DETERMINANTS OF PERFORMANCE OF ASSET MANAGEMENT COMPANIES IN SINGAPORE

Abstract

The global asset management industry has experienced unprecedented growth in the past two decades, and continues to be the most consistently profitable business in the financial services industry. In Singapore, the industry grew threefold over the period of 2000 to 2010 alone. In the future, this growth is likely to continue, with the demand for professional management services being driven by both local and foreign investors alike. As the financial services sector recovers from the effects of the global financial crisis, many asset management companies are seizing the opportunity to restructure their businesses. Restructuring fundamentally requires an understanding of the determinants of performance of asset management companies, which is the objective of this study. Previous studies focused on the performance of individual mutual funds, instead of firmlevel performance. To the best of my knowledge, no study has been conducted to examine the performance of asset management companies in Singapore. To understand the critical success factors influencing the performance of asset management companies in Singapore, this study first examines the role of the asset management industry in the financial services sector, and later the key drivers of the retail and institutional arms of the asset management business. A sample of 171 observations of asset management firms in Singapore from the period of 2006 to 2010 was used for this study. Several determinants of performance were found. Asset management companies with a strong brand name, companies that sourced funds from overseas investors, companies with larger staff strength, and local asset management companies were found to perform better. In addition, while local companies tend to perform better in general, they performed worse during the global financial crisis. The implications of this study for asset management companies based in Singapore would be to think globally, but act locally. For local players, thinking globally would be to expand their client base beyond Singapore. For foreign players, this would be to hire locals to run the business and allow key decisions to be made in Singapore, thereby acting locally.