There is a clear perception that Singapore has a more pragmatic regulatory regime than Hong Kong, finds an annual survey of fund industry executives by AsianInvestor and Clifford Chance.
Our survey received 244 responses, up from 160 last year, primarily from regionally located business and sales executives among asset management firms, as well as from some asset owners and distributors of investment products.
Asked which jurisdiction had the most pragmatic regime for funds management, Singapore came out on top with 33% of votes, ahead of Hong Kong with 18% and the US with 17%.
It means the Lion City received almost double the number of votes. Digging into the data, it emerges that 41% of all survey respondents were based in Hong Kong and just 14% from Singapore. Of those in Hong Kong, 28% voted for Singapore and just 22% for their home market, while of those in Singapore, 61% voted for the Lion City and 15% for Hong Kong.
This shows executives in Hong Kong view the grass as greener in Singapore, while those in Singapore largely favour their own market, which suggests the Lion City is better at promoting itself.
“There is a perception, particularly with people in Hong Kong, that Singapore is a much easier regulatory environment, but the reality may not be so clear cut,” observes Mark Shipman, a partner at Clifford Chance in Hong Kong.
Also noticeable is that the US appears to be doing a better job of selling itself than Europe, with the former attracting 17% of votes as a pragmatic regime, up from 7% last year, as opposed to just 7% for the latter.
But there also appears to be some misunderstanding of regulations emanating from Europe and the US and how they will impact the investment management industry in Asia.
An overwhelming 64% see US and European regulatory trends are having an adverse or very adverse impact on their businesses.
Yet when asked which would have the biggest impact, Basel 3 and Solvency 2 came out top, even though these rules are directed more at banks and insurers respectively (insurers did move up as future allocators of capital, and so Solvency 2 would be relevant here).
The Financial Transaction Tax was also surprisingly low in terms of expected impact at 7%, perhaps, as was centralised clearing of OTC derivatives (4%).
Asked his view on which regulations would most impact the industry in Asia, Shipman points to the Alternative Investment Fund Managers Directive (AIFMD), centralised clearing of OTC derivatives and the Foreign Account Tax Compliance Act (Fatca).
AIFMD did rise year-on-year in terms of expected impact at 11%, although on a separate question just 4% of respondents think most capital will be raised from Europe in the next year.
Meanwhile, Fatca did come joint top at 22% in terms of regulatory impact. However, when asked how they would respond to US and European regulatory trends, 18% said they would stop taking money from US investors.
But as Shipman notes, “not taking money from US investors does not cure your Fatca problems. You still have to comply. In fact, perversely if you have US investors it is easier because you know what you have to report to the Inland Revenue Service".
He suggests that if it is Fatca that is driving managers to say they will stop taking money from US investors, then they have not yet understood the implications of Fatca.
Even though the majority consider US and European regulation to be adverse, a leading 37% of respondents said they would respond by restructuring some of their funds under Ucits.
Yet when asked where they think new products authorised for sale in Asia would be domiciled, a leading 23% said Hong Kong, with Europe/Ucits in last place at 16%.
Managers remain confident that North America is the jurisdiction where most capital will be raised (27%), but interestingly China (23%) has leapfrogged emerging Asia (18%), a function of people becoming wealthier there and looking for offshore sources of investment.
However, the Middle East sank year-on-year (3%) and is now below Europe (4%), where AIFMD is still seen as a major concern. Hong Kong also saw a surprising dip as a fundraising destination.
“People are still going to the Middle East, it’s a regulatory-light place to raise capital, and likewise Hong Kong,” observes Shipman.
In terms of which area of change fund managers say will have the greatest impact on conduct of their business in Asia, the most popular answer was how products are sold/suitability at 32%, closely followed by additional regulatory reporting requirements at 29%.
For full details of the survey, see the latest July edition of AsianInvestor magazine.