Although the Asia Regional Fund Passporting (ARFP) scheme has been live for more than a year, fund managers seem to show no interest in participating in the programme.
So far, the ARFP, which connects the fund markets of Australia, Japan, Korea, Thailand and New Zealand, has reported that only one firm has applied to join the scheme. Last year, New Zealand-based Smart Shares filed an application for its Superlife NZ Dividend Fund to be distributed in Japan.
With the ARFP taking six years of planning for it to be launched, excitement over the scheme has waned. Now, industry players are on a wait-and-see mode, to determine whether the scheme would be beneficial to them and to anticipate the challenges they may face if they were to join the scheme, according to Elaine Tan, Asia-Pacific head of fund services for product solutions at BNP Paribas Securities Services (BNPPSS), which is the appointed custodian for Smart Shares’ ARFP fund
“As we all know, Asia is a fragmented market. So you will need to be very flexible in handling different regulations, restrictions, culture and disclosure requirements,” Tan told FSA.
She added that with the Covid-19 situation, firms are currently focusing on keeping expenditures down, and joining the ARFP would mean additional costs for them.
“[Right now], people are just waiting for someone to launch a fund and see how they can handle this situation,” Tan said.
However, there is no set date yet for the launch of Smart Shares’ fund in Japan, as the firm is still waiting for final approval from both the New Zealand and Japan authorities, according to Tan.
Under the ARFP, Australia, Japan, Thailand and New Zealand are ready to receive registration applications for outbound and inbound passport funds. Korea now stands as the only ARFP signatory that has not completed preparations to accept inbound and outbound registrations.
However, Korea has completed the revision of the Financial Investment Services and Capital Markets Act and relevant rules required for the implementation of the scheme, according to ARFP’s website. The country’s Financial Services Commission expects that it will complete preparations and be operationally ready to accept applications by the end of 2020.
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.
Opportunities?
Despite the anticipated difficulties in the ARFP, Tan believes it presents opportunities for asset managers to tap other markets in the region.
As with Smart Shares’ case, for example, Tan expects that the New Zealand firm’s fund, the Superlife NZ Dividend Fund, will gain traction in Japan. Like other Asian markets, the search for income is also popular in the country.
“Japan has a low interest rate environment, and an offshore fund that can bring high-yielding stocks may be appealing to local investors,” Tan said.
Players may argue that most markets participating in the ARFP scheme already have access to offshore investments via feeder funds.
In Japan, for example, investors have access to offshore investment products through “toshin funds”, which are locally-domiciled funds that feed into offshore funds. However, ARFP funds may be a less expensive option because their structures are simpler, Andrew Gordon, Hong Kong-based managing director for Asia at RBC Investor and Treasury Services, told FSA previously.
“The feeder fund route works well, but there is an extra layer and that can bring additional expenses for the investor,” Gordon said.
