By Xun Yuan, Business & Relationship Development Manager, Fundsquare
A roundup of the recent ALFI Asia roadshow
Together with some 400 fund professionals, I joined ALFI Asia roadshow to Tokyo and Singapore on 9 and 11 December. This event provided a solid overview of recent developments in cross-border distribution and innovative solutions in the field of alternative investment funds as they apply to local actors and those in Luxembourg.
Rapid growth in Asia, but could be greater
Before looking at these in more detail, for those not familiar with the Asian investment fund industry, I would like to highlight some interesting figures. According to a report from US-based Broadridge, assets under management in the Asian region total around USD 4.1 trillion making it the world’s third largest fund market, behind the US and Europe. While Asian fund assets have doubled since 2012 there is clearly, given its population, much potential for further growth as regards the investor base and financial inclusion. As an example, Broadridge pointed out that in Indonesia less than half a percent of the population are fund investors.
What is striking in the figures is that money market funds are much more used in Asia as compared to the rest of the world. China’s money market funds make up around two thirds of all assets under management in the country, while for the region as a whole such funds comprise more than a third of total assets. Crucially, almost all investment funds in the region serve their respective domestic markets with only a small number of cross-border funds.
Improving the scope for cross-border distribution within Asia was discussed during the ALFI roadshow. Hong Kong, Taiwan and Singapore offer the most opportunities in this field. There are also three different main initiatives for cross-border passporting: the Asia Region Funds Passport, the ASEAN Collective Investment Scheme and the bilateral Mutual Recognition of Funds scheme between Hong Kong and China. Still in their infancy, these are aiming to repeat the UCITS success in Europe.
Business & Relationship Development Manager
Taking into account the digitalisation of the fund industry, with advances in process automation, cost reductions and data insights, I see a very promising future for investment fund distribution in both Asia and Europe.
Distribution in Europe
For Asian asset managers wishing to sell their funds in Europe, the roadshow attendees noted that Luxembourg has a complete fund structuring toolbox and is recognised in Asia as being well regulated and having a high level of protection for investors.
Europe’s AIFMD regime was particularly attractive to Asian firms, providing diversification to Asian investors. Attendees also highlighted the Luxembourg’s Reserved Alternative Investment Fund, or RAIF, as an extremely flexible vehicle that helps reduce complexity in distribution.
On the other hand, a number of participants pointed out to me that that costs are a continuing concern when distributing in Europe. Others mentioned the need for an in-country presence to attract and service European investors and this together with cost efficiency were seen as hurdles that would keep the assets collected in Europe at a relatively low level.
Evolving regulation for more distribution opportunities
The regulatory landscape in Europe will continue to evolve to meet the needs of international fund initiators and asset management firms.
The Luxembourg regulatory experts emphasized that ESMA is consulting on performance fee guidelines with a view to greater harmonisation and whether its guidelines should be extended to alternative investment funds marketed to retail investors.
Other regulatory initiatives focus specifically on cross-border distribution of both UCITS and alternative investment funds, as well as the European Commission’s ongoing work on the AIFMD review, due in 2020.
Taking into account the digitalisation of the fund industry that is now happening in both Asia and Europe, with advances in process automation, cost reductions and data insights, I see a very promising future for investment fund distribution in both regions. Given its obvious advantages and experience as a facilitator of cross-border distribution, Luxembourg will remain a location of choice for Asian fund managers.