Enormous potential in Asia Region Funds Passport
Sally Loane, CEO, Financial Services Council
Australia has a huge opportunity to increase exports of funds management services, adding significantly to domestic economic growth, when the Asia Region Funds Passport comes online at the end of 2017. Australia, Japan, Korea, Thailand and New Zealand are currently leading this regional initiative aimed at creating better connections between financial markets in the Asia region. Each of these five countries have signed onto a Memorandum of Cooperation which came into effect on 30 June 2016. It is expected that other APEC economies will follow once the regime is operational.
The Passport will allow fund managers to sell investment funds between participating jurisdictions through a streamlined regulatory framework. Consumers will benefit from a wider range of investment products and managers will benefit from market access into jurisdictions they could not previously operate in without a full local presence and licence – something that is often not possible for a foreign entity to achieve.
Fund managers in participating jurisdictions will be able to access the regime once they satisfy a number of threshold criteria, which will ensure only experienced managers with appropriate capital backing can enter. The initial range of products will be focussed on equity, fixed income and bond portfolios but is likely to be broadened as the regime progresses.
For Australian managers there are significant opportunities in Japan and Korea, where investors are grappling with a low return environment and an ageing population that is living considerably longer. Australian expertise can help investors to better manage risk and will enable a broader range of investment options for investors looking to build their portfolio.
The potential for the funds management sector to drive the next wave of Australia's export successes was first identified in the 2009 report by Mark Johnson AO, Australia as a Financial Services Centre – building on our strengths. The report identified that despite having a strong, skilled, completive, well-regulated and highly regarded financial services sector, our exports of funds management services are low by international standards. The story is telling when you compare the size of the funds management markets of Australia, the UK, Hong Kong and Singapore. They are all roughly the same size, between US$1.5 trillion and US$1.8 trillion. Yet Australia lags behind in exports, sourcing only 3.4 per cent of its domestically- managed funds from offshore investors, compared to the 31 per cent the United Kingdom sources from offshore, 68.5 per cent for Hong Kong, and 80 per cent for Singapore.
Research by Deloitte Access Economics found that if Australia could grow overseas-sourced funds under management equal to that of Hong Kong over the next decade, that is to around 68 per cent, our GDP would grow by more than $4.2 billion, tax revenue would increase by $1.2 billion and nearly 10 000 jobs would be created.
The opportunity for exports of financial services and in particular, our world class expertise in managing funds and developing products, to drive domestic economic growth as Australia transitions from a resources based economy to a services based economy, is unlimited and very exciting.
The Financial Services Council will lead a delegation of Australian funds management CEOs to Tokyo and Seoul in October to further explore opportunities arising out of the Passport.