GAIM Ops: Asian fund passporting schemes could threaten UCITS

A source close to the Central Bank of Ireland, the Irish regulator, has said fund passporting schemes in Asia could facilitate reduced access for UCITS managers to investors in the region.

APEC, also known as the Asia Region Funds Passport, includes Australia, New Zealand, Singapore, South Korea, Thailand and the Philippines. It is slowly gaining headway with a recent paper by HSBC suggesting it could rival UCITS. Nonetheless, progress has been limited. The ASEAN scheme, limited to Singapore, Malaysia and Thailand is at a more advanced stage and could see the cross-border distribution of funds across these countries.

“We are worried that UCITS could be side-lined because of these fund passport schemes and there could possibly be reduced access for UCITS managers into the region,” said the source, speaking at the GAIM Ops Conference in Dublin.

Asian allocators are significant sources of capital for UCITS. The 2014 World Wealth Report published by Capgemini and RBC Wealth Management found APAC’s High Net Worth Individual (HNWI) population grew by 17.3% in 2013 to 4.32 million, just 10,000 shy of the 4.33 million recorded in North America. The report says the APAC HNWI market will surpass that of North America in the very near future.

There are a number of exciting developments occurring in APAC at present. The mutual recognition scheme between mainland China and Hong Kong is likely to be launched later this year and will enable Hong Kong fund managers to market to mainland investors without having to partner with a Chinese firm or apply for a license, something that has historically frustrated asset managers in the region. For China, mutual recognition could lead to an internationalisation of the Renminbi and provide a boost to its domestic asset management industry by opening it up to international investors.

While Chinese officials have denied speculation that mutual recognition will be extended to other jurisdictions, some believe the initiative’s scope could be broadened in a manner not too dissimilar to how the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes were widened.

The HSBC paper hinted that Singapore, given its developed RQFII offerings, could be a strong contender. Taiwan has established cooperation agreements with China and it too might benefit. HSBC described the UK as a dark horse candidate. While the UK has the technical expertise and is a growing Renminbi hub, its historical links with Hong Kong could work against it, continued the HSBC report.

It added that Luxembourg, a major UCITS domicile, could be another prospect but suggested mutual recognition in China might in fact be a ploy to limit the spread of UCITS on the mainland.

Tags: UCITSUCITS fundsASEANAPECpassportingAsia