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The ups and downs of operating in Taiwan

Thirty offshore funds were liquidated last year, including 12 from Jupiter AM, which decided to exit the market.
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Offshore funds have continued to be popular in Taiwan, with assets increasing 14% to NT$3.6trn ($120bn) as of the end of January from NT$3.1trn in December 2018, according to latest data from Taiwan’s Securities Investment Trust and Consulting Association (Sitca).

However, a number of foreign fund managers have started leaving the market. Since 2017, eight offshore managers have exited, bringing the total number of offshore players to 64, Sitca data shows.

The latest player to leave was Jupiter Asset Management, which liquidated all of its 12 offshore funds in December, according to data provided by Taipei-based consultancy firm Keystone Intelligence.

A Jupiter spokeswoman confirmed the move out of Taiwan.

“Jupiter Asset Management has made a strategic decision to focus its business efforts on Asian markets other than Taiwan for the time being,” the spokeswoman said.

She added that the firm has ended its agreement with its master agent, Taishin Securities Investment Advisory.

However, she declined to provide reasons for exiting Taiwan.

“Jupiter will consider all options related to doing business in Taiwan at a later stage, as we consider this to be an important and influential market in the region,” the spokeswoman said.

Other offshore players that have exited Taiwan include Value Partners Concord Asset Management, which was sold to Aberdeen Standard investments, as well as Columbia Threadneedle, which ended its master agent relationship to make a full exit from Taiwan.

Fundraising difficulty?

Further data from Keystone Intelligence indicate that gathering assets is difficult for a number of offshore players in Taiwan.

In 2019, 18 offshore funds were liquidated (excluding the Jupiter funds) and 29 were merged with other funds, the data show. UBS Asset Management tops the list with five liquidated and four merged funds.

FSA sought more information from UBS AM, but the firm was not able to comment in time for publication.

The other firms on the list include Amundi, BNP Paribas Asset Management, DWS, Eastspring Investments and Fidelity.

Donna Chen, president at Keystone Intelligence, explained that fund liquidation and mergers are not uncommon in Taiwan, noting that the same could be said in the market’s onshore industry.

Besides being able to attract adequate assets, there are other factors at play that may influence a firm to liquidate or merge their funds.

One example is when a manager wishes to increase exposure to mainland Chinese equities, but cannot because it was not able to receive incentives under Taiwan’s “deep cultivation plan” (DCP), which is aimed at nurturing the domestic asset management industry.

“If a manager wishes to increase beyond 20%, [which is the maximum limit an offshore fund can invest in onshore securities], but was not able to get the award, then their product development team may decide to close the fund or merge it with another strategy,” she said.

The DCP requires foreign managers to fulfill certain requirements, such as growing the number of locally-hired investment team members, as well as hitting specified AUM targets for their onshore funds. The incentives awarded include investing up to 30% in mainland China securities, allowing the introduction of new fund types and faster fund approvals.

But it is not that easy to receive incentives from the scheme, Chen noted. “It is not just about hiring more people. You also need to be profitable.”

Last year, only nine foreign firms received incentives under the DCP.

Another reason why funds are liquidated or merged is M&A, according to Chen.

For example, Amundi had seven funds merged into other strategies last year, according to Keystone data. But that came after Amundi acquired Mirae Asset Global Investment’s Taiwan business in late 2018.

Is the onshore business better?

Separately, Taiwan regulators have also made it more difficult for foreign players to operate.

For example, the average fund application to launch an offshore fund in Taiwan will take up to six months, while onshore funds can be processed within a month, according to Chen.

However, several foreign players that run both on- and offshore products believe that keeping their offshore business has advantages.

One example is Invesco. In Taiwan, the firm manages $1bn of offshore funds, according to Jacky Hsiao, the firm’s Taipei-based general manager for Taiwan.

While its onshore platform is now larger with at least $3bn in assets, he noted that this was mostly driven by the sales of fixed maturity products in the past two years. During that time, FMPs became popular with domestic investors.

The onshore business is well-suited for quickly launching a product that is seeing demand, Hsiao said.

However, if a particular strategy is already managed by the firm outside of Taiwan, then it would make more sense to bring that in the market as an offshore fund, he said. Domestic investors would also see that global investors have invested into the product, he added.

JP Morgan Asset Management also previously highlighted the advantages of keeping both the on- and offshore businesses.

“It depends on client needs. If a client is more domestically-driven in their investments, then they would invest on our onshore platform. But if the client is a bit more dynamic and has US dollars, then they would go to our offshore platform,” Eddy Wong, who was JPM AM’s Taiwan CEO, said previously. Wong is now the CEO of China International Fund Management, a mainland joint venture between JP Morgan Asset Management and Shanghai International Trust

A dual platform also helps address some regulatory requirements, Wong added. Locally-domiciled funds can sell offshore funds with a Taiwan dollar share class. But foreign managers who sell only offshore funds cannot. A dual platform allows for dual currency share classes of the same fund.

Launching ETFs?

Separately, onshore fund assets in Taiwan have surpassed offshore funds. At the end of January, onshore fund assets grew to NT$4trn in January from NT$2.7trn in 2018, according to Sitca data. However, the main driver was insurance companies pouring money into Taiwan-listed bond ETFs.

The catalyst for the sudden popularity was the decision by the Taiwan Insurance Bureau in 2018 to include investments in so-called Formosa bonds (foreign currency issues listed on the Taipei exchange by non-domestic companies) into the calculation of insurance companies’ 65.25% foreign investment cap.

It is for this reason why Invesco, which manages $220bn in ETF assets in the US, has no plans of tapping Taiwan’s ETF market, according to Hsiao.

“So far, no international firm has launched a domestic ETF in Taiwan. Over the past two years, the growth in the ETF market is mostly from insurance companies. We do not have significant demand from the retail market, so we have not tapped the local ETF market,” he said.

Part of the Mark Allen Group.