* Changing structure of fund industry entices new entrants
* Google, Apple, Amazon among those well positioned - KPMG
* Alibaba's online payment arm now a $90 bln fund manager
* Index funds may be next to feel the pinch of competition
* Regulation a brake to quick change in active management
By Simon Jessop
MONACO, June 27 Tech companies pose a growing
threat to traditional asset managers and the financial services
industry needs to up its game to meet the challenge, even though
the hurdle of regulation is holding back rapid change, industry
Some parts of the broader financial services industry have
already seen new entrants emerge, such as around online trading
But the prospect of younger, tech-savvy savers being forced
to put more away for their retirement has led some to ask if
companies such as Google, Amazon and Apple
could one day grab a slice of an industry consultancy
PwC says could be worth $100 trillion by 2020.
A report by consultants KPMG said the U.S. tech giants
possessed a number of strengths which could benefit them in
asset management, such as strong brands, relevant products and
"enviable" distribution platforms. None of them have yet to move
into the industry, however.
While there are examples of firms jumping into completely
new business lines - food retailer Tesco's foray into
high street banking, for example - a more likely scenario is
that they would partner up with an existing fund manager in some
But nonetheless, the threat is seen as real. When asked if
technological innovation would "disrupt" the asset management
industry in the coming years, 67 percent of the audience at a
panel discussion of industry executives at the Fund Forum
conference in Monaco said "yes", with 29 percent "no" and 4
percent "don't know".
Paloma Piqueras, chief executive at BBVA Asset Management,
part of Spanish bank BBVA, said she was not surprised
by the views of the audience and cited the scale of impact
changing technology had had on other industries.
"Clients are changing the way they perceive the offer, the
way they look for information; they want personalised products
and content. So there is work to do on distribution, on
advising, on using the data we have to propose a personalised
offer and in every step of the whole value chain of the asset
"None of us could have thought that industries such as
music, books, travel would experience such important challenges
due to technology (and) we're already seeing some signs of these
changes in the asset management industry," she added, citing
Chinese Internet retailer Alibaba as an example.
That country's Internet companies have blazed the way for
the sale of wealth management products in the Internet age.
Since last year they have offered depositors an alternative to
the low interest rates - capped at 3.3 percent by the central
bank - that come with putting money in China's traditional
The first of these was Yu'e Bao, an online investment
platform offered by an affiliate of Chinese e-commerce giant
Alibaba Group Holding Ltd.
Available on smartphones, Yu'e Bao is conveniently linked to
China's biggest online payments platform Alipay, similar to
PayPal, and is now China's biggest money market fund in terms of
assets under management (AUM).
It began as a partnership with local asset manager Tianhong
Asset Management Co, but at the end of May, Alipay received the
green light to take a majority stake in the fund firm itself.
It had 554 billion yuan ($90 billion) in assets under
management in the first quarter of 2014 from just 10.5 billion
yuan a year earlier, according to Z-Ben Advisors, a
Shanghai-based investment management consultancy.
"There were a lot of fund sales through the web in the late
90s when tech funds were roaring up and people who were tech
savvy bought them, but it didn't last. This feels potentially
more lasting," said Jim McCaughan, chief executive of Principal
Global Investors, the asset management arm of Principal
"One of the impressive thing about Yu'e Bao, the Alibaba
fund, is not only has it raised 91 billion (dollars) net, it has
100 million investors. I would ask you, is there a transfer
agent or fund administrator in the West who could have done
Other examples of technology being used to shake-up
financial services include eToro, a marketplace to trade
currencies and other assets and which has a community for
investors to interact with one another, and Nutmeg, a UK firm
that helps people build portfolios online, said KPMG.
"We are now seeing new parties emerging with
technology-driven service models that are helping customers make
decisions not using a face-to-face model, but using technology
that is more suited to the needs of consumers today, and that is
where the future is going," Dutch regulator Theodor Kockelkoren
More broadly, the rise in "passive" investment using
exchange-traded funds was evidence of technology disrupting the
"active" management industry, said Principal Global's McCaughan,
and more was likely on the way.
"Somebody soon, and it may be Alibaba, will be launching
index funds through these web platforms. If you're an index fund
provider, there's another disruption coming."
Index mutual funds track an underlying stock or other index
and aim to give returns very close to those of the index. Along
with exchange-traded funds, which are traded as a security in
their own right, both involve minimal human oversight and rely
more on technology than "active" funds that rely on human input.
Regulation, though, was acting as a brake on new entrants
moving wholesale into active management, said Maarten
Slendebroek, chief executive at Jupiter Fund Management.
"The reason why this hasn't happened much faster in
financial services is because of financial regulation, that's
the biggest barrier to selling direct to the consumer.
The success of online funds such as Yu'e Bao may also be
hard to replicate in other countries, as China's banks are
geared towards conservatism, and are tightly controlled by
regulators, meaning deposit rates are lower than elsewhere.
China is also unique for the proliferation of smartphones,
where 80 percent of its 618 million Internet users go online
using mobile device, a cultural quirk that has already allowed
other Chinese internet retailers to adopt the Yu'e Bao model,
including Baidu and Tencent.
The turning point could be when so-called 'Generation Y',
those born between the early 1980s and 2000s, began to take more
interest in saving for their retirement.
"We're seeing some nascent digital industries starting up,
but it will only really pick up when Gen Y start saving," said
one investment banker in investor sales.
"Then it will not just be about distribution models but
about crowd-sharing ideas: 'I bought this fund, what do you
($1 = 6.2251 Chinese Yuan Renminbi)
(Additional reporting by Paul Carsten in Beijing; Editing by