Alfi expects mutual recognition deal for Ucits

The lobbyist for Luxembourg’s funds industry is confident Ucits product will be permitted into the pending mutual recognition scheme, despite having been rejected once already by China’s securities regulator.

Marc Saluzzi, head of the Association of Luxembourg Funds Industry (Alfi), admitted over lunch last week that the China Securities Regulatory Commission (CSRC) had dismissed a former application to allow Ucits into the Hong Kong-China scheme.

Yet he expressed confidence that Ucits funds would be distributed in China within the next two years once mutual recognition was expanded to other jurisdictions. He said Alfi has been lobbying the CSRC to that effect, and been told to be patient.

“CSRC confirmed in June that mutual recognition with other countries is possible,” Saluzzi told AsianInvestor at a Luxembourg funds industry roadshow in Hong Kong late last week.

“We believe, just like anything the Chinese do, they will try and test and then they will expand in one-to-two years. Yes, we have lobbied [CSRC], and the response we have had is that we have to be patient for now.”

There are three current or pending fund passport schemes for Asia Pacific. The Asean Collective Investment Scheme (CIS) was launched last summer, while the launch of mutual recognition between Hong Kong and mainland China is anticipated in the first quarter of this year.

Then there is also the proposed Asia Region Funds Passport (ARFP) scheme due to launch in 2016. The initial signatories to the initiative were Australia, New Zealand, South Korea and Singapore, with the Philippines and Thailand subsequently also signing up, as reported.

But of the three, Saluzzi said Alfi was chiefly interested to participate in mutual recognition, a reflection of the fact that Ucits product has hitherto been excluded from China’s large domestic market.

He noted that joining the Asean scheme was less compelling on account of the fact that Ucits funds are already available in the markets of the three Asean signatories: they can be sold directly in Singapore and via feeder funds in Malaysia and Thailand.

However, if the Asean CIS was expanded, in particular to include Indonesia, the incentive for Alfi to participate would be greater. “Indonesia is the holy grail because of the size of its wealth and its population,” Saluzzi said.

But he admitted that Alfi had no plans to lobby for entry in the ARFP initiative. That comes despite ARFP having been touted by some as having the best chance of rivalling Ucits in Asia, as reported.

“This one is the most difficult [passport schemes] to implement because of the many differences in tax regulations,” Saluzzi explained. “We are in contact with some of the jurisdictions likely to participate. But no, we are not actively approaching [ARFP].”

He suggested that at this stage the aim of the ARFP scheme to represent Asia would be difficult to achieve, given that markets such as China and Japan would not be included, at least initially.

“It’s a long-term objective. The sub-regional schemes will get there first. To have one scheme that will embrace the whole of Asia from day one, that I don’t see,” Saluzzi said.

But he stressed that neither Alfi or the Luxembourg fund industry was concerned about the fund passport initiatives in Asia, in recognition of the fact that they would take time to develop.

“Our aspiration is to participate in those two initiatives [Asean and mutual recognition]… but the schemes have to materialise in the Asian context and deliver concrete results before they can be opened to Europe and us,” noted Saluzzi.

Separately, Saluzzi noted that a consultation on whether to extend the Alternative Investment Fund Managers Directive (AIFMD) to non-European jurisdictions such as Asia would trigger discussions on market liberalisation in this region.

AIFMD permits alternative funds managed by AIFMD-compliant managers to distribute products across the European Union’s 27 markets.

“The introduction of a global passport by AIFMD could, in theory, force a number of countries in Asia that would want to sell to institutional investors [in Europe] to open up their markets,” explained Saluzzi.