There is much speculation in the world of fund management about how long it will be before the European financial authorities finally manage to kill their own fund management industry.
Just last week, the European Commission released 110 pages of draft, supplementing rules that will be used to enforce AIFMD, or the directive to oversee the continent’s alternatives industry. Within these rules are much ridiculed impositions such as making custodian banks liable for investment losses and restricting access to EU investors by non-European funds.
The passage of these new rules, essentially MIFID II, AIFMD and FATCA in the US, will not affect Ucits, the most commonly used European fund structure, according to a leading market operator.
“The Ucits structure is still seen as a great vehicle for distribution in Asia,” says Keith Hale, executive vice-president for client and business development at fund admin software provider Multifonds in Luxembourg. “There will always be domestic funds in Asia, but there will also be strong flows into the region via Luxembourg.”
There are strong rumours in the market that Asian authorities are becoming exasperated with the constant changes in regulation coming out of Europe and the US and the consequent ratcheting up of compliance costs. A pan-Asian fund passport modelled on Ucits has been mooted for some time.
However, Hale believes that so far this is not going to lead to a wholesale change in the structuring and domiciling of the Asian funds management business. “I'm not hearing of people uprooting the whole fund umbrella and redomiciling in Asia,” he says.
The one – extremely large – caveat to all this is if the Europeans decide to impose a financial transaction tax (FTT) on the industry. This would add 10-15 bps to the costs of dealing in the funds and their underlying securities.
Hale says there would be a “mass stampede” out of European domiciles if such an FTT was introduced. It would probably spell the end of international Ucits.
However until that time, Ucits are probably strong enough and popular enough to be here to stay. “Asia still likes to use Ucits unless the politicians really mess it up,” he says.