There is no doubt that Asia today is one of the most important markets for the distribution of cross-border European funds or Ucits (undertaking for collective investment in transferable securities) funds.
According to a study published last year by the European Fund and Asset Management Association (Efama), 90 per cent of the net sales of international Ucits promoted by the participating companies in 2007 originated from Asia.
Another study published early this year by Efama revealed that while the global financial crisis has had a severe impact on the net sales of cross-border Ucits in Asia, the region currently accounts for approximately 17 per cent of the AUM (assets under management) value of all Ucits sales of the survey participants.
Moving in
Not surprisingly, recent years have seen Western financial institutions steadily making a beeline towards the region. In May last year, UK fund house Threadneedle launched fund operations in Asia through the opening of its Hong Kong office.
In October 2008, leading global custodian, RBC Dexia launched its regional processing centre in Malaysia while in May this year, PNC Global Investment Servicing, a provider of processing, technology and business intelligence services to asset managers, broker/dealers and financial advisors worldwide, launched fund distribution support services
in Asia for European and US mutual fund firms with Asia-based investors.
Stephen M. Wynne, chief executive officer, at PNC Global Investment Servicing, said: “There has been an increased appetite for investment products within the Asian markets. This latest enhancement provides a crucial service to fund firms that want to grow their business and extend their reach into this locale.”
“Asia is a fantastic market for cross-border funds. Not only is it important in terms of business but also in terms of growth potential, since it has shown remarkable stability in the face of the financial crisis,” states Elisabeth Meyers, director, at investment fund product management at Brussels-based Euroclear, which provides domestic and cross-border settlement and related services for bond, equity, derivatives and fund transactions in Europe.
In 2008, Euroclear opened an operational centre in Hong Kong and also started offering its investment funds processing platform, FundSettle to the Asian market.
Dean Chisholm, head of operations, Asia-Pacific at leading investment management company, Invesco, however cautions fund houses seeking to benefit from the highly attractive Asian funds market.
“No doubt the market is very profitable and European funds are well designed for cross-border distribution,” he says, “but the biggest issue that Western fund houses face is how to establish themselves in the marketplace. It is extremely difficult because local presence is required and a lot of local marketing and training support is expected by the distributors. Suitcase support from the other side of the world does not work.”
Apart from the top few firms such as JPMorgan, Merrill Lynch (now BlackRock), Fidelity, HSBC, Schroder and Invesco, which have been present in the region for several years, few of the new entrants have been able to successfully establish themselves, says Mr Chisholm. “Distributors are looking for long-term commitment to the marketplace. Several European fund houses have been able to launch one or two funds, but they are not able to launch an all-weather funds range.”
A few examples of cross-border funds that have been able to make an impact in the marketplace, points out Mr Chisholm, are India based funds that were launched by HSBC a few years back, Bric [Brazil, Russia, India and China] funds from BlackRock, and commodity funds from Schroders.
Fractured landscape
Unlike Europe, which is moving towards a single financial services arena, the landscape in Asia is highly fractured with each country having its own specific rules and regulations. The only markets in Asia open to foreign investment funds are Taiwan, Singapore and Hong Kong. Other economies, such as India and China have not been successful for cross-border funds distribution for a variety of regulatory, tax and cultural reasons.
For instance, China’s QDII (Qualified Domestic Institutional Investor) program introduced in 2006 to allow domestic institutions and residents to buy financial products overseas via mainland commercial banks and other financial institutions, has suffered due to the turmoil in the global capital markets. Some QDII products lost more than 70 per cent of their value while certain financial institutions have come under fire for failing to sufficiently disclose investment risks tied to their products.
“Apart from regulatory barriers, in both India and China, the domestic stock market is performing much better than international markets. Domestic investors therefore are favouring domestic equity funds,” states Mr Chisholm. However Invesco, he says, is much more bullish about the opportunities available in China than India. It already has a presence in China since 2003 through a joint venture.
