UCITS Look Set to Continue to Reign Supreme in Asia

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UCITS Look Set to Continue to Reign Supreme in Asia


Challenger regimes will find it difficult to usurp the EU structure

July 2019, LONDON - Despite much talk that new fund structures in Asia pose a serious threat to the Undertakings for Collective Investment in Transferable Securities (UCITS), the EU’s regulatory framework is safe for the foreseeable future, according to the latest issue of The Cerulli Edge—European Monthly Product Trends Edition.

Cerulli Associates, a global research and consulting firm, bases its opinion on the following key factors:

  • Asia’s three challengers to the EU’s UCITS regime are struggling to get established.
  • UCITS is widely viewed as the gold standard for firms setting up operations in the region.
  • Asset managers can build significant assets in one UCITS fund that can be passported into a number of markets, rather than launching a series of smaller funds.

“Two of the three major initiatives taking shape in Asia have had a slow start and the third is still in its embryonic stages. To say they are facing an uphill battle against the behemoth that is UCITS would be an understatement,” says Fabrizio Zumbo, associate director, European asset management research at Cerulli.

The ASEAN Collective Investment Scheme—launched in 2014 to connect the fund markets of Singapore, Thailand, and Malaysia—has so far fallen short of expectations, attracting just six fund management groups in five years. Hong Kong has seen more success with its Mutual Recognition of Funds (MRF) initiative. Having begun with an agreement with China, MRF has since expanded to four European countries: Switzerland, France, the U.K., and Luxembourg. The third key initiative, the Asia Region Funds Passport scheme, designed to connect the fund markets of Australia, Japan, Korea, New Zealand, and Thailand, was launched this year. With questions remaining about whether it can deliver a level playing field in terms of taxation, many observers continue to view offshore funds as a better option in these markets.

Cerulli’s research shows that UCITS is the preferred fund structure because it is well established, it is familiar, and it is widely accepted in markets around the world, with a main exception being the U.S. “Many asset managers see UCITS as a premium brand for fund structures and value the regulatory oversight offered by jurisdictions such as Luxembourg and Ireland,” says Zumbo. “It also offers convenience and economies of scale.”

He adds that many Asian managers see UCITS as integral to their global expansion as they try to diversify beyond their local markets. In recent years, several Asian asset managers, including China Asset Management, E Fund Management Hong Kong, Harvest Global Investments, and Value Partners, have launched UCITS funds that are available in Europe.


OTHER FINDINGS:

Asset allocation had another negative month in Europe, with May’s net outflows of €2.2 billion (US$2.4 billion) taking the total net outflows year-to-date to €17 billion. Total assets under management (AUM) for the sector stood at €588 billion at the end of May. Cerulli notes that, despite the poor performance, 22 funds were launched in May, all actively managed.

Since attracting net inflows in January and February, the emerging market (EM) equity sector has been bleeding in Europe. It registered net outflows of €2.8 billion in May, with passive funds gathering €576 million of net inflows and active funds recording net outflows of €3.4 billion. Total AUM had fallen to €258 billion by the end of May. The MSCI Emerging Markets index posted a negative return (-7.3%) in May as U.S.-China trade talks unexpectedly broke down. Nevertheless, many of the managers that Cerulli interviewed are still positive on EM, especially China, because of the long-term growth expectation.

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NOTES TO EDITORS:

These findings and more are from: The Cerulli Edge—European Monthly Product Trends Edition, July 2019 Issue.

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