Hong Kong-domiciled funds surge pre-recognition

China and Hong-Kong flagsThe number of funds authorised in Hong Kong that are also domiciled there rose 23% in the last year as fund houses ready themselves to passport products into mainland China under the mutual fund recognition scheme.

Mainland China and Hong Kong regulators began accepting registration for eligible funds on July 1. The reciprocal scheme allows fund providers in mainland China and Hong Kong to distribute locally domiciled funds in each other's jurisdictions.

Fund firms with operations in Hong Kong are hoping to gain inflows from China, which has so far been accessible to them only if they accepted minority shareholder terms in joint ventures with mainland fund managers.

However, some argue mutual fund recognition with Hong Kong is only a test phase of a larger project that will benefit mainland Chinese fund firms more than it helps potential incomers.

At the end of June, there were 607 Hong Kong-domiciled funds authorised by the Securities and Futures Commission (SFC), the Hong Kong regulator, according to the SFC's latest quarterly report. This compares with 494 at the end of June 2014.

Hong Kong was the second most popular domicile after Luxembourg, says the SFC report. Luxembourg-domiciled products accounted for 1,007 of the Hong Kong-authorised funds, according to this year's report, an increase of 3% compared with 2014.

The report also notes the number of Cayman Islands-domiciled authorised funds fell by a third to 94, seeming to support anecdotal evidence that fund managers have been redomiciling some Cayman Islands vehicles to Hong Kong.

In total, there were 2,063 unit trusts and mutual funds authorised by the SFC at the end of June, a rise of 5% compared with 2014.

©2015 funds global asia

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