It is often said the Americans treat Europe as if it were a single entity – with one language, one culture and one set of rules for the fund management industry.
But many US companies who have taken this view have generally come to realise the United States of Europe is, by comparison to the integrated nature of the US, something of a pipe dream. The reality is that Europe is a collection of very different countries, cultures and legal systems.
As I have discovered, having moved to Singapore on behalf of Allfunds Bank last summer, Asia is very similar in this regard. Anyone who feels they can conquer Asia by operating only out of a base in Singapore or Hong Kong will be making a very big mistake.
The Asian market is extremely fragmented and each country deserves close attention. As an institutional B2B platform, we see that there is a huge challenge trying to define what a platform really is as in Asia the concept is quite new and often misleading.
Some believe that a B2B platform is what main operational facilitators (such as Euroclear) and global custodians, (such as BBH) offer, but it is far more than that; being a B2B platform is being committed to support the distributor’s business, coast to coast, from the operational side down to the reporting and product research.
Automated Asia
In reality, iFast is the only cross-border platform in Asia with its presence in Singapore, Malaysia and Hong Kong. Even a comparison with Allfunds Bank is not a good one as its focus is more B2B2C rather than a purely institutional one.
Total assets under management at iFast is around s$5bn (£2.4bn) and its market capitalisation following IPO is around s$250m. The multiples show how positively investors value Asian platforms’ growth and potential.
Automation of trades is found only in Taiwan thanks to the Taiwan Depository and
Clearing Corporation (TDCC) promoted by its Government. It is a clearing house but it does not settle funds trades.
There are three different providers connected to it and the distributor selects which router will send the trade to the Fund House Transfer Agent.
In the supposedly sophisticated market of Hong Kong, it is surprising to find that automation is minimal. Every distributor, with a few exceptions, sends its trades via fax to the fund house’s custodian.
To me there appears to be a reluctance to automate and use platforms because what has, so far, been offered to them bears a cost which counters any saving.
This is certainly the case with Swift messages and all providers charge a per transaction cost. Even though the cost of a manual transaction is some 150% higher than that of an automated one, that charge still weighs heavily against rapid change.
In Singapore there are a few more cases of automated trades but the direct distribution agreement prevalence over the platform solution is overwhelming.
In general, banks think they can get better economic terms by signing directly with the fund house.
In April of last year, Korea recently introduced a funds online supermarket, which is being promoted by the government, some securities companies and many fund houses.
The other big issue for the funds industry has been passporting. However, the direct feedback we have had across Asia suggests the only regime which is up and running today, the ASEAN one, is unlikely to be material to the industry.
It has been suggested that some Singaporean fund managers will benefit from it but not the Malaysian or Thai houses.
At the other extreme, the fund industry is very excited about the mutual recognition between China and Hong Kong.
Seeking harmony
Behind these limited developments we do detect a strong protectionist thread. Such headwinds counter even our own position as ‘Europe’s largest platform’ and would continue to do so if we do not learn the lessons that disparate countries and cultures demand a variety of tailored solutions.
Our goal is ‘become’ Asians in order to make progress. Long-term commitment and how we demonstrate it will determine how successful we shall be in the end.
We have an attractive proposition but we will not even get airtime with our Asian friends until we are in harmony with them.
It is a challenge that we are pleased to take on. Travelling across Europe in the past has taught us that no one size fits all.
