A scheme that encourages foreign fund houses to cultivate local talent and encourage more investment in Taiwan’s asset management industry could be discouraging product innovation and hurting investor interests.

That's the view of some market participants after the Securities and Futures Bureau (SFB) recognised nine foreign fund houses for their commitment to the local market as part of its “deep-cultivation plan”.

The scheme grants winning fund houses preferential treatments for one year starting on Monday (October 1), including the ability to introduce new types of funds and a faster approvals process (see box below). 

Now in its seventh year, the scheme aims to encourage greater investment in the Taiwanese fund management industry, increase the scale of assets under management (AUM), and enhance the training of local talent, according to the bureau’s announcement.

But only larger fund houses with higher AUMs can afford the education and training expenses stipulated in the scheme and, thus, be eligible for the favourable treatment, Donna Chen, founder and president of Taipei-based market research house Keystone Intelligence, told AsianInvestor.

“I don’t think [the training] is meaningful ... it is not market-driven but regulatory-driven,” she said. Regulators will mainly check whether the fund houses applying to the scheme have actually spent NT$5 million ($161,347) on education, she said.

The general manager of a global fund house not among the SFB's winners echoed Chen’s criticisms.

Training for staff is “superficial” and won’t nurture a lot of investment experts. Many global funds houses still have their investment portfolios managed outside Taiwan, he said on condition of anonymity.

The winning fund houses in the scheme have been running their businesses in Taiwan for a long time, so they can afford to meet the criteria. But when an asset manager first enters the local market, it won’t be able to hire a lot of local people, he said.

“Regulators want them to have more commitment in Taiwan. On the contrary, it blocks other asset managers from entering Taiwan,” he said.

In an emailed reply, the SFB told AsianInvestor that the deep cultivation scheme does not restrict the businesses of those that don't apply to the scheme, even as it encourages some foreign fund houses to contribute more by giving them special treatment.

Taiwan also has relatively relaxed rules on foreign funds’ fund-raising and sales exercises, it added.

For the unnamed fund firm manager, nonetheless, the scheme may be discouraging some boutique houses with unique investment expertise from entering the Taiwan market, thus reducing investor choice.

The NT$5 million training fee certainly puts smaller fund houses at a disadvantage to the bigger players, Chen of Keystone Intelligence said.

By making the local asset management industry more polarised, it's adding to calls for an adjustment to the scheme's selection criteria.

SPECIAL TREATMENT

  1. The nine winning fund houses are AllianceBernstein (AB), Allianz, Schroders, Invesco, UBS, JP Morgan, Fidelity, Franklin Templeton and NNIP.
  2. All nine can have Taiwanese investors’ money accounting for up to 70% of any one fund, while it’s only 50% for other overseas players.
  3. Except for UBS, the other eight fund houses can introduce new types of funds into Taiwan.
  4. AB can enjoy faster approval of funds.
  5. Allianz and UBS can submit up to three funds for approval in one application, while it is just one fund for other firms.
  6. For Schroders, Invesco and UBS, any of their offshore funds sold in Taiwan can have a maximum 40% exposure to mainland Chinese securities, while others are capped at 20%.