Fundraising in Asia: breaking misconception and strategies for success

Introduction

Foreign funds are shaping the Asian investment landscape, often surpassing domestic products in several markets. Asia has surged to become the third largest region by assets under management (AUM) in the world, and second in cross-border assets, right behind Europe. This underscores the region’s attractiveness for foreign funds.

Despite this allure, the investment management industry perceives cross-border distribution in Asia as costly and complex, acting as a roadblock. But is this perception grounded in reality, or is it a misconception? While Asia’s regulatory frameworks differ from European’s harmonized model, the similarities are noteworthy. Furthermore, recent initiatives have streamlined regulatory processes, boosting the distribution of foreign funds in Asia.

This article shares valuable insights to clarify and navigate Asia’s regulatory complexities, unlocking opportunities across key Asian jurisdictions.

The Singapore market is booming

Singaporean investors have a strong interest in foreign investment funds. In 2024, the Monetary Authority of Singapore (MAS) authorized 70 foreign funds for retail investors, showing a growth of over 5%, which highlights the demand from local investors’ for non-domestic products.

About 80% of retail funds marketed in Singapore are domiciled in a foreign jurisdiction, and three quarters of these are Luxembourg UCITS due to their superior investor protection, transparency, liquidity, and diversification benefits.

MAS’ uses the dedicated digital OPERA¹ platform to review and approval foreign funds for retail investors within just 21 days. For accredited investors, the approval process on the CISNet portal² takes only two days. This efficiency highlights Singapore’s commitment to maintain its competitive edge.

Singapore’s approval process and stable economy have made it a preferred destination for IFMs seeking to expand their presence in Asia.

Foreign funds predominantly features familiar asset classes like equity and fixed income products.

Shifting dynamics in Hong Kong

Known as the gateway to mainland China, Hong Kong is a major hub in Asia, with over 50 foreign IFMs present in the city. Its steady growth is reflected in foreign fund AUM rising by 4.6% in the first half of 2024, with over 60% of retail funds domiciled in a foreign jurisdiction. Like Singapore, Luxembourg funds are leading the scoreboard.

While foreign funds are also dominating the market (66% vs. 34%), we note the complementary nature of local and foreign from their asset classes. Local retail funds are mainly money market and index funds, while foreign retail funds are mainly equities and bonds.

However, some IFMs are reluctant to enter the retail market due to concerns about the lengthy and complex authorization process. For example, the Securities and Futures Commission’s (SFC) requirement to approve significant changes to legal documents before validation in the home country is widely considered burdensome.

Acknowledging these challenges, the SFC has introduced FASTrack, a streamlined fund authorization process. FASTrack speeds up the review and approval of foreign funds to just 15 business days, compared to the previous average of three months. This initiative aims to minimize compliance costs associated with lengthy approval processes, especially in the fund’s home state.

The SFC also launched its e-IP platform in November 2024 to digitalize application submissions and ensure compliance with local requirements when marketing funds. This system promises to reduce processing times,  improve communication with the SFC and better tracking application status.

For Luxembourg UCITS, the SFC has removed the requirement for Commission de Surveillance du Secteur Financier (CSSF) confirmation additional audit review procedures not reviewed annually by external auditors, simplifying the city’s marketing requirements. Deloitte saw an immediate response in the market, with increased interest from IFMs following the SFC's efforts to speed up market access.

Macau as a second distribution market

Other jurisdictions in Asia are also pivotal to IFMs. Given the close regulatory alignment and use of similar fund documents, most foreign funds distributed in Hong Kong are also distributed in Macau. Among the more than 1.000 funds marketed to retail investors in Macau, just one is locally managed, highlighting the city's reliance on foreign IFMs.

South Korea’s market on the rise

Despite South Korea’s lengthy and very costly marketing approval process, Korea’s fund market grew steadily in 2024 (+22,8%³ AuM for foreign funds marketed under private placement and public distribution), driven by strong inflows into equity, bonds and mixed (meaning less than 60% in equity or/and bonds) asset classes.

There has been a significant increase in private foreign funds targeting professional investors. Local and foreign funds are complementary, with local funds invested in safe assets like money market securities, foreign funds invested in riskier alternative securities like special assets (i.e.: commodities, infrastructure and other non-traditional). Deloitte has observed a rising demand from IFMs to market their foreign funds in South Korea, due to local investors’ increasing appetite for diversification.

Taiwan is lifting barriers to remain competitive

To market foreign funds to retail investors in Taiwan, a local representative, known as a master agent, must be appointed. This agent usually oversees the marketing authorization process, assuming the IFMs’ responsibilities. Despite this, Deloitte observed a stagnation in the number of registered foreign funds in 2024.

In response, Taiwan’s Financial Supervisory Commission (FSC) updated its Incentive Policy for Offshore Fund Development. In practice, qualifying funds can use the new 45-day fast-track registration for offering as a perk. Before the introduction of this new policy, the turnaround time for approval could last up to 6 months (it still applies for non-qualifying funds). The streamlined should help IFMs to align product launched with market conditions and investor demand.
 

Japan’s tax hurdle

To boost economic growth and individual wealth, the Japanese government is launching a project to encourage investors to put their savings into financial products instead of traditional savings accounts. However, this reform does not really benefit foreign funds.

In fact, distributing certain foreign fund types in Japan can be disadvantageous for investors from a tax perspective, leading to Japanese investors’ preference for local funds. For example, corporate-type funds (e.g., SICAV funds) commonly distributed cross-border face a Controlled Foreign Company (CFC) tax, which may trigger a double taxation for investors.

What are the best practices?

Over the past years, Deloitte as met several stakeholders in the region (i.e.: international IFMs locally established, local asset managers, fund associations and National Competent Authorities). The objective is to develop a local network to better understand the specificities and challenges in each jurisdiction.

Deloitte has observed foreign IFMs transitioning from a decentralized model with multiple stakeholders (i.e., local law firms and subsidiaries) toward a more streamlined management model. The trend is the appointment of one global provider that covers multiple jurisdictions to reduce the complexity and cost of coordinating tasks across different time zones.

At the same time, IFMs are adapting their operating models to use existing processes more efficiently when it comes to data gathering and input, drafting documents, translation management.

To provide a response in favour of clients’ needs, Deloitte has developed a new platform offering a single point of contact, greater operational efficiencies, stronger regulatory expertise, more reliability on data management and significant fee reductions for each of the jurisdictions cover in this article.

Conclusion

While Asia offers clear opportunities for IFMs, the diverse regulatory landscapes bring operational, legal and fee constraints that can discourage IFMs from marketing their EU funds in the region. We believe the distribution of foreign funds in Asia can be streamlined through a strategic approach involving a thorough understanding of local regulations, a structured methodology, clear processes, and the right partners.

This will reduce the risk of unexpected events and improve efficiencies, making the authorization and reporting process less daunting and more manageable. With the right partner, IFMs can largely benefit from economies of scale and market and regulatory intelligence in Asia at a low cost.

¹ Offers and Prospectuses Electronic Repository and Access (OPERA) is an electronic system for submitting applications and receiving updates about information of local and foreign funds marketed to retail investors.

² Online platform for funds marketed to accredited investors and investors other than retail.

³ Source: KOFIA