One key issue, particularly for distributing offshore funds in Taiwan, is deciding whether to appoint an external master agent or to set one up. In Taiwan, the use of an master agent is required to distribute offshore funds to the public.
Both approaches have pluses and minuses, Stewart Aldcroft, Hong Kong-based chairman at Cititrust, said during a briefing organised by the Hong Kong Investment Management Association.
“One manager was doing extremely well as it outsourced [products to] a master agent and was able to raise up to a billion dollars of assets.
"A typical Taiwanese investor will invest for five months or until they have made a 5% return for an equity fund"
“At that point, it was big enough to set up its own master agency, but after two years [as a master agent], instead of having over a billion dollars, they got less than $400m.
“They thought they could do it themselves and save money, but this demonstrated they couldn’t,” he said, adding that the previous master agent had a substantial number of staff who had access to a number of distributors.
But distributing funds through an outsourced master agent may also present issues because an agent may represent more than one offshore fund manager.
Aldcroft explained master agents are also restricted under the deep cultivation plan, which limits product distribution to one fund per approval period (up to 12 months).
A master agent representing, for example, three fund houses, will face a dilemma if more than one of the managers submits a fund for approval.
“If you represent three fund houses, which of those fund houses are to going to choose?”
Master agents in Taiwan
Top master agents in Taiwan by US dollar AUM
Diverse distribution landscape
One positive aspect of Taiwan’s fund market is its distribution landscape. When compared to other markets in the region, it is more diversified, according to Eddy Wong, Taiwan CEO at JP Morgan Asset Management.
In Taiwan, JPMAM has 30 distribution partners, which include domestic and foreign banks, insurance companies and independent financial advisors, Wong told FSA, adding that 50% of its business is coming from the intermediary business.
In Taiwan, the firm manages $3.2bn in locally-domiciled funds and $10.46bn in offshore funds, according to a Citi report.
“In other Asian markets, there could be three or four banks having 80-90% market share. You don’t see one or two players dominating around 40% of the industry,” he said.
(CTBC, which is the largest distributor in Taiwan, controls 25-30% of the market).
Wong said that 90% of JPMAM’s distributors are retail banks, as private banks have little presence in Taiwan compared to Hong Kong and Singapore.
“The retail banks have different segments [to address the HNWI market], such as their premier and prestige offerings.”
Nevertheless, Taiwan’s high net worth segment is on a fast-growth path. In 2018, the population for individuals with at least $30m in wealth reached 1,781 and is expected to grow by 25-30% in the next five years, according to the Knight Frank wealth report 2019.