Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Asia funds passport inches towards reality
(Pictured: Lawrence Au)
The Asia ‘funds passport’ has taken an important step towards becoming reality with the signing of an agreement, amounting to a form of trial, by the finance ministers of Australia, New Zealand, Singapore and South Korea. Critics of the scheme, who have been numerous in the past, are daring to show some optimism.
While the jury is still out on whether the scheme will be a success, the latest development has gone much further than many industry participants had predicted. The aim, if the trial is successful, is to widen the number of participants to all other countries in the APEC region. The agreement was signed at the APEC meeting in Bali on September 20. The pilot program will begin in 2016.
The Asia Region Funds Passport is designed to offer fund managers operating in signatory countries a more efficient and direct way to distribute their – retail – investment products by smoothing out regulatory differences. This is particularly good for Australia, which believes it has the most sophisticated fund management capability in the region but has had little success in exporting that capability.
Australia’s FSC has been one of the champions of the idea. John Brogden, the FSC’s chief executive, described the finance ministers’ agreement as “a landmark event for the financial services industry”.
He said, perhaps a little undiplomatically: “An agreement to establish an Asian region funds passport opens up the possibility of Asia’s savings being managed from Australia and for Australians to more easily tap into the extraordinary economic growth and development in the region.”
Custodians and other financial services executives have long expressed skepticism of the passport becoming reality because of competing market interests and regulatory discord.
However, one true believer is Lawrence Au, BNP Paribas Securities Services regional head, based in Hong Kong. Speaking at the FSC annual conference in August, he said the UCITS (European registered) funds were the most successful for international investment products in the Asia region. But while Asia represented the second-biggest consumer segment of UCITS, it had little or no say in their regulation. Au has been an active participant in the ‘passport’ discussions, even though BNP Paribas is a large provider of services to UCITS.
