China ‘holds key’ to Asia fund passport success

The Asean and ARFP schemes will be complimentary, but the commercial viability of passporting will revolve around China, an AsianInvestor roundtable hears.
China ‘holds key’ to Asia fund passport success

China holds the key to making any of Asia’s three proposed fund passport scheme a success, but it will need to grant Hong Kong more than a year’s grace period before extending mutual recognition, heard participants in an industry roundtable.

Organised by AsianInvestor* and featuring panelists in Hong Kong, Singapore and Australia, the debate revolved around what it would take to make any of the three schemes commercially successful.

Nick Hadow, director of business development in Singapore for Aberdeen Asset Management, argued that Singapore had an advantage over Hong Kong in terms of being “a true sovereign”.

“The rather mixed status of Hong Kong versus China makes life relatively more difficult to pursue the same sort of strategies as an independent Singapore,” he said.

Asked whether Singapore could become the apex for a pan-regional passport, given that it is party to both the Asean and the ARFP schemes, Robert Grome, Asia-Pacific leader in the asset management group at PwC, suggested the two schemes would be complimentary as opposed to competing.

“The [ARFP] scheme is for richer countries with significant GDP per head,” Grome noted. “Whereas for Asean, emerging markets have a lot of potential. So Singapore’s intentions for participating in each scheme may be different. And we know that Singapore is nibbling away at China and wants access to that market as well.”

Lieven Debruyne, Hong Kong chief executive at Schroder Investment Management, said the success of any passporting initiative would be determined by its commercial potential. “If [ARFP] can get Japan to join, overnight it would become an initiative with huge potential,” he said.

“The reason [Hong Kong-China] mutual recognition has potential is because it offers asset managers a much more efficient or direct way into markets where [managers] have not been before," added Debruyne. "The same can be said for Asean. The success for [ARFP] will be who will join.”

Yet the success of any passporting scheme is not just down to the number of markets in it, but the assets that are flowing in and staying long term, said Andrew Gordon, managing director for Asia at RBC Investor & Treasury Services.

“I’m concerned that smaller managers which do not have the reach of an Aberdeen or Schroders are just thinking about the first step – building distribution," he added. "Distribution in China and many other markets is not an easy process to start from scratch.”

The prospect of Singapore and other markets reaching out to China saw panelists question how long a holiday Hong Kong should be given to get mutual recognition up and running.

Debruyne said setting up a locally domiciled platform in Hong Kong would come at a high cost for global managers. “Therefore you would have to look at what the revenues are against that,” he noted.

Grome suggested the holiday for Hong Kong would need to be significant if global managers were to go to the expense of setting up. “If Hong Kong is only getting a one-year holiday and it is taking the Securities and Futures Commission ‘X’ number of months to approve new product, that is not much of a start for Hong Kong.”

Asked where a single passport scheme was likely to come from, Gordon said: “I think Asean needs to attract China from a sheer volume perspective. China can make any of the schemes a winner – in 20 years!"

Hadow argued that in 20 years’ time everyone would be buying funds over the internet and would not need a passport at all.

The roundtable had previously discussed how the ARFP scheme offered the best long-term hope of a pan-regional passport scheme to rival Europe’s Ucits, as reported.

Further discussions included the thought that having three individual schemes in Asia rather than one pan-regional passport provided the best chance for them to take root and flourish, as reported.

* A full transcript of the discussion 'The Future of Fund Passporting in Asia' will feature in the forthcoming April issue of AsianInvestor magazine. This event was sponsored by RBC Investor & Treasury Services.

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