Bank distribution - a blessing and a curse, says Pickerell
A senior executive at the Hong Kong arm of Australian asset manager AMP Capital thinks Asian regulators need to relax the rules for some funds, and allow for greater choice of funds, including real assets funds at a retail level.
Kerry Ching, who is managing director of AMP Capital Asia says real assets, including real estate and infrastructure could become a major new area of asset growth for the local fund communities across the region.
“In this market, where there is no safe haven, people would cherish the consistency of infrastructure income streams,” she said.
“This is going to be an even more important factor as Asia’s aging population thinks more about where they get their income in retirement. In many parts of Asia, our annuity products are not well-developed.”
Ching predicts that real assets will continue to be a focus and a trigger point for investors for institutions, which is AMP Capital's main market segment. "The question remains when will the market open up fully, and when will the regulator take a more liberal view in allowing the retail investor to go into some kind of illiquid asset”.
She is not optimistic though and does not expect real assets funds to be made available to retail investors anytime soon.
Ching has previously worked in senior roles at Fidelity, Credit Suisse and Invesco. Eralier in her career he also worked at the Securities and Futures Commission in Hong Kong. Now she observes that eight years out from the GFC, regulation has not softened as it might have done in the past.
"I tend to look at regulation as a swinging pendulum. At certain times regulation will be more pro-market and then it will switch back. Typically, regulators are reactive, but since the GFC the weight of regulation has not swung back. Of course, it had be tight after the GFC. But that position has been maintained and, in fact, there is now more regulation."
The fear factor is still so great that regulators have lost sight of the objective of regulation, says Ching. "We are becoming so obsessed with regulation and thinking that it can cure any problem and eliminate any risk, but are we actually looking at the real risks?".
Nowadays, when new regulations are issued, Ching observes the rules are "too detail oriented and very prescriptive. "I think Hong Kong is rather unfortunate because of a lot of the things that happened here (at the time of the GFC, such the Lehman mini-bonds scandal). But you also have to look at whether the regulations are designed to protect the general public, or maybe the regulators have some extra objective to protect themselves."
Ching asks, “why do we have a limitation on the percentage that can go into illiquid investment for retail funds? She says she has made representations to the main local regulators on this topic, “but it’s not in their key interests. They worry about a perception that they are not doing enough."
"The regulator was supposed to be armed with three different objectives. One is to preserve the security of the financial system, to ensure smooth operation. Second is to help to expand our core financial centre and thirdly to protect the investors. I think the last one has become such an overriding concern that it is actually going in the direction of sacrificing the other objectives.
These concerns echo those expressed by former Nikko Asset Management Asia chairman Blair Pickerell, who told AsianInvestor, “We have reached the point in much of Asia that government restrictions and compliance requirements make buying a fund a time-consuming and often frustrating process.”
“The current environment in some markets has so much focus on KYC (know your customer), AML (anti-money laundering) and most painfully “suitability” that bank staff can only sell a fund to a retail investor after spending an hour asking a wide range of questions about investment experience, risk tolerance, knowledge of derivatives/options, etc.
“While this sounds good in principle, in practice it makes it virtually impossible for anyone to build a meaningful online fund distribution vehicle. We need to find a way as an industry to qualify investors into certain “buckets” and then deal freely and un-bureaucratically with them (online) if the Asian market is going to remain vibrant.”
Ching adds, “We used to think that with adequate disclosure and enough information, people should be equipped with the tools to make a decision for themselves, but since then we have started compensating investors for losing money. If you compensate people it encourages them to come after you if they lose money. They need to take responsibility for their investment decision-making.”
She observed that it was very difficult to create an industry-backed education programme. "If you take MPF as an example, our tax rate (in Hong Kong) is too low – people don’t have any incentive to save. And because we don’t tax capital gains tax, people are always dreaming of getting into the right stock and making 10 times the money, so why would they bother with saving?