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UCITS regime to find the proper footing
with clients, so it is still very early days
for these new structures,” says Mathew
Kathayanat, head of product and strategy,
Asia-Pacific, BNY Mellon.
There will also have to be several
barriers that need to be lifted in order
for these new structures to take off
more broadly – something that could be
particularly challenging for Hong Kong
and Singapore.
“Luxembourg and Ireland have
established themselves as ideal domiciles
for asset managers and providers to
support those providers. With countries
such as Japan and Australia which have
such strong domestic markets, they would
need a product that is flexible enough to
take on international constraints to satisfy
investors offshore, while at the same time
ensuring domestically they can continue
to, for example, collect the right amount
of taxes,” adds Clearstream’s Trance.
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M A N A G E M E N T ]
Asia,” says BNP Paribas’ Toucheboeuf.
Custodians and fund administrators in
the region are all making preparations
for a seamless transition to the new
structures if fund managers choose to do
so. They have been in constant dialogue
with the fund management industry and
with regulators, not just on the creation
of the structure but also on the constant
modification of them.
“A key initiative is to make sure asset
managers have everything they need in
their tool kit to create fund products that
would be competitive on a global scale,”
adds BBH’s Pigott.
Many of the broader servicing aspects
of CCIV, OFC and VCC are no different to
UCITS, however there are some specific
areas where securities services firms will
have to amend.
“We are still working on the onboarding
process, ensuring there is a seamless
striking of NAV in the fund/accounting
“It has taken roughly 15 years for the UCITS regime to find
the proper footing with clients, so it is still very early days for
these new structures.”
MATHEW KATHAYANAT, HEAD OF PRODUCT AND STRATEGY, ASIA-PACIFIC, BNY MELLON
region does not have the benefit of a
single market, currency or regulator, and
with a mix of different legal and tax rules,
makes the distribution of local funds into
other countries challenging.
In addition, where UCITS has taken
up to 15 years to become an acceptable
product in Asia, local managers are in no
rush to upend all of their work to launch
a UCITS fund for a new product.
“Managers are focused on having the
most efficient structure possible, and
want to make sure they spend as less
as possible to launch new funds. So
they tend to stick with tried and tested
structures such as UCITS in Luxembourg
and Ireland, as well as Cayman funds.
It has taken roughly 15 years for the
In addition, Asia fund managers looking
to target European investors would
have to use a UCITS or an Alternative
Investment Fund Managers Directive
(AIFMD) structure. As costs continue
to mount for the buy-side community, it
would be unlikely they would operate two
different fund structures simultaneously.
However, while UCITS is still the most
popular cross-border product, some in
the Asian fund industry do have their
own qualms with it. The possibility
of having to pay taxes in European
domiciles, for example in Ireland where
chargeable events are involved for Irish
taxable investors, and the Luxembourg
annual subscription tax, could mean
Asian issuers face multiple layers of fees
when launching a UCITS fund.
“Going for UCITS is still a strong
solution for global fund managers,
and some markets in Asia have just
begun adopting them, whereas the new
structures are a local solution. However,
fund managers have to consider the
complexity of running a UCITS. It is
not the best product for niche/smaller
fund managers, and the new corporate
structures could allow them to develop
more specific distribution strategies in
book of records, and providing efficient
tax services back to the client, be it on
a reporting or tax reclaim basis. The
infrastructure is there, but the proof in
the pudding is how it pans out when
you launch the fund, and whether
the regulator is happy with what we
are providing,” says BNY Mellon’s
Kathayanat.
Early signs appear that Singapore’s
VCC is the most likely to come out on
top in the funds arms race. The incentive
scheme has largely been a success, and
custodians and fund administrators are
in tow. That being said, there are positive
signals from Australia, which has taken
the lead of the Asian fund passporting
initiative. This could have a significant
impact on the pickup of CCIV funds for
its superannuation and asset management
community looking to distribute products
into Asia. Meanwhile, Hong Kong’s SFC
is taking a wait-and-see approach on
what it will announce for OFCs, and hope
the MRF scheme with China will entice
fund managers.
In the meantime, UCITS will continue
to be the dominant fund structure in Asia
and only time will tell whether these new
structures will prove to be a success.
Spring 2020
globalcustodian.com
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