Chinese fund managers are increasingly looking at using Ucits fund structures as a means of distributing their products in Europe, according to Luxembourg law firm Arendt & Medernach.
“There is a huge amount of interest [in China]," says Stéphane Karolczuk, head of the firm’s Hong Kong office. “It’s an interesting trend.”
Arendt & Medernach, which practices Luxembourg law and advises Asian asset managers on the establishment of Ucits funds, sent legal staff to the mainland to educate the market on Ucits fund structures.
A launch of Ucits products by large Chinese fund managers is imminent, although Karolczuk declined to say whether Arendt & Medernach is assisting mainland firms in the process. “This is a reality. I cannot say much more at this stage.”
Chinese fund managers, along with their peers elsewhere in Asia, are turning to Ucits to widen their investor net into Europe. “It’s a vehicle where you can very easily distribute to other European countries,” says Karolczuk.
Launching a fund under the Ucits framework also makes for easier distribution within Asia, he adds. “Ucits funds can be very easily registered in Asian markets such as Hong Kong, Singapore and Taiwan. This is not necessarily true when you have a local vehicle.”
Fund managers such as Galaxy Asset Management in Hong Kong, South Korea's Mirae Asset and Fullerton Fund Management in Singapore have already recognised the potential of Ucits.
While large European fund issuers have distributed a wide range of Ucits products in Asia – including funds that track indexes and strategies with exposure to derivatives and renminbi bonds – their counterparts in the region are favouring plain-vanilla strategies, such as long-only equity and fixed income, says Karolczuk.
“I’ve not seen [Ucits] funds extensively using derivatives,” he notes. “At least not from Asia-based players.”
Despite a lack of “exotic” strategies, Asian-managed Ucits funds are rising in number. As of February 2011, asset managers in the region had set up 168 Ucits funds, according to data from Lipper. Karolczuk says it has a growing base of clients, not only in the main fund centres of Hong Kong and Singapore, but also in Japan, Korea and Taiwan.
In response to growing demand in Asia for Ucits fund formation services, Arendt & Medernach recently relocated Anna Mateusiak to Hong Kong from the firm’s investment funds practice in Luxembourg, where she has been serving as an associate since and advising clients on the setting up of Ucits funds since 2007.
Mateusiak joins Karolczuk and Nelly Zhang in the Hong Kong office, which was set up in 2009. Zhang joined in May last year to help service growing demand for Ucits structures in Hong Kong and China.
The team will gradually grow to seven or eight staff in coming years, says Karolczuk, and include specialists in tax, corporate law, mergers and acquisitions, and capital markets.