HK voted ideal location to domicile funds

Hong Kong was voted the ideal location to domicile funds if the regulatory and tax regime allowed, finds an annual survey of fund industry executives by AsianInvestor and Clifford Chance.

The survey received 244 responses, up from 160 last year, primarily from regionally located business and sales executives among asset management firms, as well as from some asset owners and distributors of investment products.

Asked where the ideal funds domicile would be, 33% voted for Hong Kong, ahead of the Cayman Islands/other offshore with 24% and Singapore with 22%. That comes despite the survey finding the Lion City was seen as having the more pragmatic regulatory regime.

Digging into our data, 41% of respondents were based in Hong Kong and just 14% in Singapore. Of these, 48% selected Hong Kong as the ideal funds domicile and just 7% Singapore. Of those in Singapore, 45% voted for the city-state and just 9% for Hong Kong.

That means our results are skewed in Hong Kong’s favour, but still it is a ringing endorsement for the city. Compilers of studies and surveys on what the city needs to do to promote its funds industry would do well to take note.

When asked where new products authorised for sale in Asia will be domiciled, Hong Kong came out top with Cayman Islands/offshore, both at 23%, ahead of Singapore with 19% and Europe/Ucits in last place with 16%.

“What is interesting is that Ucits is falling and we know this,” says Mark Shipman, a partner at Clifford Chance in Hong Kong. “It has a branding problem that it needs to address.

“Hong Kong [being joint top] is possibly a reflection of reports about the proposed mutual funds recognition scheme with mainland China.

“The other benefit is speed to market. The fact is that by domiciling product locally that is a quicker route to market.”

Asked whether their firm intended to launch offshore or onshore products denominated in renminbi, 21% said they were considering it. While the highest number said they had no intention (41%), that is down from 46% last year – perhaps indicating a gradual acceptance.

Meanwhile, 32% of respondents said they were developing products in Asia to exploit the development of non-bank alternative financing, as against 68% who said they weren’t.

“There is quite a lot of interest around non-bank alternative financing,” says Shipman. “”There is a lot around the credit financing fund space and distressed opportunity funds.”

However, in an earlier question respondents had been asked what vehicle global investors would use to allocate capital to Asia over the next 12 months, and credit/financing funds remained static year-on-year with 11% of votes, while distressed/opportunity funds had dropped from 11% to 9%.

“Global investors are probably not allocated capital in the way we think to non-bank alternative financing,” observes Shipman. “I am curious to know what they [the 32%] are looking at developing. Maybe they are looking at a different type of product that we haven’t even focused on yet.”

For full details of our survey, see AsianInvestor’s July magazine edition.