Industry veteran counters Alfi view on Ucits

It is highly unlikely that the Ucits fund structure will be recognised under upcoming Hong Kong-China mutual recognition in the medium term, said an Asia-based funds industry veteran. His comment follow suggestions to the contrary made last week by a European lobbying group.

Last week, Marc Saluzzi, chairman of the Association of the Luxembourg Fund Industry (Alfi), argued that a deal with China to allow Ucits products to participate in the MR scheme was likely within two years.

But Stewart Aldcroft, senior adviser at Citi Securities & Fund Services in Hong Kong, was skeptical. “I think the view about Ucits forming a part of mutual recognition schemes in Asia is wrong,” he told AsianInvestor. “There is little or no prospect of this happening in the next three to five years.”

For one thing, European rules do not allow Asia-domiciled funds access to their market, he noted.

“What those in Europe continue to forget is that mutual recognition also means that domestic funds in the target locations can then be allowed access to the European markets. This is not the case under the EU regulations.”

Moreover, there is no incentive for Asian regulators to allow Ucits products into the various passporting initiatives in the region, precisely because the schemes are being set up to replicate the achievements of Ucits for Asia-based managers.

There seems to be a lack of understanding on the part of some European fund players on what is happening on the ground in Asia because of their persistence in pushing for Ucits to be allowed under planned passporting schemes, said Aldcroft. “Mutual recognition is not a one-way street.”

It should also be borne in mind that the Chinese authorities have already once rejected the idea of Ucits participation in mutual recognition, after European Commission officials last year lobbied for such a deal, as reported.

Nonetheless, Saluzzi said last Friday during a Luxembourg fund industry conference held in the city that Alfi will continue to lobby for participation.

He also said Ucits products were not threatened by the development of the Asian fund passport schemes. But there are those in the industry who have voiced concerns that the use of their products will decline as a result of passporting initiatives and Asian regulators seeking to build up their own funds industries.

Aldcroft, however, argues there remain strong incentives for using funds under Asian passport schemes to access local markets, with Ucits products continuing to be the preferred choice for global markets.