As midyear approaches, Asian managers must prepare not only for
a strong close to the calendar year, but for various regulatory
uncertainties that may impact their operations. Given the global
footprint most managers maintain today, regional executives need a
clear grasp on how European-based regulation may alter fund
distribution. In particular they should watch two upcoming
regulatory events: The European Union (EU)'s Undertakings for
Collective Investment in Transferable Securities V (Ucits V); and
the European Securities and Markets Authority's pending
decision on marketing passport availability for non-EU
Without question, these events will directly affect Asia-based
managers who have already adopted EU fund structures, such as Ucits
and the Alternative Investment Fund Managers Directive (AIFMD), as
a means to invest in new markets. This is not by accident. Ucits
stands out as a predominant global brand for investing in equities
and bond markets and remains the brand that managers have been
choosing to invest in Chinese funds. And ultimately, Ucits V is an
evolution of this brand, which is well established in Asia, both
for managers and for investors.
So, how will Ucits V impact Asian managers in the coming months?
Overall, Ucits V provisions will likely increase investor
protections and bring them more in line with AIFMD, which
alternative managers must satisfy to manage and sell non-Ucits
funds in the EU. Some of these guidelines will include new
remuneration policies for management companies that seek to improve
risk management practices. Additionally, firms will be asked to
meet new depositary rules that clearly define how operational
procedures, such as net asset valuation (NAV) calculations,
repurchase agreements and redemptions, are supervised.
Additionally, the rules will be followed closely by Asian
managers who plan to use Ucits or AIFMD to raise capital through
the Shanghai-Hong Kong Stock Connect and the upcoming Shenzhen-Hong
Kong Stock Connect. Ultimately, any changes to these two pieces of
legislation may impact their ability to secure such assets.
For many Asian managers in the alternatives space, the
uncertainty is nothing new. After all, regional firms that
traditionally used Cayman-domiciled funds have coped with AIFMD
since its Jul. 22, 2014, implementation. Industrywide, more than
90% of Asian managers who focus on alternatives rely on
Cayman-domiciled funds to raise assets. Today, these firms largely
operate under the AIFMD's national private placement regime
and, as a result, have adopted a selective marketing approach,
often concentrating in fewer than three EU countries to help
minimise regulatory and distribution costs. With Esma due to
deliver its passport recommendation in July, many managers will
need to study how to deliver their longer-term strategy for
While these strategic adjustments may come at the cost of
increased compliance and regulatory reporting, Asian managers are
not deterred. They have commenced marketing under given national
private placement regimes and have also created European-domiciled
funds in order to provide EU investors with Asian-based alternative
Some challenges with marketing under national private placement
regimes include navigating the registration process, which can be
complex and costly. The process differs in varying EU countries and
can take up to six months to complete. Once the registration is
complete, finding the investors will be the next step. To overcome
potential barriers, firms may wish to consider outsourcing to a
qualified AIFMD solutions provider that can assist with
registration services with the various European regulators.
Although complicated, these measures can be planned for
effectively with the right internal communication, research and
stress-testing. Management teams that have a strong game plan for
adapting to potential regulatory changes will be much better
positioned to grow their business in the coming months.
This article previously appeared in Ignites Asia on May 27, 2015.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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