Global asset managers looking to distribute UCITS funds in Asia should focus their attentions on Hong Kong, Singapore and Taiwan. At least that’s what a new research report by BNP Paribas Securities Services and specialist consultancy Knadel suggests. A total of 50 asset managers of varying size were surveyed on their experiences of distributing UCITS funds in six markets: Hong Kong, Japan, Malaysia, Singapore, South Korea and Taiwan. And whilst uptake in markets like Hong Kong is strong, challenges remain around fragmentation, regulation and cultural differences which non-Asian asset managers should be mindful of. The report found that 75 per cent of those who distribute in Hong Kong, Singapore or Taiwan reported experiences that met or exceeded their expectations. Malaysia and South Korea are apparently small but maturing markets and Japan, traditionally focused on local funds, is opening up to the benefits that UCITS funds offer.
Approximately 29 per cent of respondents already distribute or are planning to distribute UCITS in Hong Kong in 2012, followed by Singapore (20 per cent) and Taiwan (20 per cent). The fact that the first two countries offer a gateway into China and south-east Asian markets, coupled with their well-developed asset management network and large talent pool makes then particularly attractive markets. One problem highlighted in the report, however, was the time and cost of registering UCITS funds, particularly in Hong Kong where the approval process appears to have slowed down of late. Mostapha Tahiri, head of asset and fund services Asia at BNP Paribas Securities Services was quoted as saying: “While the take-up of Ucits in Asia has been successful, our research concludes that key challenges remain. Culture is important in terms of adapting to new jurisdictions, but asset managers must also address operational strategy and design service models that are fit for purpose.
Closer to home, and it was announced this week that ML Capital had taken over the hosting of the Wanger European Smaller Companies fund and the Wanger US Smaller Companies fund following the merger of the Wanger Investment Company onto the firm’s MontLake dedicated UCITS platform. Chicago-based Columbia Wanger Asset Management, who run a massive USD33.2billion in assets, will continue to manage the funds just as they have done for the last 10 years. I wonder if the fact that adding these two long-only UCITS funds on to the platform, as ML Capital has, is a reflection of how these platforms will continue to evolve going forward, offering clients a mix of products that don’t all necessarily hail from the fabled land of hedge funds. The two funds commenced trading on the platform on 23 March 2012 and as ML Capital’s chairman John Lowry commented: “Demand amongst our investor client base indicated the requirement for a long-only fund manager with a solid track record, specializing in small- and mid-cap equity.”
Looking at regulatory developments this week, Martin Bock from RBC Dexia has warned that with just 10 weeks to go until Key Investor Information Documents (KIIDs) become a legal requirement for all UCITS funds some asset managers are underestimating the task at hand. Bock wrote that while many fund houses are in the middle of developing their KIIDs – something that J.P. Morgan Asset Management actually completed last week for its 193 Lux-domiciled fund range – “they are leaving elements of it very late”. Bock also suggested that many smaller fund houses had shown no urgency at all, probably because they intend to outsource it without taking account for how long even that may take.
Another massive challenge is using plain non-technical language in the KIIDs. As Bock rightly points out, it’s not simply a case of changing a few words here or there; rather it’s about applying a completely fresh approach to explain how investment strategies work. Writes Bock: “Documents that are easy to understand and user-friendly should be considered a powerful marketing weapon, rather than just a legal obligation.” Plain language, he says, is the mark of a quality investment product. As if to drive home the point, Bock added: “KIIDs are one of the most significant issues facing asset managers this year. Regulation such as Volcker and FATCA has made headlines but the deadline for KIID compliance comes more quickly than any other and there are no loopholes.” You have been warned!
Finally, in an act of selfless generosity, Axiom Fund announced this week that it had waived its management fees in the Axiom UCITS Alternative Investable Index Fund (the ‘Axiom Fund’). Instead, the 1 per cent management fee will be replaced with a 10 per cent performance fee to better align the interests of investors in the fund and possibly usher in a new approach to fee structures in the alternative UCITS universe. Consequently, investors will now only pay fees when the fund delivers positive performance (that is, exceeds the high-water mark). The Axiom Fund, which launched in December 2010, is the first investable index of UCITS hedge funds and aims to replicate the performance of the UCITS Alternative Blue Chip Index provided by Alix Capital. Waiving the performance fee is a bold move and only time will tell whether the decision pays off. Alessandro Mauceri, chairman of the board of the Axiom Fund, when commenting on investors’ ongoing concerns regarding FoHFs, said: “Today we are solving the last issue by waiving our management commission and charging only incentive fees. This ensures that our interests are truly aligned with those of our clients.”