The Asean Collective Investment Scheme (CIS) may have become the first of Asia’s fund passports to go live, but bankers have expressed skepticism over the level of potential interest for products launched under the scheme*.
Retail banks across Malaysia, Singapore and Thailand – the initial three CIS signatories – all express similar doubts over near-term demand. They believe preference for domestic product, combined with tepid appetite for new launches and little differentiation from existing product ranges, will prove hurdles to success.
“In recent years we have seen significant interest from investors to diversify overseas, which is being satisfied through FIFs [foreign investment funds],” noted Vira-anong Phutrakul, managing director of retail banking at Citibank in Thailand.
She sees single-country funds and Asean equities and fixed income as product gaps. “But will these be overwhelmingly received? Probably not,” said Phutrakul.
Distributors in the three markets already have an array of vanilla funds investing in domestic and overseas equities and fixed income. They’re unsure what else this platform will offer that they do not already have.
“If it’s plain-vanilla funds [that dominate fund launches], that would put a dampener on the attractiveness of Asean passporting,” said Gary Yong, head of wealth management at AmBank Group in Malaysia. “I am hoping to see at least some enhanced features, such as adding an outperformance element, guaranteed upside or limited downside.”
He hopes, too, that the scheme will help to speed up the introduction of multi-asset-class structures and multi-currency offerings, providing flexibility for fund houses and more options for investors.
“Investors holding foreign currencies can now invest directly in a class of units denominated in that foreign currency as opposed to converting their investment sum into ringgit,” said Yong.
Meanwhile, in Singapore, Kelvin Tan, head of investment funds at DBS Private Bank, sees little appetite for products from Malaysian and Thai
Singapore’s fund diversity leads him to believe that product flow will be in the other direction, that demand for Asean product will come from providing direct access to funds domiciled in Singapore that are currently not available in Malaysia and Thailand.
Others agree that Singapore is likely to benefit most from the Asean CIS.
Stewart Aldcroft, chief executive of CitiTrust in Hong Kong, said: “I see a significant benefit to Singapore-based asset managers because of the degree of respect for their international experience.”
But he struggled to see the benefits for Malaysian and Thai managers. “Would [Singapore-based] investors want to be investing into Malaysian or Thai managed funds? Would these provide a better return than Fidelity or Blackrock funds investing in those countries? I doubt it.”
However, one area seen as having future potential was renminbi-denominated qualified foreign institutional investor (RQFII) funds. These could be imported from Singapore, which was granted a $50 billion RQFII quota by Beijing in October last year.
“We already have global, Asean and single-country funds available,” said Yong of AmBank. “What we don’t have are niche products, like RQFII funds from Singapore or hedge funds for our more affluent clients.”
He understands these funds won’t be available initially, but expects them to be after a year or so. He also lists pre-IPO funds within the private equity arena as a niche worth exploring.
* See the forthcoming (November) issues of AsianInvestor for a full feature on this topic.