The development of a Asian fund passport, opening Australian funds to investment from the Asia-Pacific region and vice versa, needs to be twinned with a friendly tax regime if Australian fund managers are to benefit, industry participants have said.
The passport would allow Australian fund managers to market funds from a single Asia-Pacific vantage point and tap Asia’s $2.7 trillion investment market.
“I think the development of a passport will put pressure to ensure that tax barriers that may exist are addressed. Otherwise, it would limit the ability of countries to be able to benefit from it,” PwC Australia head of asset management Andrew Wilson said.
Industry participants said without tax reform, the passport would enable offshore fund managers access to investors in Australia, but offshore investors would have scant reason to invest in Australian funds because of the relatively punitive tax regime.
Financial Services Council (FSC) director Martin Codina said: “In isolation, a passport isn’t a silver bullet for Australian fund managers.”
Codina said the investment manager regime (IMR) was also vital to Australia’s fund management industry as it clarified the tax treatment of offshore investment through fund managers and other intermediaries in Australia.
The Board of Taxation is set to report to government by the end of the month on the IMR, which would bring Australia into line with Hong Kong, Singapore and other target partners in the run-up to the planned implementation of the passport’s pilot program next year.
Meanwhile, the Asia-Pacific Economic Cooperation (APEC) forum is set to discuss the passport pilot program within months. A Treasury spokesperson said the program was on track for 2012.
The passport would be discussed at the APEC Finance Ministers’ Meeting in November in Honolulu, the spokesperson said.
“The aim is to have the pilot program developed in 2012 with detailed input from all the economies involved,” the spokesperson said.
Wilson, a member of the Asia Region Funds Passport taskforce, said Australia would partner with Hong Kong, Singapore, South Korea and Japan under the pilot.
Australia had the fourth largest funds management industry in the world and the largest in Asia, with $1.4 trillion in funds under management, according to the FSC.
Wilson said Asia was the future growth engine for the global funds management industry. The region accounts for US$2.757 trillion, or 13 per cent, of global funds under management but nearly two-thirds (60 per cent) of the world’s population.
“When you look across the Asian region, without a doubt people identify that there is a pension crisis,” Wilson said.
“With the aging population across Asia and the unfunded commitment in countries such as Japan, there is demand for good investment management product across the region to support the pension crisis that exists.
Clearly, there are benefits so the sooner the passport is up and running, the sooner those benefits can flow across the region.”
