AsianInvesterAsianInvester
Advertisement

Assessing Asia-Pacific’s New Corporate Fund Structures, Pt. 1

In competition with schemes such as UCITS, the development of corporate fund structures in Asia Pacific is providing more options for asset managers to domicile funds. We break down what the new structures mean.
Assessing Asia-Pacific’s New Corporate Fund Structures, Pt. 1

New corporate fund structures in Hong Kong, Australia and Singapore - the OFC, CCIV and VCC, respectively - are aimed at making these domiciles more attractive to asset managers and investors. But while they share a similar goal, their different approaches mean there are significant differences between them, making that choice complex.

With years of asset servicing experience in supporting competing schemes such as UCITS, we understand how each vehicle’s structure and rules may affect fund managers’ costs, investment strategies and business goals. 

This two-part series explains the background and key features of these structures, and outlines what asset managers need to know when considering whether to include them in their fund manufacturing and distribution strategies.

GETTING TO GRIPS WITH OFC, CCIV & VCC

Asset managers need to consider a number of factors, including regulatory, competitive and investor demands, when considering where to domicile their investment fund offerings.

In Asia Pacific - where assets are forecast to double from their 2016 levels to nearly $30 trillion by 2025, according to PwC - Australia, Singapore and Hong Kong are looking to further build and reinforce their positions as regional asset management hubs.

Regional governments and regulators are committed to attracting investment, increasing cross-border trade and regulatory cooperation to create a dynamic and globally competitive funds management industry. The introduction of the new corporate structured fund vehicles in Asia Pacific offers a credible and compelling offering.

Australia, Singapore and Hong Kong are looking further to build and reinforce their positions as regional asset management hubs
 

The introduction of these structures comes at a time of increased efforts to develop a single regional market for funds through various cross-border passporting schemes - notably, the ASEAN Collective Investment Scheme (ASEAN CIS), the Asia Region Funds Passport (ARFP) and bilateral schemes such as the Hong Kong- China Mutual Recognition of Funds (MRF) scheme.

MORE CHOICE, GREATER FLEXIBILITY

The new structures introduce some important benefits, such as allowing an umbrella and sub-fund structure, and reduce some compliance requirements. Part two of this series assesses some of the advantages and disadvantages of each, as well as the ancillary factors driving fund managers (and investors) to consider them.

This article outlines the basics behind:

  • Hong Kong’s Open-ended Fund Company (OFC), which launched in 2018 (Hong Kong Securities and Futures Commission).
  • Singapore’s Variable Capital Company (VCC), which is expected to launch in early 2020 (Monetary Authority of Singapore).
  • Australia’s Corporate Collective Investment Vehicle (CCIV), which was expected to launch in 2019, but now looks likely to launch in 2020.

HONG KONG’S OFC

Hong Kong’s mutual funds have not been able to accommodate diverse needs from fund providers, though its laws have long allowed asset managers to set up investment funds in a unit trust structure. The OFC allows them to set up under a corporate structure.

Unlike a unit trust structure, the OFC does not require a trustee, but acts for and on behalf of itself. Additionally, its enabling law – the Securities and Futures Ordinance – permits it a variable capital structure, which is not the case with companies formed under the Companies Ordinance.

Cost-wise there is little difference between the OFC and the unit trust structures. However, if we compare the cost of selling the funds established in Hong Kong versus outside Hong Kong, there is a cost benefit to set up as an OFC: An OFC is simpler and cheaper because it only requires compliance with Hong Kong legislation.

An OFC can have an umbrella and sub-funds structure, and the law supports cross-investment of sub-funds. It can be public or non-public, and must have a board of directors with at least two individual directors. It must appoint a fund manager, an external auditor, and a custodian who has responsibility for all safekeeping of assets.

A key benefit promoted by the authorities is that being domiciled in Hong Kong provides access to mainland China, although whether or not the OFC funds will be distributable under the MRF scheme has not yet been clarified, according to Regulation Asia.

SINGAPORE’S VCC

This specialised corporate structure introduces a fourth fund type to Singapore and is designed to provide fund managers with greater operational flexibility and help them reap economies of scale and monetary savings.

