As history repeats, the current financial crisis and concurrent sell off in Asian stock markets is likely to test the resolve of international fund management companies that had asserted their commitment to building a strong Asian presence in previous bull market years. Asian regional markets have lost over 50 per cent this year as measured by the MSCI Asia ex-Japan index in US dollar terms, which transmits directly to a shortfall in fund managers' revenue.

For managers rewarded by performance fees the situation is likely to be compounded by the imposition of a “high water mark” that requires managers to make good any performance shortfall relative to targets before the performance fee can resume. Although performance fees are most common with so-called alternative asset managers, where pay for performance is the mantra, many traditional fund managers have been shifting more to performance fees over the past several years in order to align revenue with fund manager variable compensation.

The Asian fund management industry has faced many bouts of extreme volatility in the past and indeed survived a dress rehearsal of the current global banking and credit crisis in the late 1990s. For clients back in that period the pain was overcome as the region was able to survive the difficulties facing the financial system and benefit from a sharp rebound in share prices subsequently.