Asset managers and service providers descended on the JW Marriot in Hong Kong last week to discuss some of the biggest issues affecting the industry. Global Custodian listened to a number of sessions and spoke to delegates about what they felt were the top issues of the day.
Despite the possibility of conflict in the Korean Peninsula, most market participants remain calm that a compromise amid all of the posturing will prevail. Nonetheless, any rise in tension is likely to have a destabilising impact on the broader region, most notably China and Japan.
The election of Trump was greeted with first shock and then frustration in APAC, namely because he scuppered the TPP, but also his protectionist trade policies rankled the region. The US is after all the biggest non-regional trading partner with APAC.
Other initial fears included the impact of China being labelled a currency manipulator although the Trump administration has seemingly adopted a more pragmatic stance, particularly as it tries to figure out a solution to the North Korea quagmire. Other potential headaches for APAC included a US rate rise increasing emerging market borrowing costs.
The first 100 days of Trump have certainly been unprecedented in many ways, but very little of regional consequence has been done barring exiting the TPP. Promises made on the campaign trail that China would be designated a currency manipulator have not been met with firm action, while other branches of the US government are stalling a number of Trump’s policies.
Brexit featured heavily in last year’s Fund Forum, although nearly everyone assumed the UK electorate would vote for the status quo. Most Asian managers tend to be more regional or US focused, but those that do sell into the EU may well find themselves having to comply with a plurality of rules if arbitrage sets in between the UK and EU, or having to make a judgement call between basing themselves in the UK or EU.
Having seen the unexpected Brexit and Trump victories, many in APAC are following the French election with less sense of certainty.
Technology dominated proceedings at Fund Forum Asia. What Blockchain is for the custody industry is what robo-advisory is for asset managers and distributors. Robo-advice’s top billing was however tempered by a number of thoughtful comments by experts, who recognise that while the concept is an interesting one, the industry needs to improve other areas of its business before it latches on.
Tanja Van Sterthem, Global Market Manager Funds at SWIFT, acknowledged that while easing investor access to fund managers was welcome, more work needed to be done around bringing efficiencies to the back end processing, particularly around order routing.
Automation in Asia is at roughly 20% compared to 80% in Europe. Only once the industry removes manual processes and faxes from the distribution process can robo-advice be properly entertained.
What do 130/30 funds, EUVECAs, EUSEFs and liquid alternatives all have in common? The answer is that they were all spectacularly hyped up only to fail to reach critical mass. After initial optimism, the ASEAN CIS – a cross-border APAC passporting product – is looking like it will join the long list of fund products that never quite attained scale.
The ASEAN CIS features low on investors’ pecking order, as clients still retain the faith in UCITS and increasingly AIFMs. The poor showing of the ASEAN CIS does not look good for the future success of the ARFP. Asian investors still like UCITS but growing EU hostility towards third country AIFMD equivalence has ruffled a few feathers among regional regulators, and this could play to the advantage of local passporting schemes.
Mutual Recognition of Funds (MRF) is slightly different, mainly because it serves a useful purpose by opening up capital flows between investors and fund managers in Hong Kong and China. But it is important to remember that MRF did not start with aplomb as authorisations were derailed by local market volatility. Many, however, feel that MRF is the passport scheme to watch in APAC.