The report struck a broadly upbeat tone while acknowledging that the past year had been tough for parts of the industry as equity markets fell.

Assets under management in Southeast Asia's wealth and investment industry will rise at a compound annual growth rate of 10.9 per cent from 2018 to 2023, as an expanding middle class, improving financial literacy and other forces drive growth, a report says.

Asset and wealth managers are "largely optimistic" about prospects in spite of some of the recent market gyrations, according to Cerulli Associates, the analytics and research firm. However, it also noted that last year was a setback for funds in terms of assets, and certain countries see this year as being a challenging one for growth.

The overall tone of the report - Asset Management in Southeast Asia 2019: The Welcome Mat Unfurls Further - however, is optimistic. It examines the case of Indonesia, for example, as a market with untapped growth potential.

"Currently largely under-penetrated, Indonesia is poised to lead regional growth, backed by its rapidly expanding middle-class population. Assuming that just 20 per cent of its current labour force of 125 million people invest $300 annually in mutual funds, this could translate to fresh yearly inflows of $7.5 billion, or more than 20 per cent of the current Indonesian mutual fund AuM," it said.

"Moreover, technological advancements have facilitated fund houses’ efforts to reach out to and service the under-banked and rural populations in the country via mobile applications, social media campaigns, e-wallets, and others," Cerulli said.

"While the developing Southeast Asian nations’ assets and investor base are dwarfed by North Asia’s, the region’s prospects are fuelled by its rising middle class and emerging affluent populations. Their investment needs are also evolving and becoming more diversified as regulators gradually open their markets," it said.

Volatility
Last year was a setback for the mutual funds market in some ways as equity markets fell around the world. AuM in the region contracted by 4.0 per cent to $369.6 billion in 2018, contrasting with rapid growth in 2017.

Cerulli said that managers in Malaysia and Thailand also expect 2019 to be a "challenging year" for new fundraising, due to the prevailing market sentiments as well as strong competition from deposits and structured products. Managers in Indonesia and the Philippines are hopeful that new distribution channels and favourable regulatory developments will help expand the investor base to more middle-class investors and build a solid foundation for long-term asset growth, it said.

“Reaping profits from Southeast Asia is a long-term game: the region is highly fragmented, and each market is unique. There is no one-size-fits-all solution,” Evonne Gan, an associate director at Cerulli, said. “Nevertheless, staying committed to the local market can help boost a firm’s relationship with regulators, distributors, and end investors. Fund houses need to demonstrate to regulators that they are in the market for the long haul, and not out just to make a quick buck.”