Latest research from Cerulli focusses on the fact that regulators in Asia are considering ways of facilitating cross-border distribution in the region, either by creating a regional alternative to UCITS or via bilateral agreements between countries. Cerulli writes: "As Asia is currently the main importer of UCITS outside of Europe, industry practitioners are understandably concerned that these initiatives will one day become a reality." However, the firm believes such fears are overstated.
Currently, negotiations are underway between China and Hong Kong for the mutual recognition of mutual funds and unit trusts in each other's jurisdiction. But beyond that bilateral agreements might not necessarily work against UCITS, Cerulli says.
"There is nothing to stop China extending its offer to other domiciles such as Taiwan, Singapore, and even countries beyond Asia, such as Luxembourg," noted Angelos Gousios, senior analyst at Cerulli Associates. "Chinese managers are keen to expand their presence in Europe. For that to happen, regulators in Europe would have to insist that UCITS is part of the deal and that providers be allowed access to China."
Barbara Wall, a Cerulli director, added, "Managers should not lose sight of the fact that Europe is still by far the largest market for UCITS, representing three-quarters of total cross-border Cerulli and others comment on the development of the Asian fund passport UCITS assets. Asia-Pacific is the second-largest market but the region had only 15% marketshare at the end of 2012, a modest two percentage point increase since 2009."
Data from a Cerulli survey conducted in collaboration with Citi Investor Services in July this year sheds more light on the perceived threat developments in Asia pose. Of the 59 managers who responded to the Cerulli survey, a minority believed there was a major threat to UCITS. Cerulli writes: "That said, the majority believe that regulators should keep an eye on developments in Asia and make efforts to maintain the competitiveness of the brand. As the essence of a good brand is simplicity, European regulators need to make sure that UCITS reflects that."
Opalesque's Asia Pacific Intelligence has reported extensively on the various initiatives across Asia to introduce either an Asean UCITS structure or more recently an initiative from Apec to produce an Asian Region Funds Passport. September saw a pilot group including Australia, New Zealand, Singapore and South Korea setting to work to create the Asia Region Funds Passport (ARFP). Source.
Angelyn Lim of Dechert's in Hong Kong has commented that the challenge to any passporting arrangement is to ensure the process achieves the intention, which is to facilitate the cross-border distribution of approved funds. In an interview with Asia Pacific Intelligence this month, Lim said: "Now that official announcements have been made and pilot schemes announced, there is no turning back."
She said very often the process becomes overly complicated because of the differences in regulatory requirements among jurisdictions, as seen in the Undertakings for Collective Investment in Transferable Securities (UCITS) passporting arrangement. The experience of UCITS, she said, has shown that approval process is both long-drawn and sometimes unnecessarily complicated, with funds having to bear the cost. "This will have an adverse impact on unit holders," she said. "If we get an efficient Asian model for retail and non retail that would make it interesting but only time will tell."
Brian Thung, ASEAN and Singapore asset management leader at EY, has also been reported saying that unless the differences in local regulations among members of the ASEAN states can be reconciled, there will be challenges in implementation.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.