Nikko AM Takes Advantage Of New Asia Fund Market Regime; Consultants Warn Of Roadblocks

Tom Burroughes

30 October 2014

says it is among the first asset managers in Singapore to have a fund approved by the jurisdiction’s regulator to create a cross-border collective investment scheme covering the Singapore, Thailand and Malaysia markets. Separately, a consultancy has warned that it will take time for this market framework to take off.

The Qualifying Collective Investment Scheme of Nikko AM was approved by the Monetary Authority of Singapore. The company plans to launch the Nikko AM Shenton Horizon Investment Funds – Singapore Dividend Equity Fund in Malaysia with Affin Hwang Asset Management Berhad, pending approval from the host country, Nikko AM said in a statement yesterday.

In August, the MAS, Securities Commission of Malaysia and the Securities Commission in Thailand launched the ASEAN CIS Framework to facilitate cross-border offers of CIS to retail investors. The measure in some ways mirrors the European Union’s cross-border UCITS fund regime, through which funds can be bought and sold across national borders without having to be registered for sale in EU each member state.

“The ASEAN CIS Framework is a win-win proposition for both investors and asset managers—it brings diversity to investors and it gives asset managers access to a wider audience to build scale for strong products,” said Eleanor Seet, President of Nikko Asset Management Asia.

At present, the Nikko AM fund size is S$157 million, based on data for the end of September this year. The fund was restructured in February 2012 into a dividend-paying fund targeting distributions of 5 per cent and 7 per cent per year. Existing unit-holders would have seen the value of their units increase by 22.98 per cent by 30 September 2014 – providing a total return of 42.68 per cent since February 2012, Nikko AM said. (The total return assumes that all dividends were reinvested.)

Cerulli report
On the same day as Nikko AM announced its fund, Cerulli Associates, the consultancy, issued a white paper stating that “long-term thinking is a necessity” for managers that aim to benefit from the CIS framework, stating that currency restrictions and regulatory compliance are potential stumbling blocks.

“But apart from such hurdles, the real challenge is in penetrating local distribution networks. This will take time,” the report said.

said that in the case of Thailand, fund distribution is largely in the grip of the four largest local banks, namely Kasikorn Bank, Siam Commercial Bank, Krung Thai Bank, and Bangkok Bank. These firms focus more on distributing fund products from their affiliated asset management arms.

In Malaysia, while banks are more open, about 60 per cent of unit trust assets are distributed directly or through tied agents, the report said. It continued:.”Further, because some feeder funds in Malaysia and Thailand already feed into Singapore-domiciled funds, managers could potentially suffer some cannibalization if master funds in Singapore are directly offered to local investors via the ASEAN CIS framework.”

“Meanwhile, it will be challenging for a foreign fund management company without a wide network of agents or bank branches to gather retail assets,” it continued.