SUPER WILL DRIVE PASSPORT

By Lachan Colquhoun

The increasingly global focus of superannuation investments will create demand for products created by Australian fund managers under the new Asia Region Funds Passport regime (ARFP), according to a leading fund manager.

Mark Burgess, the Non-Executive Chairman of Yarra Capital Management and a former Managing Director of the Future Fund, told the FSC Summit 2018 that superannuation fund demand for passported products could drive the creation of new products in the same way as infrastructure investment has become internationalised.

“People figured that infrastructure was a great asset class and they went to the super funds and built global businesses,” said Burgess.

“I am optimistic that we will be exporting services because funds in Australia are beginning to recognise that super funds are more global.

“And to satisfy those demands domestic manufacturers will create that product which will also sell in other places, like infrastructure developed, and that is a very positive development.”

Yarra Capital was a participant, along with other managers including Perpetual and Nikko and law firms Norton Rose Fulbright and King & Wood Mallesons, in a pilot program which ran through the regulatory systems before the Passport goes live.

Federal Parliament passed the Asia Region Funds Passport bill in late June, and a second related bill to create the Corporate Collective Investment Vehicle (CCIV) regime is in the consultation phase. 

The CCIV has been likened to the UCITS regime in Europe, which has created investment products which are now sold successfully throughout the world in what has become a market worth more than 4 trillion euros.

But like UCITS, participants in an FSC panel discussion on the new passport believe that success will come in the long term, and warned against expecting immediate results.

“UCITS were introduced in 1985 so that is a 33 year process,” said Gerard Fitzpatrick, the Senior Executive Leader – International, for regulator ASIC.

 “So if we don’t have hundreds of funds in the next year or two it doesn’t mean it’s not working.”

UCITS, said Burgess, had grown to be a large market “but it had its wobbles.”

“In those markets which are controlled, thoughtful and considered if passporting takes off they will support it,” he said.

“The long run suggests we should give this a go and see how it works out.”

From funds manager Colonial First State Global Asset Manager, the Head of Product for APAC Amna Khan agreed that passing the legislation was no immediate guarantee of success.

“To make this commercially successful managers will start with the needs of the clients and what they require, and that comes back to product and investment strategy,” said Khan.

“What do we have to sell to other nations? Infrastructure, property and in ESG matters we are advanced, and we have credibility in terms of product offerings.”

Another implication of the new passport regime will be that Australian fund managers are likely to face competition from more international fund managers in their home market.

It raised the question, said Burgess, if foreign funds “could take over Australian asset management.”

From Norton Rose Fulbright, firm partner Nikki Bentley said more domestic competition was “better for consumers” and could prompt domestic managers to also “step up and look to other markets.”

Audience members at the session were asked a series of questions on the likely success of the passport.

A total of 75 per cent said they believed it was an “attractive vehicle” for investors, while 86 per cent said it would provide “investor benefits.”

74 percent said they believed that once other nations saw the benefits of the ARFP, then more nations would follow and join the regime.

ASIC’s Gerard Fitzpatrick said that while Japan and Thailand were the only other countries to pass enabling legislation, South Korea and New Zealand were both expected to do so this year. 

Hong Kong, the Philippines and Singapore have been observers at international meetings to discuss the passport.