Ucits fund marketers increase Asia focus

While the institutional investment business in Asia is growing in importance, the region's Ucits-compliant funds market is attracting ever more attention, according to Cerulli Associates.

With Cerulli Associates forecasting that Asia's fund sector will recover its 2007 peak level of $1.06 trillion assets under management this year, well ahead of markets elsewhere, the region is drawing huge interest from asset managers worldwide.

Asia's markets are becoming more balanced in terms of focus on the retail and institutional sectors, with institutional investment business becoming increasingly significant, says the US research firm in its Asia-Pacific report, published in February. And as the sophistication of pension funds, insurers and the like develops, so does their appetite for expert third-party management.

Moreover, aside from courting institutional business, international managers are focusing efforts on marketing Ucits-compliant funds in the region, says Cerulli in its Europe first-quarter report released on Friday.

The popularity of the Ucits brand in Asia is clear. An estimated 70% of all authorised funds in Hong Kong, Singapore and Taiwan carry the Ucits brand, and Bank Sumitomo -- one of Japan's largest fund distributors -- allocates 80% of the money that goes into offshore funds into Ucits products. Even China, with its substantial restrictions on foreign fund sales, "has accepted Ucits up to a point", adds the Europe report.

And if imitation is the sincerest form of flattery, the Ucits set-up has received a strong vote of appreciation from the Australian Financial Centre Forum, which wants to see -- in its own words -- a regional 'Ucits-style' fund-passport scheme.

The Association of the Luxembourg Fund Industry (Alfi) has acknowledged the appeal of Ucits in Asia with its plan -- announced in early February -- to set up a Hong Kong office; making it the only European fund association to do so. "Given that an estimated 50% of all funds sold in Hong Kong are from Luxembourg," says Cerulli, "this is an astute move."

Moreover, Luxembourg-based Arendt & Medernach, a fund industry specialist law firm, set up an office in Hong Kong -- its first in Asia -- late last year to advise asset managers in Greater China and elsewhere in the region. 

But it's not only European firms that are capitalising on the wide acceptance of the Ucits brand. Many Asian and Australian firms are registering funds in Luxembourg and Dublin to sell back into their home region, notes the report. Alfi reported that a Korean asset manager recently registered its funds in Luxembourg, as this was one of the few ways it could gain a licence to sell funds to Hong Kong investors.

With the advent of Ucits IV -- expected around mid-2011 -- it is thought that the brand's appeal will broaden further, says Cerulli. The new law removes many administrative barriers to cross-border sales and provides for master-feeder funds to achieve cross-border asset pooling and a new framework for cross-border fund mergers.

Yet Cerulli's view is that "for all its advantages, Ucits will only get you so far", suggesting that onshore structures will be necessary for "a serious crack at some of the global emerging markets".

Meanwhile, Luxembourg remains the leading domicile for cross-border fund sales in terms of AUM, but it faces growing competition from Dublin, adds the report. Ireland is home to over 4,000 Ucits funds, has established a reputation for hedge fund administration and tends to offer quicker authorisation of fund launches (11 weeks, as against 14 in Luxembourg). A further benefit, adds Cerulli, is an initiative that allows Chinese investors to access internationally distributed funds domiciled in Ireland.

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