Foundations

Asian ambition threatens European UCITS brand


By added on 22/10/2013

Regulators in Asia are considering ways of facilitating cross-border distribution in the region, either by creating a regional alternative to UCITS (Undertakings for Collective Investment in Transferable Securities) or via bilateral agreements between countries, reports FTSE Global Markets.

As Asia is currently the main importer of UCITS outside of Europe, industry practitioners are concerned that these initiatives will one day become a reality, according to the October issue of The Cerulli Edge-European Monthly Product Trends.

Despite Cerulli believing such fears are overstated, an immediate concern is negotiations between China and Hong Kong for the mutual recognition of mutual funds and unit trusts in each other's jurisdiction. However, bilateral agreements might not necessarily work against UCITS.

"There is nothing to stop China extending its offer to other domiciles such as Taiwan, Singapore, and even countries beyond Asia, such as Luxembourg," notes Angelos Gousios, senior analyst at Cerulli Associates. "Chinese managers are keen to expand their presence in Europe. For that to happen, regulators in Europe would have to insist that UCITS is part of the deal and that providers be allowed access to China."

Barbara Wall, a Cerulli director, adds, "Managers should not lose sight of the fact that Europe is still by far the largest market for UCITS, representing three-quarters of total cross-border UCITS assets. Asia-Pacific is the second-largest market but the region had only 15 per cent market share at the end of 2012, a modest two percentage point increase since 2009."

Data from a Cerulli survey conducted in collaboration with Citi Investor Services in July this year sheds more light on the perceived threat developments in Asia pose. Of the 59 managers who responded to the survey, a minority believe there is a major threat to UCITS. That said, the majority believe that regulators should keep an eye on developments in Asia and make efforts to maintain the competitiveness of the brand. As the essence of a good brand is simplicity, European regulators need to make sure that UCITS reflects that.