The Asia-Pacific region is dealing with intensified regulations, pressured revenues, narrowing distribution, reluctant inflows, and many other challenges. However inevitable changes in regulation will expand investment opportunities. Demographic and market developments will facilitate sales of products that do not currently have a strong presence among Asian investors, according to the Boston-based research firm.

Asian investors will likely soon have an expanded repertoire of asset classes and fund structures because regulators recognize investors’ need to diversify their risk and hedge exposures. This is already happening in Thailand, as its provident funds will now be able to invest up to 15 per cent of net asset value in commodity funds, infrastructure vehicles, and other alternative products.

In the longer term, China is likely to tread a similar path, despite the fact that the China Securities Regulatory Commission has so far refused to let mutual funds expand their product range beyond long-only equities and bonds, most of which are Chinese. This domestic-centric nature has long-term implications for investors (Chinese stock markets are inherently volatile and the accounting practices of some Chinese companies’ are dubious).

Cerulli believes that eventually, Chinese regulators will conclude that it is in investors’ best interest for the mutual fund industry to have more room to maneuver. In fact, Chinese regulators recently gave permission for seven exchange-traded funds to use margin trading and short-selling.

“If that initial run goes satisfactorily, more ETFs will be allowed to do so, and this may eventually pave the way for long-short funds, such as UCITS,” said Shiv Taneja, director atCerulli Associates.

Another opportunity exists in the fact that throughout Asia, people are living longer. Combine that with the new norm of financial market volatility, unpredictable inflationary patterns, and in increase in the sheer number of financial products.

“These developments point to opportunities for fund managers to offer their skills to specialized market segments with specific needs,” said Taneja.

Inflation-protected funds are one example of this concept. These funds are currently a less popular proposition outside Australia, where assets under management was $1.2 billion in 2010.

However, Korea-domiciled inflation protected funds’ AUM expanded to $23.8 million in November 2011, from $5.1 million in 2010 and $2.3 million in 2009. China’s inflation-protected funds have also followed an upward trajectory.