Selling Irish fund expertise to open and closed markets

Asia Briefing:Irish Funds Industry Association (IFIA) chief executive Pat Lardner was in Hong Kong, Taipei, Malaysia and Singapore last week on a mission to convince southeast Asia's asset managers that Ireland is the go-to place as they seek to internationalise their business.

“We want to show them the strength and real substance that exists in Ireland as both a domicile and a service centre for international funds. We have a lot of work to do as an industry and as a country.

“The awareness was pretty good. One of the Hong Kong funds was already in Ireland; another was redomiciling a Cayman Islands fund to Ireland. They were aware of the product framework that exists in Ireland,” said Lardner.

China carries major economic heft in the region and, despite being the world’s second biggest economy, the country’s fund management business is still seriously underexplored and underdeveloped. China may be home to the world’s biggest population, but the fund management industry is probably only 4 per cent the size of that in the US.

During his visit to the territory, Lardner met eight of the top 10 mainland Chinese fund managers, which between them account for 41 per cent of all the mutual fund assets on the mainland. These included some of the big names in asset management in China, including China Asset Management, E Fund, Harvest, China Southern Management, Bosera, GF and HuaAn Fund Management.

Hong Kong, with its strong rule of law and financial services expertise, remains the way into mainland China’s asset management market.

The IFIA’s local representative is Conor O’Mara, head of the Irish Chamber of Commerce Financial Services Committee, who said it had been a “great week” for the Irish funds industry.

The last data available, from 2007, shows they were running 170 billion yuan (€20 billion), a figure that is sure to have increased significantly since as the financial services industry has expanded massively since then.

According to PricewaterhouseCoopers, the assets under management of foreign fund managers in China is 2.3 billion yuan (€290 million), which is a relatively low figure when you consider that the AUM of US mutual funds last year were $11.6 trillion (€9.1 trillion).

Z-Ben Advisors estimates that the total market size of financial products in China, as at 2010, was worth 92.5 trillion yuan (€11.4 trillion), of which 71.8 trillion is in bank savings. Z- Ben expects mutual funds to show the strongest growth among all financial products in China by 2015, reaching 6.9 trillion yuan (€850 billion).

The shift away from exports to domestic consumption will also impact on the funds market because, in a country where the social net is still underdeveloped, people will want to ensure their pensions and healthcare support before they start consuming.

There is no national pension fund in China, which means workers are keen to start providing for their retirement already. Most of that goes into bank savings right now because the highly regulated Chinese market means there are few other investment outlets available to Chinese workers.

That is expected to change because the state does not want to be landed with picking up the tab for an increasingly greying population. The UN estimates that a much as one-third of the Chinese population will be 65 or older by 2050.

Capital controls mean Chinese fund managers cannot invest overseas, except under very limited Qualified Domestic Institutional Investor quotas.

Going the other way, foreign fund managers can only invest directly into mainland Chinese stocks with very limited Qualified Foreign Institutional Investor products. However, analysts are banking on the incoming government under Xi Jinping to change that.

In Kuala Lumpur, Lardner focused on another area of opportunity, sharia investment. As well as meeting authorities, they also met two managers actively planning to set up sharia investment funds in Ireland.

In Singapore, Lardner joined up with IDA Ireland to boost links with the local fund management industry and spoke to a locally regulated manager who is in the process of getting authorisation to set up a new investment fund structure in Ireland.

“It’s a short game and a long game,” said Lardner. “The short-term game is to allow fund managers to start raising capital in Asia, the long game is to allow them to internationalise their business by using structures and services in Ireland to reach investors in other parts of the world.

“There did seem to be recognition about the difficult steps taken in Ireland and about Ireland behaving responsibly, and how the nature of Ireland has been in being flexible in providing for the fund management industry,” he said.

“Overall, by engaging very specifically with small groups and segments, we learnt more about their needs,” said Lardner, who plans to come back in January to visit north Asia, including China, Korea and Japan.