ARFP scheme adds another member

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New Zealand has signaled formal readiness for the fund passporting scheme, leaving only one holdout from the country membership proposed back in 2013.

New Zealand has completed preparations to accept applications from local funds and entry applications from foreign funds in the Asia Regional Fund Passporting (ARFP) scheme.

The ARFP connects the fund markets of Australia, Japan, Korea, New Zealand and Thailand. In principle, a fund launched through the scheme from one of the member countries can be sold in the other markets under uniform rules.

New Zealand’s completion of formalities leaves South Korea as the only holdout to the scheme’s original membership plan.

The ARFP has struggled from the beginning. It was first proposed in September 2013 and the five intended country participants, after lengthy negotiations, three years later signed a “memorandum of cooperation”.

But the task of getting all countries to finalise readiness for participation is still not completed. Among the issues to hammer out, agreeing on a satisfactory capital gains tax has been tough, as tax policies vary widely by country.

Initially, the scheme was expected to launch in August 2018, but the date was moved to February as participants were at different stages of implementing the programme.

In February 2019, six years after the initial proposal, the ARFP was finally launched, FSA reported earlier.

Little interest?

Another fund passporting programme, the Asean Collective Investment Scheme (CIS), connects the markets of Singapore, Malaysia and Thailand.

Although launched in 2014, the programme has not gained much traction, with only seven fund managers joining the programme.

Leo Chen, Hong Kong-based managing director and head of Asia at asset servicing firm Calastone, believes that the ARFP will be more successful than the Asean CIS because of the larger geographic scope.

“Within the Asean CIS, the countries are pretty close together. So if you are a high net worth investor, you have probably gone to Singapore [to invest your money in offshore products].

“The ARFP has a lot more countries participating, with more available investor money to tap, so there is more incentive to join the programme,” Chen told FSA earlier.

However, actual asset manager participation is a whole other issue. The CIS, for example, is facing challenges in the fund approval process and lack of demand from investors make Asia’s fund managers reluctant to join, according to Andrew Gordon, managing director for Asia at RBC Investor and Treasury Services, FSA previously reported.

“In Singapore, Malaysia and Thailand, local investors can already purchase a diverse range of different investment strategies,” Gordon said. In particular, foreign fund managers can sell their Ucits products to Malaysian or Thai investors through local feeder funds.

However, ARFP funds could be a less expensive option compared to feeder funds, Gordon added.

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