Summary: AIMA’s APAC Forum
By Michael Bugel MD, Co-Head of APAC; Kher Sheng Lee, MD, Co-Head of APAC and Deputy Global Head of Government Affairs, AIMA
Published: 24 June 2021
After being forced to cancel last year’s APAC Forum at short notice, AIMA was pleased to host a virtual event this year to provide a timely update for our global membership on the fast-growing alternative investment markets across APAC.
The day of panels and keynote speeches provided in-depth discussions on the latest developments in the region as a whole and key individual markets. Notably, mainland China, Hong Kong, Singapore and Japan all boasted major overhauls of their regulatory frameworks and tax rules for hedge funds and private equity funds are the competition to capture market share in the booming alternative fund's industry intensifies. Japan in particular was applauded throughout the day for making bold changes to streamline how foreign fund managers and their employees can live and work onshore, including providing documentation in English for the first time. Panellists noted that the amendments to Japan’s rules so far and others yet to be finalised will make it a serious challenger to the established jurisdictions of Hong Kong and Singapore.
A special focus was given to ESG at this year’s event, with two panels covering the topic from different angles including the effects in investment strategies, IR function and internal operations, as well as demand for green products in a global and regional context.
Members and other attendees are encouraged to access a selection of the day’s breakout sessions which are available through the AIMA website. For anyone unable to do so, we offer a brief overview of the event’s key takeaways.
The forum’s panel on China was predictably dominated by the market response to the reformed QFII scheme, which has so far seen large global asset managers set up a presence on the mainland for the first time. However, despite the welcome signs of progress in opening up Chinese capital markets to foreign investors, further work is needed to simplify and streamline rules to further encourage investors and improve market depth and sophistication.
Meanwhile, other trends highlighted by the panellists include the rise of quant strategies in China, with demand for thematic traders and number-crunching technologists reaching all-time highs.
AIMA has a long-standing on-the-ground presence in both Hong Kong and mainland China and is on hand to help members and the wider industry as the market continues to open to foreign investors through its enhanced QFII scheme.
Three considerations are driving the adoption of ESG in APAC, according to conference speakers. The first is regulation, including pre and post-contractual disclosures and product suitability. Second, fund investors, who are in turn encouraged to embrace ESG products by their stakeholders. Third, several well-established strategies and governance considerations are coming to the fore in new ways.
Regionally, several regional regulators are proactively working to bring in new disclosure requirements and are reviewing the market to establish ESG standards.
Further afield, the ripples of the EU’s SFDR have reached APAC, as the regulation’s remit includes non-EU funds marketing into the EU and therefore bringing many large Asian asset managers into scope.
To aid in the understanding and development of ESG in APAC, AIMA launched an ESG primer and set up an APAC-focused ESG group. The group is also focused on working with Hong Kong’s SFC to agree on a US$1 billion large fund manager exemption from climate requirements.
More than half of the alternative assets managed in APAC are done so out of Hong Kong, making it one of the most important jurisdictions in the region to hold a presence in for market participants. The latest data from the Hong Kong Monetary Authority shows that in 2019, alternative AuM increased by 20% year-on-year, while hedge fund and private equity fund formation numbers remain strong.
Elsewhere, the continued development in cross-jurisdictional cooperation within the Guangdong-Hong Kong-Macau Greater Bay Area, which attracts a disproportionate amount of high-net-worth individuals and financial institutions, is creating strong demand for wealth management products. The success of this area is expected to continue and is supported by regulators in both Hong Kong and Macau.
On 10 May, the SFC launched the grant scheme for open-ended fund companies and REITs, marking a significant win for the industry. AIMA considers the move an ideological breakthrough that leveraged the association’s work on similar initiatives in Singapore by surveying our global membership, providing industry data and driving progress.
Looking ahead, AIMA is currently drafting a Hong Kong policy paper that will set out a vision of the central role of the alternatives industry in the jurisdiction’s future.
Japan has set itself the target of becoming a premier global financial centre and has rolled out several major overhauls of its financial markets oversight, tax arrangements and immigration laws for highly-skilled professionals to achieve this ambition.
Panellists highlighted the launch of a Financial Market Entry Office which provides a one-stop shop for foreign market participants interested in Japan, with English documentation, consultations and assistance services to foreign asset managers planning to register with the Japanese regulator. The implications of this move to reduce barriers to entry cannot be overstated. AIMA is currently in discussions with the FSA to allow new and existing market participants to fulfil their regulatory obligations in English as well.
Efforts are also being made by regulators and policymakers to improve diversity within Japanese company boards as part of a larger drive to enshrine ESG standards across financial markets.
More broadly, the FSA is broadcasting globally that Japan is open for business and ready to receive feedback and engage with stakeholders on its regulatory frameworks to further encourage foreign investment in the market.
Following the successful rollout of the VCC regime for onshore funds, MAS is now working on updating and enhancing the framework, with the assistance of AIMA.
The Individual Accountability Regime will come into effect in October meaning all licenced and registered asset managers will be required to put in place measures to meet the five pillars of the framework. These include, 1) ensuring senior management staff responsible for a firm’s core functions are identified; 2) providing evidence that they are fit and proper for those roles; 3) implementing a governance framework to support senior management role with clear reporting lines; 4) material risk personnel must be identified and certified; 5) a framework must be in place to support all employees in maintaining their desired conduct.
Elsewhere, MAS has intensified its oversight market risks associated with the adoption of new technologies, including amending guidelines to ensure managers have the protocols, staff and infrastructure in place to address modern cybersecurity threats.
This year’s event was the first digital APAC Forum and our even more than usual our thanks go to all the sponsors, speakers and attendees that made the event possible during a period when it has never been more difficult or more important to connect with our global peers.
We at AIMA hope to see everyone in person at next year’s APAC Forum.