Fund passporting: talking point or revenue generator?

Asia's three fund passport schemes are expected to remain little more than an industry talking point for the remainder of this year as opposed to gaining real traction, say AsianInvestor readers.

Cross-border mutual fund recognition between Hong Kong and mainland China was the first of the three to be announced, in January 2013, although the programme has yet to be initiated after being superseded by implementation of the Shanghai-Hong Kong Stock Connect scheme.

There is much uncertainty over when mutual recognition will launch, with most market players tipping it for this year. Hopes remain high given its potential and simplicity compared with the greater number of nations involved in the other schemes.

Of course, the Asean Collective Investment Scheme (CIS) between Singapore, Malaysia and Thailand went live last August. But there are fears that traffic between the three signatories will be mostly in one direction, with Singaporean managers seen as having no interest in funds from the other two.

Lastly the proposed Asia Region Fund Passport (ARFP) scheme agreed by Australia, New Zealand, Singapore and Korea in September 2013 has scheduled a pilot for cross-border fund sales next year. But industry players have warned of major obstacles that could wreck its launch.

When asked what would happen to fund passport schemes in 2015, 62.7% of respondents to AsianInvestor's survey said they would "remain an interesting topic of conversation”. Just 13.3% of voters were optimistic enough to suggest the schemes would “go live and see decent flows”.

A decent proportion were highly sceptical about prospects for the schemes, with 12.7% saying they would “go live and flop”, and 11.4% believing they would “disappear from our radar screens”.

Separately, AsianInvestor readers forecast that Asia-focused funds domiciled in Greater China would receive the lion’s share of new inflow this year. Funds domiciled in China were voted top with 28.8%, with Hong Kong was in second with 21.9%.

Last year’s launch of Stock Connect, the Shanghai-Hong Kong trading scheme, and the awaited launch of mutual recognition, are no doubt helping to make Greater China investors’ number one target.

In third place was Europe (Luxembourg, Dublin) with 18.1%, with the Ucits fund structure still attracting flows. Offshore centres still received a healthy 13.8%.

AsianInvestor surveyed its broad reader base, which includes asset owners, asset managers and service providers from across Asia Pacific. In all, 173 regional respondents took part.