Local managers could miss out on passport benefits

New moves to allow international fund managers to more easily offer their products in New Zealand could lead to them “cutting New Zealand managers’ lunch”.

Friday, September 15th 2017, 6:00AM

by Susan Edmunds

Submissions are currently being sought on the guidelines for the Asia Region Funds Passport, which will allow funds to be offered between Australia, Japan, South Korea, New Zealand and Thailand. New Zealand already has a mutual recognition system in place with Australia.

It is hoped that the new rules will come into effect by the end of this year.

To participate funds must have at least US$500 million in FUM and US$1m in fund manager capital. The rules are on top of other local requirements.

David Ireland, a financial law expert at Kensington Swan, said those requirements would make it hard for many New Zealand fund managers to use the passport.

He said while it was likely that an increased range of offshore funds would become available to New Zealand retail investors, that might just cut the lunch of domestic managers.

“It will be relatively straightforward to roll product out into New Zealand. If you’ve got the capital and the FUM, why wouldn’t you? It’s a relatively low-cost, low-risk way of doing it.

“With less than 5m potential investors, a large number of whom have all their welath tied up in residential property, it might not be a driving objective for off-shore fund managers looking at more lucrative markets but we could be seen as low-hanging fruit.”

Financial advisers would have reassurance that the products offered were of a sufficient standing, he said, from well-regulated jurisdictions.

John Berry, of Pathfinder, agreed the benefit would mostly be for international managers.

"The first objective is to ensure investors in New Zealand have a wider range of products offered to them. It will achieve this goal - more offshore product will be distributed in New Zealand. The second objective is to provide a pathway for New Zealand fund managers to distribute product through Asia. For several reasons that just isn't going to happen to any meaningful extent. There are several barriers to New Zealand product making its way into offshore markets.

"The mutual recognition arrangement operating with Australia since 2008 is a good indicator of how the Asian funds passport will play out. Under mutual recognition plenty of Australian fund product has made its way into the New Zealand market - but we haven't seen much, if any, flow the other way. There are barriers - both practical and legal."

Richard James, of NZ Funds, said he was not worried. “We already compete in a global market,” he said.

New Zealand already had a full suite of listed index products and listed and unlisted active products that could be accessed through a variety of different platforms and markets, he said. “I don’t see that a lot changes.”

Tags: funds management