Master Agent in Taiwan? To Be or Not to Be ?
Master Agent scheme in Taiwan may be wildly known for whomever interested in penetrating into Taiwan fund market. It is a unique and requisite structure in Taiwan for offshore asset managers but very rarely seen in other countries. Navigate Investment Consultant (NIC) is from time to time consulted by prospect offshore managers whether register their funds in Taiwan. Regarding to the economic efficiency and effectiveness of appointing a Master Agent as local representative or directly setting a local firm to conduct itself master agent role in Taiwan, we have to say it's not an easy question since multiple factors have to be taken into consideration very carefully. In this article we would like to take some time talking about the recent picture of master agent scale and trend.
Table 1: Master Agents and their represented offshore fund companies
(by AUM ranking of Master Agents)
According to data collected from FundClear (https://www.fundclear.com.tw/), as of the end of March 2021, there are 42 master agents and 1,015 offshore funds have been approved, with the amount held by domestic investors around USD 135,747 million in total.
Among these offshore fund institutions, to build a fund management distribution business in Taiwan, 26 of them straightforwardly set up their own subsidiaries to be on behalf of their offshore entity, effect sales and the local administration in Taiwan. Most of these offshore fund companies got into Taiwan market in early stage and grasped majority of the market’s fund assets. Clearly seen from our summary on table 1—Master Agents and their represented offshore fund companies, those companies we highlighted in yellow dominate more than a half of the ranking. With 858 offshore funds, and the amount held by domestic investors about USD 130,029, these large fund companies permeate almost 96% in the whole market. For instance, Alliance Bernstein, Allianz, JP Morgan and Templeton Franklin took the advantages of the Market-share-first Strategy method which allowed them take pleasure in getting the exposure among the public. However, practically this is a pricey way to go, especially nowadays the market share is quite full already. The qualifications necessary to become a Master Agent include a paid-in capital, appropriated operating capital, or exclusively allocated operating capital of not less than NT$70 million and sufficient staffing resources to meet the FSC requirements (i.e. ~10 proprietary staffs in their responsible divisions). According to our very rough estimation, the staff remuneration, facilities expenses (i.e. IT, stock service systems, and offices etc.), and marketing budgets, more than USD5Mn initial budget in the first year is the very basic bill. In particularly, since 2013, Taiwan FSC set further constraints to slow down the process of submitting new fund registration, from 3 funds per year to merely 1 fund, only if the fund company is selected by “The Deep Cultivation Plan” by which FSC encourages global fund managers in using their scale to provide more job opportunities for Taiwanese, relay more related knowledge and technology resources to benefit the local business in Taiwan.
Considering the high barriers to entry, the more applicable means by global fund managers is to appoint a qualified entity as its “Master Agent” to establish a presence, grow business first and learn local practices in the market. This is to some extent a trial when going to a new market without having to create the usual infrastructure a local presence would demand. As of 2021 March, in total 16 independent Master Agents represent 19 offshore fund institutions in Taiwan. Per competent regulation, Master Agents can be of the following registered and approved types. 1) SICEs 2) SITEs and 3) Securities Brokers. So far there is no securities broker to play the game given its business nature differentiates from asset managements. The teams in securities brokers are not compatible with those SICEs and SITEs. Primary participants of Master Agents activities are monopolized by SICEs and SITEs. Given the business nature of SITEs, Taiwan onshore asset management companies, is managing its own funds, though they simultaneously run master agent business, it is not that difficult to tell what their priorities is. The business result of fund companies represented by SITEs is eventually not satisfied. A few Master Agents have been willing to represent multiple fund houses and use their well-developed networks effectively to build assets. This ideally could be a shortcut, but reality is the team’s resources may be diluted so the sales performance usually depends on what position its Master Agent put the fund company in the pipeline.
All in all, it is quite clearly that to work closely with a third-party Master Agent can be an efficient means for new fund manager consider step into Taiwan mutual fund market. Alternatively, for new managers who have no presence in Taiwan, even better means could be appointment of a qualified onshore private placement agent for engaging with institutional investors and sophisticated individual High-Net-Worths. Ways to enter Taiwan fund market, apart from appointment of a Master Agent, include institutional mandates, private placement to sophisticated investors, and white-labelling public/private SITE funds etc.
Managers with different company culture, investment styles and business target may need different business models in local market. NIC teams up with our partners to find out the most applicable solution, always. Welcome to consult with us!