Funds passport initiative to boost Asia-Pac projects

The AFRP programme, which aims to facilitate cross-border offerings of investment schemes, is expected to result in yearly fund management savings of $20bn.

Six Asia-Pacific Economic Cooperation (APEC) economies, comprising Australia, South Korea, New Zealand, Thailand, Japan, and the Philippines, signed the Statement of Understanding for the Asia Regional Funds Passport (ARFP) last week, expressing keen interest in facilitating cross-border offerings of eligible collective investment schemes.

The ARFP program, which is an APEC initiative under the Finance Ministers’ Process, aims to establish a regional environment where operators of collective investment schemes, such as mutual funds, based in a member economy, will be able to offer their products to investors in other passport member countries.

Philippines Finance Secretary Cesar Purisima, host of the APEC Finance Minsters’ Process this year, said: “We are optimistic that regional cooperation in building better financial linkages can smoothen our path to shared prosperity.”

“The ARFP is a key trade liberalisation initiative which helps drive further important financial integration across our region,” said Australian Finance Minister Mathias Cormann.

Cormann believes that it will not only reduce the amount of red tape faced by fund managers across the region but will also provide investors with greater choice of investment products, particularly well-regulated funds.

According to a study by the APEC Policy Support Unit in 2014, by improving efficiency, the initiative will result in savings of $20 billion annually in fund management costs. It could also create 170,000 jobs in APEC economies within five years.

“I believe the ARFP program will have an important role in infrastructure financing in the region. It will potentially allow retail investors to participate in a broad range of investment opportunities and expand investors’ choices,” Hon Cheung, head of the Official Institutions Group in Asia-Pacific for State Street Global Advisors, told Infrastructure Investor. 

He reckons the initiative aims to complement the PPP financing model by facilitating intermediation for private sector investors who are familiar with investments into funds.

“For investors and the asset management industry, it will help reduce costs and provide opportunities for the growth of relevant and competitive financial products. Also, considering the growth of wealth management in the region, we will also need regional fund vehicles to invest the large pool of savings for long term investment and that’s where the program can help develop the local fund industry.”

He expects that the issue of project bankability will become less critical in the coming years and that private sector financing will become a bottleneck, at which point initiatives like the ARFP will become more important for the re-cycling of savings into infrastructure in this region.

“The idea behind ARFP is simple – to create efficient intermediation between those with capital and those who want capital,” he said. “Capital from developed economies can be invested in regional funds back into infrastructure programs in developing economies.”

“It’s a win-win situation for everyone,” concluded Cheung.

State Street Global Advisors is the investment management arm of Boston-headquartered State Street Corporation and manages $2.4 trillion assets as of March 31, 2015.

The ARFP Working Group also includes Singapore, which decided to defer its signing. The ARFP remains open for participation and is expected to commence in early 2016.