Exploring the Asean fund passport’s potential

BNP Paribas Securities Services has been involved in discussions with fund manager clients and regulators about the evolution of the Asean fund passport, one of the three different Asian initiatives being developed.

AsianInvestor asked Remi Toucheboeuf, Asia head of product management for asset and fund services, and Mostapha Tahiri, head of Singapore, for their views on some of the burning issues.

Many requirements have already been announced for the Asean scheme, but several things are still not allowed, such as securities lending, repo transactions and direct lending of monies. What do you think of the proposed rules as a starting point, and how will they evolve?

Remi Toucheboeuf: Of the three fund passport proposals, the Asean initiative offers the most visibility so far in terms of eligibility criteria and operating rules [the other schemes being Hong Kong-China mutual recognition and the Asian Region Fund Passport (ARFP)].

As for what the rules allow, it’s normal for schemes like this to start out with plain-vanilla products that are easy for regulators to validate and are likely to create high demand.

So the Asean passport will start with long-only and retail funds only, and the second stage may see the regulators permitting other asset classes. In any case, retail investor demand for alternative or more sophisticated funds in this region is still quite limited.

In terms of market size, Asean is the smallest among the passport schemes. Can it provide sufficient scale?

Toucheboeuf: It’s true that these markets are not as big as China, Japan or Australia, but they are mature fund industries with established local providers. Moreover the Asean markets are still sizeable. Taken together, Singapore, Malaysia and Thailand had a total AUM of $240 billion as of the end of 2012.

And growth is expected to be significant. Within BNP Paribas Securities Services we did a market sizing projection over the next five years based on different assumptions in term of asset growth, cross-border flows and participating countries (see chart 1).

We project around 70% growth over the next five years to around $400 billion – 90% for Singapore – under reasonable expectations. Another internal projection includes Indonesia and the Philippines coming into the equation, and projects total AUM of around $470 billion in five years.

Mostapha Tahiri: Expansion into other Asean markets is top of the agenda now for asset managers in Singapore. Also, as Malaysia and Thailand are relatively closed fund markets, the passport gives local and global players immediate benefits from cross border distribution.

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