Hong Kong led the vote with 53% of respondents, followed by mainland China (27%) and Singapore (18%).
The results are in line with the majority of the fund managers’ preference toward China, with 68% of the respondents indicating that Greater China was either extremely or very important to their firm’s global strategy.
What is noteworthy is that 72% of the respondents currently have less than 20% of assets in Greater China. A vast majority of managers have less than 10% of AUM in the sub region, according to the survey.
The survey included 52 global asset managers headquartered in the US (24%), Hong Kong (20%), the UK (15%), China (11%), Japan (9%) and others.
The respondents were split, however, with what they believe would solidify Hong Kong’s position. The two biggest suggestions were continued exclusive access to mainland China and expansion of links with other Asian domiciles.
|What would solidify HK’s position as a leading Asian cross-broder fund domicile by 2015?||% vote|
|Maintenance of exclusivity with China||31%|
|Expansion of links with other Asian domiciles||31%|
|Lessening the minimum requirements for funds to participate in MRF||18%|
|MRF recognition framework between Hong Kong and Europe||11%|
|Creation of a corporate fund structure||5%|
Source: Brown Brothers Harriman
The Hong Kong-China Mutual Recognition of Funds (MRF) programme is the largest development in Greater China’s fund market. Launched in July 2015, the MRF scheme is a cross-border fund passport that allows retail funds domiciled in Hong Kong and mainland China to be sold in either market.
A majority of the respondents (63%) from the BBH survey believe that the Hong Kong-China MRF is critical or very important to Hong Kong’s ambition to becoming a global fund hub. However, 47% were unsure about whether Hong Kong would have exclusive access to the MRF programme by 2025.
Under the MRF scheme, there are 48 approved mainland funds for sale in Hong Kong, according to records from the Securities and Futures Commission, and six approved Hong Kong funds for sale in the mainland.
The Hong Kong-China MRF has had more transactions than other passporting initiatives in the region. In Southeast Asia, the Asean Collective Investment Scheme (CIS) framework, between Singapore, Malaysia and Thailand was launched earlier in 2014. But development has been slow, as there are only five approved funds for cross-border retail scheme under the scheme.
Another scheme, the Asia Regional Funds Passport, which involves Australia, Japan, Korea, New Zealand and Thailand, is still yet to be launched.
Aside from the Hong Kong-China MRF, Hong Kong has signed a memorandum of understanding with Switzerland early this month to enable cross-border retail sales of funds between the two jurisdictions, FSA reported earlier.
Hong Kong’s potential
Half of the respondents expect that Hong Kong’s fund market will double to around $500bn-$999bn in 2025 from $146.6bn in 2015, according to the study.
BBH is more optimistic, agreeing with 20% of the respondents who think that the local fund market will approach $1trn by 2025.
“In the medium term, we expect that Hong Kong and Taiwan will finalise negotiations over reciprocal access to each other’s fund markets. This will give Hong Kong funds a critical route to increase asset size, in particular to grow its footprint in mainland China throught he MRF programme,” BBH said.
In the mainland, the total fund market size is expected to nearly triple to $4trn in 2025 from $1.3trn in 2015.
Ucits will still be relevant
Although respondents believe that Hong Kong will become a leading cross-border fund domicile, they still remain bullish on the long-term prospect for Ucits.
More than half of the respondents (58%) expect that the popularity of Ucits in Greater China will increase, while 27% believe it will remain the same and 15% said it will decrease.
According to the survey, 63% of the respondents think locally domiciled products will supplement their Ucits products in Asia.
“Ucits is largely an institutional product. So it is likely that groups are considering using local products for retail distribution strategies,” BBH said.
Obstacles in Hong Kong
Asset managers identified several obstacles that may hinder Hong Kong to becoming a leading fund centre, according to the BBH survey. Regulation, registration issues, such as time and cost, and distribution channels, were among the most significant concerns cited.
|Most significant obstacles (select all that apply)||% vote|
|Registration issues – time/cost||27%|
Source: Brown Brothers Harriman
The concern over distribution is consistent with 31% of the respondents acknowledging that Hong Kong will need to expand its links with other Asian domiciles in order to solidify its position as a leading fund centre, according to the survey.
“While access to mainland China is important for Hong Kong, to become a true cross-border hub it needs to have broader distribution in other jurisdictions,” the study said.
It added that distribution is a challenge for asset managers because banks are the primary distribution channels in Greater China instead of the advisory model most managers are used to.
OCF an important initiative
According to the survey, 55% of the respondents believe that the SFC’s Open-Ended Fund Company (OCF) initiative is very important to Hong Kong’s success as a fund domicile.
Historically, Hong Kong open-ended mutual funds could only be established as unit trusts. But starting next year, with the OFC, asset managers will be able to launch corporate fund vehicles as well.
“The OFC is an important development because over the last two decades, corporate fund vehicles have become increasingly popular for cross-border funds,” BBH said.