More Asian-flavoured Ucits set to feed investor appetite
Investors in Asia can expect to see more Ucits-compliant funds focusing on specific markets in the region as asset managers capitalise on healthy demand for products based on the European framework, according to law firm Maples and Calder.
Barry McGrath, the company’s Dublin-based partner, says he is seeing more Korea and Taiwan-specific Ucits funds, while existing China-focused Ucits products – which are largely exchange-traded funds (ETFs) that track the performance of mainland indices – remain in high demand.
“There’s a lot of money going into China,” says McGrath, who leads the firm’s investment funds team in Ireland. “If you could easily get exposure to China, obviously everyone would want that [product].”
Asian retail and institutional investors alike have taken a shine to Ucits funds, with the region ranking as the second-largest market for such products after Europe, according to a PwC report. Standard Chartered estimates that more than 70% of funds distributed in Asia are using a Ucits framework.
“Every ETF that we act for, and we act for a large number of them, are in the process of registering with the [Securities and Futures Commission] in Hong Kong for retail distribution,” says McGrath. “They’re registered in Singapore and Taiwan.”
The popularity of the Ucits platform could, theoretically, pave the way for investor interest in an Asian funds passport, which is still in a conceptual stage. The passport scheme would create a framework to enable regional funds to be freely distributed among signatory countries in Asia.
As long as the passport provided similar safeguards as the Ucits standard – such as risk diversification, counterparty limits and daily or weekly liquidity – “why wouldn’t an Asian investor invest in something more local?” says McGrath.
However, he predicts that the creation of a regional funds passport will face obstacles. Ucits funds fall under European law, for example, while no equivalent exists in Asia. “The challenge for a similar product in Asia would be to ensure that you don’t have competing interests in the different jurisdictions.”
In the meantime, Ucits can expect to retain a strong following in Asia, says McGrath. “It’s going to continue to grow because it’s a very well-liked product. The flows into it are extraordinary.”