Little could the creators of UCITS have known that, nearly 30 years on, there would have been tremors in Asia that would threaten the growth of this £6trn behemoth.
Yet it is not fanciful to suggest this is exactly what the three nascent fund passporting regimes in Asia now represent, allowing a fund in one country to be sold easily into another.
For the fund management industry, earthquakes tend to take several years for their full effect to be felt. But any forwardlooking business – be it platform, fund manager or adviser – with ambitions in the region needs to be monitoring its seismograph today.
The first is the Asean Collective Investment Scheme Framework. Based on member countries’ mutual funds’ assets under management, this scheme is the smallest of the three, but also the nimblest so far, with the Association of Southeast Asian Nations being the quickest to launch.
The scheme that has probably attracted most column inches is the Mutual Recognition between China and Hong Kong. Here asset managers’ interest has clearly been stimulated by the opportunity to reach mainland Chinese investors without having to set up a joint venture there.
Finally there is the Asia Region Funds Passport (ARFP). This initiative has been driven by Australia, but has the potential for any of the 21 members of the Asia-Pacific Economic Cooperation (APEC) to be included, so even the US might one day join. Currently six member economies have signed up.
Japan’s conspicuous absence
The most glaring absentee from those countries currently involved is Japan, whose mutual fund industry can boast assets of £225bn. Australia has shown that it is keen to include Japan in cross-border initiatives, having signed the Japan-Australia Economic Partnership earlier this year.
Looking across different Asian fund markets, receptiveness to UCITS varies, with Hong Kong, Singapore and Taiwan forming the vanguard of offshore fund buyers, but many other markets are largely closed.
With this experience, participants in these three markets will be among those already most able to cope with funds from different domiciles.
However platforms in all markets need to start adjusting to a world where previously inaccessible fund markets are now opening up, such as Malaysia, and potentially Indonesia too.
Shocks to come
Generally distribution is dominated by banks. Financial advisers come in many forms but most are proprietary or tied in some way to a bank, insurance or stockbroking/securities house and so tend to be treated as a subset of their parent company’s primary business.
Independent financial advice is only a small feature – although it is growing. As a result, the concept of a platform is very much as part of the administration engine of a larger financial group, such as a private bank (Credit Suisse, UBS, Julius Baer/Merrill Lynch) or an international bank (HSBC, Citi, Standard Chartered).
As in Europe, Asia is not a single market and fund selectors and their relative importance vary from market to market.
When it comes to platforms that might be recognised as such in the UK, then iFast (in Singapore and Hong Kong) probably comes closest, but the rarity of such businesses speaks volumes about the small size of IFAs. For example, Korea’s first fund supermarket, Fund Online Korea, was only launched this year, as were fund trading platforms in Thailand (Wealth Magik) and Taiwan (part of GreTai).
Barings estimates that UCITS source 30% of their assets from outside Europe. But the threat that Asian fund passports present are less to do with the current industry, and more with the aspirations for growth among international groups.
Asset managers are developing increasingly bespoke solutions for different investors, such as a regional Asia Pacific fund that excludes exposure to one market.
In the same way, if offering locally domiciled funds meets client needs, then serious players will do this – be they asset managers or platforms.
This is not to say that each Asian passport will inevitably be a success – local hurdles such as tax cannot be underestimated – but they must surely help to accelerate changes that are already taking place.
The size of the earthquake is yet to be determined, but the shockwaves from these passports will be felt in both Europe and Asia for many years to come.
