The passporting scheme creates an additional route for asset management firms to sell funds cross-border.
However, managers looking at joining the scheme should have a distributor willing to offer their products, according to Leo Chen, Hong Kong-based managing director and head of Asia at asset servicing firm Calastone.
Citing the Hong Kong-China Mutual Recognition of Funds (MRF) scheme as an example, Chen told FSA that some Hong Kong and Chinese banks are not even aware of MRF funds, even though the programme has been running since 2015.
“People often think why was JP Morgan was so successful in the MRF in China? Because they actually have a joint venture in place, which they worked with, and they had someone actually sell their product in China. It was the active selling that made it successful.”
With any fund manager entering a new market, branding will also be difficult, Chen added.
“Take any of Australia’s largest fund managers. They may be big in Australia, but no one else knows them elsewhere, so how are they going to sell that brand?”
Weak Asean scheme
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.
One of the difficulties has been getting authorisation for a fund to be sold under the scheme. In addition, investors in Southeast Asia already have access to offshore funds via feeder funds.
Chen 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.”
While the markets participating in the ARFP may already have access to offshore investments via sub-advised funds offered by domestic managers, the scheme should give investors more options.
Chen explained that most sub-advised funds usually cover a broader asset class of a market, such as Japanese equities. However, investors may not have access to sector-specific Japanese equity funds, which could be made available through the ARFP.
ARFP funds could also be a less expensive option compared to feeder funds, Andrew Gordon, Hong Kong-based managing director for Asia at RBC Investor and Treasury Services, told FSA previously.
For example, in Japan, investors already have access to feeder funds, which are called “toshin funds” in the market.
“The feeder fund works well, but there is an extra layer and that can bring additional expenses for the investors.”
Excitement over the ARFP has waned through the years, according to Chen.
Plans were first announced in 2013 and the five countries participating in the scheme entered into a Memorandum of Cooperation in 2016. However, participation has been under negotiation because of taxation issues.
Initially, the participating countries were expected to launch the passporting scheme in August 2018. But in September, the date was moved to February this year. At the time, the participants were at different stages of implementing the scheme.
Chen is not sure whether the programme will be launched next month.
“From a policy perspective, the countries may be ready, though I am not sure if they have solved the [cross-border] tax aspect,” Chen said.
“It’s like the boy who cried wolf. How many times can you say that ‘we’re going to do something,’ and then it’s not yet up there and ready?”
But Chen believes that when launched, the ARFP could be an exciting development in the industry as it involves different Asia-Pacific markets.