Investment managers gain access to Asia Pacific growth through regional funds passports.
Although the Asia Pacific market will be one of the main growth drivers of the investment management sector, few ‘foreign’ investment managers have made much headway in this region. However, recent developments in Asian securities regulation, including regional funds passports, offer new promise for foreign asset managers and local markets alike.
Many foreign players have struggled to make good on their ‘Asian investment management strategy’ due to the complexity of the regulatory requirements. The reality is that the region is not one Asia Pacific market but rather is made up of more than two dozen independent countries, each with their own regulatory bodies, growth rates and level of economic openness.
There is good news, in that – in most markets – new developments by Asian regulators have largely improved the opportunity for foreign players to tap into (or grow in) the Asia Pacific region.
For the mature markets – China, Australia and Singapore in particular – changes in investment management regulation reflects a desire from government and financial authorities to create a regional ‘export hub’. And it is these markets that have been behind the creation of three new ‘funds passport’ arrangements aimed at making it easier for foreign and local investment managers to break into the Asia Pacific region.
The first agreement in the region came in the form of the Hong Kong and Mainland China Mutual Recognition agreement, which essentially allows funds managed in one territory to be distributed in the other, albeit these cross-border funds are subject to a quota system.
In September 2013, Australia’s vision came into being with the proposed Asia Regional Funds Passport (ARFP) agreement among South Korea, New Zealand, Singapore, the Philippines and Thailand. Progress to formalise the agreement has been slow, however.
The third funds passport arrangement came out of the formation of the Association of South-East Asian Nations (ASEAN) Economic Community when securities markets regulators from Singapore, Malaysia and Thailand agreed to a set of terms for a cross-border offering of collective investment schemes.
The benefits of the funds passport systems should be significant. For the ‘framework’ jurisdictions the passport arrangements could propel the growth of an end-to-end Asian asset management industry, creating locally-manufactured products and helping to recycle savings back into local markets.
For local investment managers, the regional funds passport schemes help improve access to new customers and allows for the development of more sophisticated products with a higher ceiling on AUM growth. For established asset managers outside of Asia, the creation of these funds passports offers the opportunity to access a huge retail investor base through a single regional office and with a more straightforward marketing process.
Investment managers with no substantial existing footprint in Asia may want to do some careful thinking before taking action since the reality is that the fund distribution landscape across Asia Pacific is continuing to change while, at the same time, the competitive pressures are building.
Foreign players will also need to spend some time researching the various markets, agreements and regulations to fully understand where best to domicile their Asia Pacific business.
The short-term challenge is ensuring that prudence does not turn into paralysis. With the right local advisors and regional perspective, foreign and local participants should find that these funds passport schemes could offer local investment managers unprecedented growth and foreign managers their first big steps into the Asia Pacific region.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.