Asia has four passport schemes in various development stages that will facilitate cross-border funds. The ASEAN CIS Framework, involving Singapore, Malaysia and Thailand, was launched last month.
Three other schemes are planned: the Asia Region Funds Passport, which so far includes Australia, New Zealand, Philippines, Singapore, Korea, Thailand; the Hong Kong and China Mutual Recognition; and the Korea-Australia Free Trade Agreement.
Craig Plane, senior associate at Mercer in Singapore, doesn’t believe UCITS will be sidelined in the shorterm because the schemes in Asia are targeted at specific countries as opposed to pan-Asian.
However, the gradual merger of two schemes — the Asia Region and ASEAN CIS — is a possibility, and that could shake up distribution in the region.
“A combined Asia region and ASEAN fund passport would potentially start to change the structure of distribution,” Plane said.
“Over time, with the two schemes coming together, there are more compelling reasons for mangers to invest into the structure, such as bigger economies of scale.”
In the near term, ASEAN CIS opens opportunities by providing a broader reach for fund managers, he added. For example, Singapore funds using the RQFII quota can be exported to Malaysia and Thailand and there will be wider access to Sharia-compliant funds.
The Hong Kong and China passport scheme also presents a big opportunity for fund managers, along with operational challenges.
“[Fund managers] really need to go out there and get preferred partner status, whether with banks, insurers or some kind of open architecture. It’s one thing to participate in the mutual recognition scheme but it’s another to differentiate your products. That’s another challenge in itself.”
Cross-border programs have many issues to work out due to the patchwork of regulations and business cultures in Asia.
ASEAN CIS, the only scheme launched, got off the ground because it started modestly, with only Thailand, Malaysia and Singapore, Plane said.
But unlike UCITS funds, ASEAN CIS passport funds still have individual requirements in each host country. In addition, Thailand and Malaysia have some specific issues such as restrictions on currency repatriation that have to be addressed.
“UCITS took a long time to build up and move to alternative products,” he said. “We’ll go through the same evolution here.”
