Singapore insurance asset managers are increasingly turning to outside experts to manage their funds, driven by a growing demand for greater portfolio control and transparency.
Research from Clearwater Analytics (CWAN) noted that insurance asset managers in Singapore with total assets under management of S$1.04tn ($810m) found that, on average, 34% of funds were managed externally. All those surveyed delegated management of varying amounts of funds to external managers, ranging from 24% to a maximum of 45%.
Other findings included:
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63% forecasted a switch towards more assets being managed outside their firm
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26% predicted more assets would be managed in-house
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11% expect the balance to remain the same
Faster pace of change in Hong Kong
The survey also found that the pace of change is expected to be faster in Hong Kong, where 88% forecast a switch towards more assets being managed outside their firm. Just 6% predicted more assets will be managed in-house, while 6% expected the balance to remain the same.
The top reason given for the shift in Singapore was a need for greater control over investment portfolios, with transparency and reporting ranked second. In Hong Kong, the top reason given for the shift was the overall improvement in the reputation and acceptance of using external managers, with greater transparency and reporting ranked second.
Increased visibility of investment portfolios and the improved reputation and increased acceptance of using external managers followed closely in the poll in Singapore.
Cutting cost not a priority
Outsourcing is often seen as a way to cut costs and cover a lack of in-house expertise. But the survey found that these ranked as the two least important factors driving the changes.
“The use of third-party asset managers by insurers in Singapore will accelerate as they become increasingly comfortable with the practice and seek specialised expertise for complex private market investments,” said CWAN Chief Strategy Officer and President of APAC Shane Akeroyd.
“This shift is not being driven by a desire to cut costs or due to a lack of internal talent, but the adoption of technology and the growing use of platforms which give insurers far greater visibility and control over their portfolios.”
Data integration a pressing challenge
According to the survey, data integration is the most pressing challenge facing insurance asset managers, followed closely by coverage and consolidation, both factors influenced by the growing number of third-party asset management firms.
These data management challenges are set to intensify, as 84% questioned plans to increase diversification over the next three years, with average private market allocations expected to grow from 20% to 36% of holdings within five years.
In addition, 92% of respondents agreed that this growth in manager numbers is resulting in more data in varied formats and increasing difficulty in accessing the information required.
“As insurers diversify their investment strategies and engage more external managers, the ability to bring together and analyse data across disparate asset classes and systems has become critical,” Mr Akeroyd said.
“With private markets set to represent more than a third of future allocations, firms can no longer afford the performance gaps we’re seeing in foundational capabilities.”
Talent
These operational pressures are also reshaping how firms think about talent, with the survey revealing significant skills and capability gaps within investment management functions. The top strategies to combat the issues include:
- Recruiting people from a broader range of sectors or with a greater diversity of perspectives
- Hiring more specialists in risk management roles; adding new tools or platforms to compensate for system deficiencies
- Transferring more risk management analysis away from spreadsheets and other manual processes
Outsourcing more to third parties
“These operations require integrated platforms that simplify complexity, strengthen risk oversight, and scale seamlessly as portfolios grow and regulations evolve,” added Mr Akeroyd.
“With 94% of Singapore-based insurers surveyed expecting increased M&A activity, the firms that close these capability gaps first will have a significant competitive advantage as the sector consolidates.”