Most fund managers expectations of UCITS distribution in Asia have either been met or exceeded, but the costs and time associated with registering UCITS funds in the region remains a challenge.
New research by BNP Paribas Securities Services and Knadel, a consultant to the investment management industry, show that Hong Kong, Singapore and Taiwan remain the most attractive destinations for global asset managers UCITS distribution in Asia. However, challenges remain around fragmentation, regulation and differences in culture, which contribute to significant variations in take-up of UCITS in the region.
50 asset managers of varying size from Asia, Europe and the rest of the world were surveyed on their experiences of distributing UCITS funds Hong Kong, Japan, Malaysia, Singapore, South Korea and Taiwan.
75% of respondents that distribute UCITS in Hong Kong, Singapore or Taiwan reported experiences that met or exceeded their expectations, with 29%, 20% and 21% of respondents respectively already distributing or planning to distribute UCITS in each market. Malaysia and South Korea emerged as smaller but rapidly maturing markets in the research while Japan, more focused on using local funds, is gradually increasing its appetite for UCITS.
Hong Kong, Singapore and Taiwan: cross-border hubs in Asia account for the majority of UCITS consumption in Asia due to the strong asset management network, large talent pool and the infrastructure to support distribution.
In contrast, the time and cost of registering UCITS funds in the three hubs were identified as a significant challenges by respondents.
With eight and 12% of asset managers currently distributing or planning to distribute UCITS in Malaysia and South Korea respectively, these markets were reported to be less developed than the three hubs but rapidly maturing and offering significant opportunities.
While small, Malaysias asset management industry is perceived as relatively sophisticated; against a backdrop of expanding household financial assets and increasing income, the signs are encouraging. However the main challenges identified by respondents were a strong preference for local funds and difficult legislative and regulatory environments.
South Korea was identified by respondents as still presenting challenges in terms of language and culture and a focus on protecting the local funds industry. Overall, the nation continues to capitalize on its economic success in manufacturing and other industries, and many expect regulatory processes to improve.
9% of asset managers surveyed are currently distributing or planning to distribute UCITS in Japan, reflecting general market trends that indicate the country remains heavily in favour of domestic onshore funds. However assets under management have grown steadily in the past decade and penetration is low.
Commenting on the research, Mostapha Tahiri, head of asset and fund services Asia at BNP Paribas Securities Services said: UCITS is an excellent framework that has brought confidence and harmonization to global asset management. While the take-up of UCITS in Asia has been successful, our research concludes that key challenges remain.
Nonetheless, Asia has an excellent economic foundation to create a positive environment for UCITS. With global assets under management set to reach $4 trillion by 2015, UCITS remains the regions most practical cross-border product today.
(JDC)