Assets in Asean and Asia-Pacific ex-Japan have had the most inflows year-to-date (to end-July), but emerging market equity fund assets are up 15x since 2016, according to data from Morningstar Direct.
Thailand-domiciled foreign investment funds (THB bn)
Source: Morningstar Direct, Note: data includes feeder and non-feeder funds and excludes fixed term funds. Year-to-date is to end-July.
Total AUM is slightly lower this year compared to the end of 2017. Assets were dragged down by global bond funds, noted Chayanee Juengmanon, Bangkok-based senior research analyst at Morningstar.
Within the global bond category, TMB Asset Management’s Global Income Fund saw the largest outflow of around $1.39bn year-to-date, followed by Krungsri Asset Management’s Global Collective Smart Income Fund (-$370m), Morningstar data shows.
TMB AM’s Global Income Fund was one of the top 10 best-selling newly-launched products in Asia-Pacific in 2017. The fund is the locally-wrapped version of Pimco’s GIS Income Fund.
Juengmanon, however, believes that foreign investment funds will continue to be in demand among Thai investors, noting the strong growth in almost all foreign asset classes, with the exception of commodities and global healthcare.
“Regulatory changes, as well as [local investor] interest in foreign investing, are making asset managers more inclined to launch more foreign investment fund products.”
Around 80% of foreign investment funds in Thailand are locally-wrapped products, while the remainder are offshore funds, according to Juengmanon. Assets in non-feeder funds more than doubled to THB 119bn at the end of June from THB 57.2bn in December 2016.
In Thailand, the largest domestic firm that manages feeder funds is TMB AM, with $4.3bn in feeder fund assets as of the end of 2017, followed by Kasikorn AM ($3.3bn) and Krunsri Asset Management ($2.07bn), according to a Cerulli Associates report.
Offshore funds have only been allowed since January 2016, when the regulator relaxed the rules for Thai investors to access more global funds. Before that, only feeder funds were permitted for sale to domestic investors.
Malaysia assets rise
Like in Thailand, mutual funds in Malaysia that offer offshore exposure doubled in 2018 to MYR 40.96bn ($9.98bn) from MYR 19.67 bn in 2016, according to Morningstar data.
AUM of Malaysia-domiciled foreign investment funds (MYR bn)
Source: Morningstar Direct
“Feeder funds provide winning propositions for all parties involved in Malaysia’s and Thailand’s retail market,” Cerulli said in the report. “Local managers are able to charge higher fees and fill their product gaps quickly, while foreign managers will be able to tap into asset pools in different.”
In Malaysia, the largest firm is RHB Asset Management, with $1.33bn in feeder fund assets, followed by Am Funds Management ($479.7m) and CIMB-Principal Asset Management ($406m).
On a separate note, assets in fund-of-funds in Malaysia and Thailand, which also provide offshore exposure to investors, have increased, Kianhong Tan, Singapore-based analyst at Cerulli, said, citing data from Broadridge Financial.
“Retail appetite for foreign investments will come from the need to diversify their asset holdings,” he said.
AUM of fund of funds ($m)
Source: Cerulli, Broadridge
Feeder funds vs other
Cerulli believes that non-feeder distribution channels — offshore funds and distributing funds through passporting schemes — are, for now, relatively inefficient.
When offering offshore funds, foreign managers will likely incur high costs associated with initial engagement with local distributors or setting up a local presence. In addition, since feeder funds dominate the foreign investment fund markets of Malaysia and Thailand, foreign managers risk hurting relationships with potential local players.
Moreover, tax regulations are not moving along with investment regulation changes. The feeder fund model will not disappear any time soon, said Kasikorn AM’s Benjarong Techamuanvivit, first senior vice president in the strategic planning division. A capital gains tax of up to 30% could be charged on non-feeder funds, depending on how the investor cashes out.
Passporting schemes also have disadvantages. Cerulli noted that the Asean Collective Investment Scheme, which includes the markets of Thailand, Malaysia and Singapore, has yet to gain traction. Less than 10 funds have been approved for sale by both home and host countries since the scheme was introduced 2014.
In regards to the passporting scheme, the research firm’s survey showed that most managers in the participating countries “viewed other regional markets as not being their targeted markets.
“Managers also expressed how they will likely lack the branding to attract local distributors.”