The enabling law, the Variable Capital Companies Act 2018, supports umbrella and sub-funds structures, with sub-funds able to appoint a local board of directors and use the same service provider as the umbrella fund.

A VCC covers both traditional and alternative assets, can be open-ended and closed-ended, and can be used for retail and non-retail strategies. A retail fund requires three directors; a non-retail fund requires one.

According to The Global Competitiveness Report 2018, Singapore’s strategic positioning in the region and its role as one of the world’s most competitive nations should further attract interest from asset managers.

AUSTRALIA’S CCIV

With the largest fund management industry in the Asia Pacific region, the introduction of the CCIV could prove to be a boon for the country.

CCIVs have a range of benefits: they have an internationally recognised corporate structure limited by shares; they are designed to integrate with the ARFP cross-border initiative; and they complement the existing regulatory framework, potentially creating cost efficiencies and reducing compliance costs.

In a first for Australia’s fund management market, a CCIV must have one sub-fund (and can have more). Additionally, sub-funds can offer a range of investment strategies delivering increased investor choice, scale and cost-savings.

To protect investors, sub-funds’ assets and liabilities must be kept separately, with each CCIV required to have an authorised corporate director, which must be a public company. It is expected that the law will permit both retail and wholesale CCIVs and introduce a depositary requirement for retail CCIVs.

The second part of this series looks more closely at some of the factors that fund managers and investors should consider with funds that use these new structures, and their prospects for success.

Thanks to our Asia Pacific footprint and global cross-border expertise, BNP Paribas can help clients to identify the impact of the different schemes from a cost of administration or ability to support different investment strategies perspective. We provide support from set-up with trustee, custody and transfer agency services, as well as fund administration.

Read more on the benefits, drawbacks and challenges to consider, in Part 2, on the BNP Paribas Securities Services website here.

Disclaimer

BNP Paribas Securities Services is incorporated in France as a partnership limited by shares and is authorised and supervised by the ACPR (Autorité de Contrôle Prudentiel et de Résolution) and the AMF (Autorité des Marchés Financiers).

The information contained within this document (‘information’) is believed to be reliable but neither BNP Paribas Securities Services nor any of its related entities warrant its completeness or accuracy nor accept any responsibility to the extent that such information is relied upon by any party BNP Paribas Securities Services shall not be liable for any errors, omissions or opinions contained within this document.  Opinions and estimates contained herein constitute BNP Paribas Securities Services' or its related entities’ judgment at the time of printing and are subject to change without notice. This document is not intended as an offer or solicitation for the purchase or sale of any financial product or service. The information contained in this document does not constitute financial advice, is general in nature and does not take into account your individual objectives, financial situation or needs. You should obtain your own independent professional advice before making any decision in relation to this information. The information contained in this document is not intended for retail investors. Any information contained within this document will not form an agreement between parties. BNP Paribas Securities Services ARBN 149 440 291 (AFSL No: 402467) has been registered in Australia as a foreign company under the Corporations Act 2001(Cth) and is a foreign ADI within the meaning of s 5(1) of the Banking Act 1959. This document is not intended as an offer or solicitation for the purchase or sale of any financial product or service outside of Australia and is intended for ‘wholesale clients’ only (as such term is defined in the Corporations Act 2001 (Cth)).

BNP Paribas Securities Services, acting through its Hong Kong Branch, is regulated by the Hong Kong Monetary Authority and is licensed by the SFC to conduct Type 1 (dealing in securities) regulated activity.

BNP Paribas Securities Services, acting through its Singapore Branch, is regulated by the Monetary Authority of Singapore.

The New Zealand securities services business operates through BNP Paribas Fund Services Australasia Pty Ltd. BNP Paribas Fund Services Australasia Pty Ltd is a wholly owned subsidiary of BNP Paribas Securities Services. BNP Paribas Fund Services Australasia Pty Ltd ABN 71 002 655 674 (‘BPFSA’) is an Australian incorporated company which is registered with the New Zealand Companies Office under registration number 1010736. BPFSA is also registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008.

¬ Haymarket Media Limited. All rights reserved.
Advertisement