Asset Management
Global Reach Of UCITS Fund Structures Faces Limits In Asia Ex-Japan - Cerulli

While a successful fund structure in Europe and now extending to Asia, there are limits to how far UCITS products can be sold, a report says.
The global reach of UCITS products, which originated as fund
structures in Europe, is shrinking in the Asia ex-Japan region
because most countries within it are increasingly focusing on
building up their onshore markets, a report by Cerulli
Associates, the research firm, says.
At present, UCITS are predominantly sold in Hong Kong,
Singapore and Taiwan. There is also some UCITS traction in
China via the Qualified Domestic Institutional Investor
programme, but the assets under management remain very small, the
report said.
Cerulli argues that firms looking to push UCITS fund sales need to be present in Hong Kong, Singapore and Taiwan. Hong Kong and Singapore are among the smaller mutual fund markets in Asia; Cerulli Associates sees Taiwan as the main driver of UCITS asset growth in Asia ex-Japan at present, it said in a recent note.
UCITS funds, which have been a familiar part of the European investment landscape since the start of the century, are designed to be bought, sold and marketed across national borders, creating a “single market” and enabling a notoriously fractured European market to be consolidated, leading – so it is hoped – to economies of scale. UCITS structures have also, for example, been embraced in recent years by managers of alternative assets such as hedge funds because of requirements to disclose investment processes and offer daily liquidity.
However, the appeals of UCITS have their limitations in some markets, Cerulli said.
A potential problem is that Taiwan is “seriously focusing on building up its onshore fund industry at the expense of sales of offshore products such as UCITS, which will weigh on UCITS asset growth,” the firm continued.
It said markets such as those of India and South Korea are “virtually impossible” for UCITS products to penetrate, given the dominance of local structures.
"UCITS penetration has fallen over the years in Asia, from 14.6 per cent in 2010 to 10.2 per cent as of end 2014. It is also pointless for UCITS managers to get excited about the imminent mutual recognition of funds (MRF) scheme between China and Hong Kong as funds sold under this scheme have to be locally domiciled," says Rachel Poh, senior analyst at Cerulli and lead author of the Asian Distribution Dynamics 2015 report.