Japan is looming as the first destination for the NZX-owned Smartshares to put its freshly minted Asia Region Fund Passport (ARFP) to use.
NZX funds chief, Hugh Stevens, said the group was in talks with representatives from the Japanese funds industry and potential distributors keen to kick-start the ARFP market.
Stevens said Japanese investors tended to allocate more to US and European markets than the APAC region – a discrepancy the ARFP might help address.
“Japanese policy-makers want investors there to have more exposure to economies in the region,” he said.
The ARFP – the first to be issued under the regional fund accreditation plan that has been years, if not decades, in the making – allows Smartshares to shop its NZ Dividend Fund to signatory jurisdictions, a group currently limited to Australia, Japan, NZ, South Korea and Thailand. Managers must apply for ARFP-status on a fund-by-fund basis.
While actual flows may be some time away yet, Stevens said the ARFP market could develop along the lines of the Undertakings For The Collective Investment Of Transferable Securities, or UCITS, regime that has created a bustling pan-regional fund industry.
In a statement last week, James Greig, FMA director supervision, said: “The ARFP is an internationally recognised system and it’s encouraging to see a New Zealand investment firm to be the first to be granted a passport.
“The Financial Markets Conduct Act balances innovation with robust regulation and has allowed New Zealand to participate in the agreement, which opens new markets for New Zealand’s fund managers and should broaden investment options available to New Zealanders.”
A long-time advocate of the ARFP, and an earlier 21st century push to create a ‘fund hub’ here, Stevens said in 2019 that NZ was well-placed to benefit from a regional investment regime.
“NZ has a competitive advantage – we have the PIE and foreign investment fund rules,” Stevens said at the time. “And it tends to be smaller countries – like Luxembourg or Ireland – that do well as fund servicing hubs.”
However, it’s not clear yet whether the ARFP will combat the one-way fund traffic flowing from Australia to NZ under the trans-Tasman Mutual Recognition rules (TTMR).
According to the NZ government-run investment product disclosure register, Disclose, Australia-based options offered in NZ under TTMR represent over 1,150 of the total 1,700 issues in the database.
Figures from the Australian Securities and Investments Commission (ASIC), show that since the regime inception in 2008 just 160 NZ issuers have made offers under TTMR in Australia – most of those likely single stocks or debt issues.
And while NZ has won bragging rights as the first ARFP-holder, fund managers in other countries in the new investment alliance – including Australia – will be handing in passport applications shortly.
Australia’s entry into the regional fund race has been slightly delayed by technical issues (mostly tax-related) due to be remedied via a new law awaiting parliamentary approval.
Michael Sukkar, Australian Assistant Treasurer, said in a release last November that the Corporate Collective Investment Vehicle (CCIV) regime would “supercharge international investment into Australia’s fund management industry”.
“The CCIV regime was a key recommendation of the Australian Financial Centre Forum’s Johnson Report, alongside the Asia Region Funds Passport regime which the Government implemented in 2018,” Sukkar says in the statement. “By extending the Passport to cover CCIVs, the Government is maximising the Passport’s effectiveness in increasing Australian access to overseas markets.”
He says the CCIV bill was expected to come into force in July this year.