Foreign fund firms rush for approvals in Taiwan despite falling demand

Global asset managers are looking to obtain approvals before stricter rules on raising and selling offshore funds take hold in Taiwan in October. Yet flows into overseas products have declined.
Foreign fund firms rush for approvals in Taiwan despite falling demand

Foreign asset managers have been rushing to submit offshore fund applications in Taiwan ahead of stricter rules due to take effect on October 15, even as demand for overseas products has been shrinking, according to consultancy Keystone Intelligence.

In the first half of this year 15 offshore funds obtained approval for distribution, and 18 more applications are in the pipeline, said Donna Chen, founder and president of Taipei-based Keystone. Hence the total number of new products this year is likely to be higher than the 27 in 2015, she told AsianInvestor.

Of the 15 new products, there were 13 equity funds, one fixed-income fund and one balanced fund (see table 1 below). 

Table 1: Approvals of offshore funds in Taiwan, first half of 2016
Fund name Application date Approved Fund type
Aberdeen North American
Smaller Companies
March 10, 2016 June 29, 2016 Equity
Pictet USD Short Mid-Term Bonds January 30, 2016 June 29, 2016 Fixed income
Schroders Indian Opportunities February 16, 2016 June 29, 2016 Equity
Carmignac Portfolio Patrimoine April 22, 2015 June 27, 2016 Balanced
AZ Multi-Asset Institutional Italy December 17, 2015 May 30, 2016 Equity
AB Low-Volatility Equity Portfolio January 28, 2016 May 30, 2016 Equity
Allianz Best Styles US Equity January 8, 2016 May 19, 2016 Equity
Allianz Europe Small-Cap Equity January 8, 2016 May 19, 2016 Equity
Allianz Euroland Equity Growth January 8, 2016 May 19, 2016 Equity
Threadneedle Investment Funds September 30, 2015 May 13, 2016 Equity
Morgan Stanley Investment Funds
Global Opportunity Fund
September 30, 2015 April 25, 2016 Equity
BlackRock Global Fund Emerging
Markets Equity Fixed Income
October 29, 2015 April 1, 2016 Equity
Legg Mason Opportunity Fund July 24, 2015 January 8, 2016 Equity
Investec Global Quality
Equity Income Fund
August 7, 2015 January 7, 2016 Equity
Pictet Clean Energy July 27, 2015 January 7, 2016 Equity

Sources: Sitca/Keystone Intelligence

Taiwan’s Financial Supervisory Commission (FSC) has been amending regulations to encourage offshore asset managers to contribute more to the local market. The latest change came in October 15 last year, when the regulator announced stricter criteria* around the raising and sales of foreign funds in Taiwan, which will take effect on October 15, 2016.

There was uncertainty over the details during the consultation on the rules from April to September 2015, so new fund approvals slowed down until the clarification in October, Chen said. But asset managers have now ramped up applications again since the rules were clarified.

In fact, the number of offshore fund approvals in Taiwan had been falling over the past three years, from 43 in 2013 to 39 in 2014 to 27 last year, according to Keystone data.

This came after the FSC started what it called a “deep cultivation plan” in February 2013 to prod foreign fund houses into becoming more committed. One element of the plan is a scorecard scheme to assess firms based on criteria including employment of locals, local investments, local tax and revenue contributions, and talent cultivation.

Shrinking demand

Despite the recent rebound in offshore fund approvals, Taiwanese demand for foreign products has been shrinking. As of June 30, total assets of offshore funds in Taiwan stood at NT$3.04 trillion ($95 billion), down 8.6% from NT$3.32 trillion a year before.

In that period, nine of the 10 biggest foreign players in Taiwan saw their offshore fund assets fall (see chart 2 below), the only exception being Allianz Global Investors. Schroders saw the biggest percentage decline (-28%), followed by Franklin Templeton (-19%) and NN Investment Partners and Eastspring (both with -17%).

Table 2: Taiwan offshore fund ranking
Ranking Offshore fund house AUM ($m) June 2016 AUM ($m) June 2015 YoY change (AUM $m) YoY change (%)
1 AllianceBernstein 17,521 19,308 (1,787) -9%
2 JP Morgan 11,936 12,866 (930) -7%
3 Templeton 11,703 14,523 (2,821) -19%
4 Fidelity 9,005 9,298 (293) -3%
5 BlackRock 8,738 9,731 (993) -10%
6 Allianz 5,517 5,326 190 4%
7 Schroders 4,216 5,822 (1,606) -28%
8 NN 3,793 4,581 (788) -17%
9 Pioneer 2,732 3,239 (506) -16%
10 Eastspring 2,048 2,476 (428) -17%

Sources: Sitca/Keystone Intelligence

There may be a number of reasons for this drop in demand, Chen said. For one thing, the political changes in Taiwan: presidential and parliamentary elections took place in mid-January and the new government started to take office from May 20.

Another factor could be the increasing volatility in global markets, especially in light of Britain’s vote to leave the EU, the slowdown in China’s economy and expectations of a forthcoming interest rate hike in the US.

Meanwhile, the number of onshore fund IPOs by foreign managers also fell in the first half of this year to nine, from 11 in the first half of 2015, while IPO volume more than halved to $775 million from $1.85 billion, according to Keystone.

However, the overall volume of onshore fund IPOs has also fallen. In the first half, 38 onshore funds were launched in Taiwan, raising NT$75 billion ($2.3 billion). That was an almost 50% drop from the $4.5 billion raised by 31 fund IPOs in the same period last year, according to Keystone.

A key reason for this is that this year more of the IPOs were exchange-traded funds (11 ETFs launched in the first half), which banks don’t distribute or promote, as they cannot charge large commission fees on such products, Chen said.

However, banks may recommend that investors sell new funds after the IPO lock-up period, which is usually 60 to 90 days, she noted. So ETFs are likely to have more “sticky” money with them for the longer term, said Chen.

As for onshore funds issued by either foreign or local players, total AUM rose 4.3% to NT$2.2 trillion at the end of June from NT$2.1 trillion a year earlier.

*For details of the rules, please click here.

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