A research report written by State Street Hong Kong entitled Vision Focus: Asian Funds Passport to Growth, has attempted to address Asia’s underdeveloped funds market.
A research report written by State Street Hong Kong entitled Vision Focus: Asian Funds Passport to Growth, has attempted to address Asia’s underdeveloped funds market. Taking its lead from Europe’s successful development of the UCITS brand, it proposes an alternative Asian Funds Passport, not to condemn UCITS to the scrapheap, but rather to complement it. Speaking to Hedgeweek, one of the report’s authors, Catherine Simmons, VP Regulatory, Industry, Government Affairs, APAC, said that they approached the report from the perspective of ‘Where’s UCITS going, will it ever penetrate all markets in Asia?’ Cross-border fund flows are still limited in Asia compared to the US and Europe and as Simmons said: “There are three options: 1. Have it the same way; 2. Allow UCITS to penetrate all Asian markets or 3. Have some form of Asian cross-border passport.” Considerable political willpower would be needed for the passport to succeed, but with an estimated USD3.9trillion fund market and double-digit growth forecasts for China, India etc up to 2014, allied with increased convergence amongst regional regulators, the report suggests that the time could be right. “Ucits is a great precedent to learn from for Asia,” said Simmons, “but the region’s fund market is still very domestically-focused in stark contrast to trade in goods and other services.”
The report shows that Hong Kong and Singapore dominate cross-border fund flows. Of the USD986billion in collective fund assets, USD848billion are locally domiciled: a huge percentage. Indeed, it’s still easier for a European fund manager to sell UCITS funds in Hong Kong and Singapore, than it is for a Hong Kong fund to register and sell itself in Singapore – an imbalance that surely need to be addressed. That some markets are already open to the idea of cross-border UCITS is, according to the report, a sign that regional cooperation is becoming increasingly possible. For the passport to work, Simmons said: “Logically there would be a few leader countries such as Hong Kong, Singapore and Australia, which have similar legal systems and developed fund markets. They all share the same objectives of getting their funds out further into Asia. If they were to try and do things individually it probably wouldn’t work.”
The major hurdle is finding common regulatory ground with Simmons admitting that countries would need to sit down and put together a new set of regulations rather than “meshing together the existing series of laws and regulations”. The report points out that once domestic markets become more comfortable selling cross-border funds it would give outside investors exposure to a wider range of Asian products and actually compliment the growth of UCITS in the region. An exciting idea, the Asian passport is sure to generate healthy debate.
