Standard Chartered and FundRock Management Company have launched a multi-manager fund platform aimed at Asian, African and Middle Eastern-based asset managers looking to launch Luxembourg UCITS structures.
The Straight2UCITS fund platform will enable managers in these regions to access the UCITS brand and realise the distribution benefits. The Luxembourg UCITS umbrella structure will allow boutique managers to build up a track record and assets through segregated sub-funds. “This platform will be cost-effective and reduce the time-frame normally required to create and manage a UCITS,” commented Jill Griffin, chief executive officer and head of depositary bank at Standard Chartered in Luxembourg, speaking at Fund Forum International 2016 in Berlin.
Establishing a UCITS can be a time-consuming and expensive process. “Straight2UCITS offers asset managers and fund promoters a unique tool to distribute their investment expertise via a dedicated and entirely segregated sub-fund within an existing Luxembourg UCITS fund structure. Our solution is unique as it is designed with Asian asset managers in mind. UCITS remains the most commonly used cross-border vehicle in the fund industry. A number of APAC and MENA managers would like to launch UCITS but sometimes they find it too costly and time-consuming. Having a platform can reduce the operational workload and allow for firms looking to launch a UCITS to come to market in good time,” said Margaret Harwood-Jones, head of investors and intermediaries at Standard Chartered.
Luxembourg has certainly gained traction in Asia. In 2015, the People’s Bank of China (PBOC) confirmed it would grant Luxembourg a RMB50 billion quota as part of the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme. This RQFII quota enables Luxembourg-based investors to gain exposure to China’s capital markets, and enhances Luxembourg’s reputation as an attractive proposition for Asian-based fund managers.
UCITS are a very popular fund brand in APAC particularly and have been for some time. Nonetheless, there are emerging fund asset classes coming to market across APAC including the ASEAN Collective Investment Scheme (CIS), which launched in 2014, and allows for easier cross-border regulatory authorisation for vanilla funds in Malaysia, Singapore and Thailand.
The Asia Region Fund Passport (ARFP) has similarities as an initiative but is developed around a different set of geographies. ARFP involves Australia, Korea, Japan, New Zealand, Thailand, Philippines and Singapore. ASEAN CIS and ARFP have some overlap with UCITS. A Standard Chartered white paper – “Asian Asset Manager’s Inflection Point” – points out ARFP and ASEAN CIS will only flourish if participant countries harmonise their fund regulations and tax rules.
“The ASEAN CIS and ARFP are both very young initiatives, and it will take time for them to flourish and gain acceptance among the broader investor community. A number of challenges such as tax divergences will need to be addressed. Equally, UCITS have been around for almost 30 years, and continue to be dominant,” said Harwood-Jones
The absence of a Pan-Asian regulator and harmonisation of rules is a stumbling block for both of these fund initiatives. In addition, the level of economic development is highly disparate, as are the distribution mechanisms. Equally, it will be a struggle for ASEAN CIS and ARFP to usurp UCITS, which has had a longstanding stranglehold in the region.
“In Asia, for now, some less well-publicised regulatory changes are quietly liberalising fund distribution, often with greater immediate benefits for cross-border sales. For example, Malaysia and Thailand have schemes that allow the approval of locally domiciled funds to operate as feeder or funds of funds, where they use third-party products such as UCITS. In both markets these have proved more successful than the ASEAN passport scheme,” read the Standard Chartered white paper.
Another hindrance to ASEAN CIS and ARFP is mutual recognition of funds (MRF) between Hong Kong and China. This allows fund managers domiciled in Hong Kong to sell into China, and managers located in China to sell into Hong Kong subject to regulatory authorisation. China is not involved in either ASEAN CIS and ARFP, and it is possible could overshadow both initiatives.
It looks like UCITS will retain its dominant position in APAC for foreseeable future.