The Memorandum of Understanding on Switzerland-Hong Kong Mutual Recognition of Funds is the first such deal to be signed between an Asian and a European domicile and is a timely opportunity for institutional investors and asset managers in both jurisdictions. BNP Paribas Securities Services is uniquely positioned to help them seize that opportunity.
The initiative was driven in part by Hong Kong regulators as part of their bid to promote the city as an international asset management centre and develop the local fund management industry, which more than doubled in size from 2009 to the end of 2015 to reach HKD 17.4 trillion (USD 2.2 trillion) (source: SFC Fund Management Activities Surveys, 2015).
The deal is appealing from multiple perspectives. Firstly, Swiss investors will obtain access to new strategies and ways to increase their exposure to Asian markets and assets, benefiting from the strong expertise of local fund managers. Distributors in Switzerland, for their part, will also be able to extend the range of products available for local investors beyond those currently available under the UCITS wrapper, which currently account for over 99% of all foreign funds in Switzerland (source: FINMA, 2017).
Secondly, fund managers in Hong Kong will obtain access to the large pool of private wealth in one of the world’s premier banking centres. Swiss private wealth is projected to reach USD 2 trillion by 2019 (source: BNP Paribas, 2017). Access to these funds gives Hong Kong based fund managers a crucial opportunity to market their products in Europe and expand their own assets under management (AUM), thereby also reducing their total expense ratio.
Thirdly, an ancillary benefit is that accessing this increased pool of assets will help Hong Kong fund managers grow the AUM of their local funds, benefiting those that are distributable in mainland China through the 2015 China-Hong Kong Mutual Recognition of Funds (MRF) scheme. This is because the MRF scheme imposes a rule that no more than 50% of the value of a fund’s assets can be sold to mainland investors, so the larger the overall AUM, the larger the amount that can be sold on the mainland.
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