Asian asset managers forge ahead with Ucits launches

Europe's sovereign debt crisis and potential continental economic slowdown has not derailed Asian asset managers' plans to set up Ucits-compliant funds, says Luxembourg law firm Arendt & Medernach.

“The crisis is coming [to Europe] and it doesn’t look like there’s going to be a solution quickly,” says Stéphane Karolczuk, head of the firm’s Hong Kong office. “But that hasn’t prevented asset managers from going ahead with their product launches.”

Volatile market conditions led to €20.3 billion ($28.3 billion) in investor outflows from Ucits funds this August, according to data from the European Fund and Asset Management Association. It continues a trend of Ucits fund outflows from July of €13.7 billion.

Asian fund managers are planning Ucits product launches with an eye on capturing investments in Europe, where there is still a lot of capital, notes Karolczuk, before distributing regionally in Asia.

A trend of Ucits-compliant renminbi bond fund launches will continue into 2012, as demand from both Asian and European investors have remained steady for the product, says Karolczuk.

AllianceBernstein and Barclays Capital are among asset managers that have launched RMB bond funds under the Ucits framework so far this year.

Ucits funds are likely to benefit from the planned mini-QFII (qualified foreign institutional investors) scheme, which will allow the licensing of Chinese fund managers to trade into Chinese markets from Hong Kong.

The initial mini-QFII investment quota is anticipated to total about $3 billion, with an expected requirement that managers invest 80% of fund assets into Chinese bond markets and 20% into domestic equities.

While this would preclude investments in Ucits-compliant RMB bond funds – as they are domiciled in either Luxembourg or Ireland – future follow-on quotas are anticipated to have a widened scope of permissible yuan-denominated investments.

One possibility is that Chinese investment managers that are eligible for mini-QFII quotas and have an existing RMB Ucits bond fund via a Hong Kong subsidiary could use their quota to invest in onshore yuan-denominated bonds. It would help to attract investors seeking exposure to both offshore and onshore RMB bonds, with the latter of the two tending to have much better yields. 

“It still seems to be down the road,” says Karolczuk, adding: “At the end of the day, it will benefit Ucits."