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Asia rising

Regional fund passporting initiatives aim to spur domestic investment

The success of UCITS funds, which are widely regarded as the gold standard of cross-border funds around the world, has motivated several Asian governments to establish their own regional passporting schemes.

The aim of these cross-border initiatives is to expand the types of fund vehicles available to domestic investors in order to improve investment choices, and accelerate growth of the Asian funds industry.

The impact on market share for European-based asset managers who distribute UCITS funds within the region has been limited,1 as Asian markets grapple with challenges associated with a myriad of local currencies as well as complex tax and regulatory regimes, but it is still early days.2

Key Insights

  • An increase in regional cross-border fund initiatives and other "passporting" frameworks in Asia-Pacific are aimed at keeping more investment in the region, a key goal of Asian governments and regulators.
  • EU-based asset managers who distribute UCITS funds through the new passport frameworks may consider this a potential challenge to their activities, although early indications are that these initiatives have not yet impacted UCITS funds distribution, and are not expected to do so in the near term.

Asian Passports Grow

Since 2014, two fund passport frameworks have been launched in Asia Pacific: the Asean Collective Investment Schemes (CIS) between Singapore, Malaysia, and Thailand, and the Mutual Recognition of Funds (MRF) between China and Hong Kong. The Asia Region Funds Passport (ARFP) across Australia, Japan, New Zealand, South Korea, Singapore, Thailand, and the Philippines is due to begin at the end of 2017 or early 2018.

Proponents believe these passport frameworks will become a significant part of the overall Asia-Pacific retail funds market, estimated at USD 3.9 trillion when including Australia and New Zealand.3 AT Kearney, a global management consulting firm, estimated that funds within the Asian regional funds passport environment could grow to more than USD 600 billion by 2030, comprising 11 percent of all funds in the region.4

The Asian funds sector has an attractive long-term outlook that has made it an important market for both Western and Asian asset managers

The Asian funds sector has an attractive long-term outlook that has made it an important market for both Western and Asian asset managers. Growing wealth across Asia has led to increasing retail and institutional demand for investment products, while, at the same time, Asian investors are looking to invest beyond their country borders. Asian pension funds, for example, increased their holdings in foreign markets to 31 percent in 2014 from 19 percent in 2008, according to PwC.5 This is combined with low fund penetration in Asia compared with more developed markets in the West.

Playing the Long Game

Considering the opportunities emerging from Asia Pacific, foreign fund houses adept at UCITS fund management have been expanding into the region leveraging their global investing expertise. It was initially anticipated that UCITS funds may benefit from the Asian fund passport schemes, but regulators have presented the schemes as alternatives to these investment vehicles.6

These initiatives are designed to offer domestic fund managers the opportunity to grow by gathering investor capital outside their home market. Asian fund firms, regulators note, are maturing and opening offices not only in Asia but also Europe, so enhancing cross-border distribution channels is an important first step to cultivating competitive talent.

Growing Pains

The passport frameworks may need to be further refined to compete with the ease and efficiency offered by UCITS products

Asia, unlike the EU, does not have a supranational regulatory authority and is home to multiple currencies, legal and regulatory systems. As a result, the passport frameworks may need to be further refined to compete with the ease and efficiency offered by UCITS products, which benefit from a 30-year head start.7

In addition, fund houses in Asia must typically create various investment structures for different markets — an inefficient and costly process — and the passport frameworks may simplify but not eliminate this step. To qualify, fund houses must first establish compliant domestic funds, and those that qualify to be 'passported' must be approved or authorized by regulators of both the home country and the one where it is intended to be sold. Despite measures to streamline the process, approvals remain time-consuming and outcomes uncertain.8

Outlook for UCITS

The development of regional fund passports will have a varying impact depending on the market. In countries where UCITS products have not been easily accessible to retail customers such as mainland China, the passport frameworks are expected to help expand and grow the market.9

In markets such as Hong Kong, Singapore, or Taiwan where UCITS funds have been successful, the emergence of regional fund passports could compete for market share.10 At this time, UCITS funds continue to lead, as their value amounts to more than 60 percent of the total number of funds sold in Hong Kong.

While regulators continue to work on currency, tax, and regulatory differences, UCITS funds will remain an accessible route to global investing for most Asian investors.11 The continued attraction of UCITS funds in Asia will depend on how the passport frameworks grow and develop. For them to flourish, regulators may consider exploring additional solutions to open up their growing markets.

As regional passporting initiatives in Asia continue to evolve, the UCITS brand, which has three decades of experience, are likely to retain investor favour. The landscape will shift, however, if Asian regulators find consensus on how to strengthen the various funds passports or come together to create a truly regional passport.


  1. Irish Funds Newsletter (Autumn 2015) Why UCITS providers are concerned by Asian Funds Passports
  2. Financial Times (October 10, 2015) Asian Rivals for UCITS Funds Look a Bit Limp
  3. AT Kearney (September 2015) Asia Region Funds Passport
  4. Ibid
  5. PwC (2015) Asian Passports, the coming of Age
  6. Calastone (June 3, 2015) Momentum of a pipe dream: the operational challenges of Asian fund passports
  7. Asia Asset Management (February 19, 2016) Cross-border funds sale in Asia
  8. Ibid
  9. Morningstar (September 2, 2015) Asia Fund Passports - Opportunities and Implications
  10. Ibid
  11. Asia Asset Management (February 19, 2016) Cross-border funds sale in Asia