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Offshore funds grow AUM as Thailand opens

Relaxed regulations for Thai investors promise more access to global funds, but take-up could be slow because they compete with locally-wrapped funds, said Morningstar's senior research analyst in Thailand, Kittikun Tanaratpattanakit.

Foreign funds available for sale in Thailand have doubled AUM annually the last three years to the end of 2015, he said.

Year-to-date, foreign assets are up 10% and are currently around $10bn.

Despite the recent surge, offshore funds remain a small percentage of the $140bn total fund industry in Thailand.

Foreign funds for sale in Thailand have been required to come in through a master feeder scheme. A local asset manager, typically part of a Thai private bank, puts a Thai wrapper on an offshore fund, permitting its sale to investors. About 360 wrapped foreign investment funds are available for sale domestically, he said.

However, a big regulatory change in January allowed qualified Thai investors to buy offshore funds directly from a broker or bank, avoiding the master feeder scheme altogether.

Tanaratpattanakit believes retail investors are likely to be green-lighted to do the same next year.

Citibank vs local banks

He believes few if any banks have taken advantage of the relaxation of rules to offer access to offshore products — with the exception of Citibank Thailand. Direct investment services haven’t caught on widely for several reasons.

“A bank needs to set up a system that allows the investor to buy, that allows settlement, that has a platform to access currency exchange and the holdings. Not many brokerage firms or private banks here are ready to do that.

“Citi can do it because they have a whole network around the region. Citi has the choice of offshore products that are maybe domiciled in Luxembourg or Singapore already on their shelf. They can take the funds, switch the language to Thai and [use the bank’s resource advantage to] sell direct to the investor.”

Local banks have to find a partner outside of Thailand and a fund selector to pick the right funds. “If you want a US equity fund, you have to pick one better than the one already for sale in Thailand and present the case for it.”

He added that many of the foreign funds coming in lack differentiation.

Another issue is conflict among business units within the bank. Most Thai banks have asset management subsidiaries with perhaps hundreds of products. A private bank offering direct access to an offshore fund could end up competing with the group’s asset management business, he added.

No open architecture

Tanaratpattanakit said Thai regulators are trying to match global open market standards, and he believes they are almost there.

“If you compare investment in Thailand with other countries, we are at the same level in terms of investment opportunity. Hedge funds are the only product not allowed, but we expect that to open next year [for qualified investors].

“The only thing that Thailand is not on the same level with Hong Kong, Singapore the US or Europe is open architecture. It may be five years before banks are willing to open it up.

“The top players in foreign investment funds in Thailand are subsidiaries of the banks, so banks are not willing to open up. If a Thai bank stops selling wrapped funds, their asset management business has nothing left to sell.”

Part of the Mark Allen Group.