Distributing in Asia on a cross-border, multi-jurisdictional basis can be a complex and challenging strategy to develop, implement and maintain, especially when retail investors are key targets.
Fund distribution opportunities in Asia
Asia is a fragmented region with highly diverse nations due to contrasting economic, cultural and political systems. Unlike Europe, local markets are not as harmonised and have their own regulatory frameworks and tax systems to navigate. Understanding the local factors driving fund distribution, sales, product preference and distribution channels is key to a successful fund strategy.
Some local markets such as Singapore have large open, mature and sophisticated financial centres, accessible by foreign, European funds, including UCITS. Some markets are at the early stage of development, whilst others, including Australia, are highly localised, making fund distribution more challenging.
Across the region, a number of regulatory initiatives are being implemented to increase customer choice and product transparency, decrease costs, broaden the channels of distribution and improve the financial skills of investors.
Foreign asset managers wishing to target retail, high net worth individuals and institutional or professional investors should adopt a fitting strategy. It is rarely seen that Asian fund distribution success comes from a “one-size-fits-all” strategy that could also be applicable to Europe or the United States. For example, reflecting their conservative approach, Japanese retail and institutional investors have a strong preference for liquidity and product transparency, combined with strong brand recognition and a tailored marketing approach. Local target investor segments are usually well researched or specifically requested by local distribution entities, working with the fund promoters’ distribution, sales or market teams.
Regulatory authorisations and private placement
The market entry chosen needs to be primarily based on the local investors to be targeted, the methods by which the engaged distributors intend to approach these segments and the type of product to be sold. Offering funds to local investors in Asian jurisdictions can be obtained either through regulatory authorisation, generally, when retail investors are targeted, or via a private placement. The latter usually requires no authorisation and is used to target institutional and professional investors. Local ongoing compliance and reporting requirements, as well as costs, may vary based on the entry type selected.
UCITS marketing channels across Asia
Across Asia, the types of local distribution channels to market European funds vary considerably, which drives the need for a localised rather than regional distribution strategy. Banks play a large role in fund distribution and can ensure long-term success by supporting distribution strategies and providing access to their third-party platforms. Fund distribution in Hong Kong and Singapore is highly concentrated in banking networks where around 75% of sales occur(Securities and Futures Commission (2015), as well as Singapore Financial Services and the Treasury Bureau (2016)). In Korea and Japan, on the other hand, the majority of sales are executed via brokerage firms, with online platforms gaining more and more traction.
Notwithstanding the continuing rise of online distribution platforms, independent, locally based distributors often support the marketing of UCITS in Asia. These entities have a commercial connection to the fund, an appropriate market presence, a strong brand, a sufficient client base aligned with the products to offer or are in line with the values and culture of the UCITS promoter.
Alternative funds in Asia
Cayman fund products have been successfully distributed in Asia, especially in Japan, Hong Kong and Singapore. With the introduction of AIFMD, European AIFs are being increasingly distributed to institutional investor segments, especially in Hong Kong and Singapore.
As markets across Asia enter a phase of substantial growth and increasing maturity, Deloitte Luxembourg is preparing a report to be released in autumn this year on the significant opportunities this growth offers to both global and regional investment managers to expand their Asian business.