With the divergence of economic growth predictions across regions, it is not surprising that many Private Capital firms are re-evaluating their geographic footprint. Whether this is a re-alignment of internal resources, or pursuit of new market expansion, Asia-Pacific (APAC) has once again become a hot topic for growth. It is forecasted that private capital assets under management (AUM) in APAC, excluding RMB-denominated funds, will represent 12.7% of the global market at the end of 2022, reaching USD 2.25tn by 20261. RMB funds, on the other hand, have been issued since 2005 and are currently gaining popularity following the lifting of restrictions for foreign companies setting up funds in mainland China. In July 2022 the number of managed funds was 135,836, an increase of 2,039 (1.52%) on the June figure. In the same period, the size of the funds grew by RMB 420.09 billion to RMB 20.39 trillion, an increase of 2.1%2.
Despite this significant growth, navigating APAC’s private capital market remains complex. There are 48 countries in the region – each with unique local customs and investment landscapes. It is imperative that new market entrants understand the environment before setting up new funds or entities and investing in the region.
What are we seeing in the APAC market?
Inflation rates globally increased from 4.71% in 2021 to 7.4% in 20223. APAC has so far avoided the worst of the inflationary impacts seen elsewhere in the world, increasing from 3% to 5.6% year-on-year4, given the more measured monetary and fiscal policies from authorities in response to the pandemic. On top of which, countries such as Singapore offer an attractive corporate tax rate, tax exemptions for newly incorporated businesses, no tax on dividends and an extensive network of tax treaties, making it a business-friendly jurisdiction.
Despite lower inflation, statistics show the ranks of the middle class in Asia-Pacific are swelling fast, as are the institutions managing their savings and surplus capital5. According to China’s National Bureau of Statistics, around 400 million Chinese are categorized as middle income – which is generally defined as a family of three earning between RMB 100,000 and RMB 500,000 annually. China accounts for half of the planet’s middle class; their growing purchasing power is a source of opportunity for foreign businesses across a wide range of sectors. At least 58% of Chinese households are likely to be mass affluent (or above) by 20306.
One of Asia’s strengths, namely digital and mobile technologies, has accounted for a large regional share of global growth in key technology metrics over the past decade. Australia has a thriving tech sector and its fintech industry ranks sixth in the world and second in the Asia-Pacific region. As a result, it has grown as a hub for tech investment in critical areas including finance, regulation, medicine and education.
Funds structures in APAC
Apart from offshore funds structures, it is not uncommon for Fund managers expanding into APAC to setup fund using local fund structures. There are multiple structures to choose from in various locations each with its own benefits. To name but a few, here are some of the funds structures in APAC:
|Domicile country||Fund structure||Structure’s benefits|
|Australia||Managed Investment Trust (MIT)||
|China||Qualified Foreign Limited Partnership (QFLP)||
|Hong Kong||Limited Partnership Fund (LPF)||
|Singapore||Variable Capital Company (VCC)||
Why choose a third-party fund services provider?
Expanding into new APAC jurisdictions can be extremely complex and, depending on resources available to support the process, the variety of countries and their diverse legal frameworks can be daunting.
Funds considering entry into APAC come across similar challenges:
- No existing presence in the new jurisdiction or the region
- Limited awareness of local rules, regulations or requirements
- Little or no back-office support functions or infrastructure
- Recruiting or transferring employees to new entities in new jurisdictions
- Managing the complexity and requirements of the various partners, authorities and regulators involved in establishing a new presence
Added to this, where companies do have an existing presence, they often struggle with streamlining the management of operating entities outside their home region and the significant time involved in keeping those entities compliant. With these challenges in mind, how are fund managers looking to expand in APAC?
Using a third-party fund services provider not only provides economic substance for non-APAC fund managers but provides a trusted partner who understands the region and can handle the complexity of regulatory compliance, risk management and other services.
Main challenges Main challenges & Our solutions
Navigating the local customs and investment landscape.
Our expert teams offer fund managers deep local knowledge to get up to speed in a new jurisdiction.
A large number of required service providers can be difficult to manage.
We provide end-to-end solutions for fund managers looking to launch funds in APAC, under one brand and one service standard.
A lack of local support functions make accessing APAC markets independently costly and time-consuming.
We can provide a third-party fund administrative service solution with existing infrastructure in place offering faster entry to the market.
Our client, a private equity firm based in the United States, was considering its first international expansion into Asia-Pacific.
For this expansion, the client identified key employees to drive their APAC strategy and selected a candidate to be relocated to Singapore. However, with no experience in the region nor legs on the ground, this proved to be a challenge.
Our team in Singapore was able to assist with expediting the paperwork for the incorporation of their new entity in Singapore and was able to follow through with securing an Employment Pass (EP) for this candidate. As such, the client hit the ground running and went about building out the infrastructure for their APAC operations.
This was followed by our team helping the client establish their Singapore VCC fund which has subsequently launched, and is now successfully invested into private equity and venture capital opportunities in Southeast Asia.
How can Intertrust Group help fund managers?
Experts at Intertrust Group can leverage their experience in the industry to help you make the most of your data, optimise your workflows and understand the role technology can play in making everything a little easier. As you look to continually grow and expand your investment strategies into multiple jurisdictions, you need to address regulatory and compliance requirements, ensure tight due diligence and provide more and more transparent reporting to meet your investor demands.
By partnering with us, we’ll help you take care of your portfolio’s fund administration, and underlying investments and the subsequent data aggregation.
We regularly help our clients with technology-driven solutions and are always developing new products to meet their objectives, while reducing reliance on in-house operations.
- We have an established track record, already providing over 120 clients with fund services in APAC, helping them to successfully navigate the ever-changing regulatory environment
- As a strategic partner, we offer a full-spectrum of services tailored to meet back-office needs throughout a fund’s lifecycle against a background of ever-increasing reporting demands.
- Our proprietary innovative technologies are combined with global knowledge and experience to deliver added-value services for all asset classes, while increasing manager visibility of portfolios on behalf of a fund’s investors.
- Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in fund administration and corporate actions, investor relations and portfolio management.