hong Kong sold in partnership with HSBC. This search for yield is one of the key growth drivers for Schroders in Asia, paired with the middle class demographic growth. Tosato has given the region the highest growth rate in the firm’s five year plan.

And the US.

On the other hand, the largest and most mature market for retirement and post-retirement investing, the US, is also high on the list of priorities for international firms, such as Schroders, HSBC, Aberdeen or UBS. Only a tiny slice of market share in a specific segment can make a big difference to the bottom line.

Schroders US assets for now stand at 10% of total AUM, creating big opportunities in trying to get a foot in the door. Aberdeen only recently with its Philadelphia acquisition started a period of fast growth from a low base especially in the underdeveloped EM space with institutions, and HSBC is as well only now is getting started, similarly with an emerging markets expertise.

What about Europe?

We still should not forget about Europe, both from an investment and distribution perspective. Franklin Templeton after a decade of building partnerships and commitments to a market like Italy, now has tens of billions in an environment where most domestic and international firms are struggling to make money.

Investment opportunities for both intermediaries and institutions for 2013 are mostly expected in European equities and Greece after doing all the hard work of restructuring was the best place to invest in Q3 2012.

The ASE rose by 70% in Q3 2012 – the E&A Quarterly Asset Management Digest makes the case that it’s time to see it differently. To receive a copy or become a strategic partner, just send me an email.

Don’t write the UK or the continent off, it seems. However, what definitely is needed is a sniper rather than shotgun approach, as many firms in Europe have been there for at least a decade and gatekeepers have become sophisticated. Moreover, global relationships anchored in Europe have become more complex as wealth needs in Asia and Latin America are markedly different.

Latin America considerations

Latin America is a top priority for most investment managers when it comes to building out investment capabilities and broadening product lines. However, many firms by the same token are looking to build out the opportunistic mandates they have seen in recent years.

As discussed in dozens of case studies and blog posting here this year, both European and US firms have made acquisitions, forged partnerships or set up third party marketing arrangements in Latin America. As wealth management and institutional business is flourishing in Brazil, Mexico, and the Andean Three, even the firms that are just starting to think about their LatAm strategy are making regular trips to the region to feel things out.

And a number of firms already manage tens of billions in Latin America. It’s a little bit like Asia a decade ago, when no international firm was able to show a commanding AUM lead to stand apart. But as we have seen in Asia, these numbers change quickly as growth occurs, and firms need to at least think through their potential objectives to not be left out later on.

The world is your oyster, just make sure to avoid food poisoning.

Where does that leave us? In an investment world searching for safety and yields, but at the same time faced with risk taking conundra to reach target returns, we see plenty of opportunities all over the globe. However, those opportunities are matched with potholes and landmines as single mistakes have become more costly for the overall franchise from a messaging and branding perspective.

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(c) Enskat Associates 2012