Doing business in Asia | What’s driving Asian fund passport schemes?

A recent NICSA webinar sponsored by ALFI, the Luxembourg fund industry association, reviewed initiatives to create a UCITS-style cross-border fund sales regime in Asia.

iStock_000015262467SmallExperts from Elvinger, Hoss and Prussen and Dechert discussed the Asian market environment that has given rise to three proposed schemes:

  • Hong Kong/China mutual recognition
  • APEC funds passport
  • ASEAN framework

Driver #1: Attractive economic picture

The Asian region is growing by leaps and bounds. Two of the world’s top five economies are Japan and China. Sixty percent of the world’s population resides in Asian countries. Not only is Asian GDP growth forecast to outstrip the rest of the world by 2:1, but pension and investor savings rates are also higher. Already at $5 trillion today (as compared to $3.9 trillion in 2009), Cerulli Associates projects 12% to 14% AUM growth in the region over the next five years.

A collective investment scheme passport would make it easier to capture this growth.

Driver #2: Complexity of current cross-border sales

In Asia today, the cross-border sale of fund products requires a country-by-country approach. It’s a time consuming—up to 18 months to register a product for sale—and an expensive process. Because of regulatory restrictions on securities trades, products must be primarily plain vanilla (with no derivatives). Fund managers must also create multiple prospectuses to satisfy requirements of different jurisdictions.

Driver #3:  Desire to develop a local asset management industry

A leading objective behind the proposed passports? Job creation. Asian countries see value in the development of a local asset management industry similar to that of Luxembourg and Ireland. Not only would it provide a range of locally domiciled fund choices for Asian investors, but it would help facilitate the growth of capital markets in each country.

In this fragmented environment, harmonization is needed to reduce the complexity of selling across borders. First, agreement on a scheme or schemes is necessary.

Next up: How can U.S. managers plan today to do business in Asia tomorrow?

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