When the idea of creating a fund product in one jurisdiction and exporting it to multiple countries through passporting arrangements was mooted, the same year Whitney Houston debuted her first solo single, “You Give Good love.” That was in 1985.
In both instances, all launches became massive hits. Whitney went on to become “the Prom Queen of Soul” and Undertakings for Collective in Transferable Securities (UCITS) became a respectable brand for “cross-border” investments comprising 75 percent of all European Union smallholder investments in over 30,000 UCIT funds overseeing over Sh1.2 quadrillion.
Explainer: UCITS are a type of mutual fund that holds securities from throughout Europe. They emerged as a way of unifying disparate European financial regulations under one central sector with a “marketing passport” that enables financial firms accessing the EU to invest in multiple countries under a common set of regulations.
Why does the UCITS model work? Apart from promoting the regional asset management industry, for investors, the funds offer a diversified fund option that might otherwise have to depend on locally listed companies for the bulk of their investment portfolios.
Moreover, a unified regime gives funds regulatory credibility, making funds acceptable vehicles for investors, both locally and internationally.
Creating a competitive product by the region and for the region has also ended up streamlining and securing investment transactions across the region.
Further, a bigger playing field has hastened industry consolidation - a move that has increased the industry’s competitiveness by increasing economies of scale and lowering costs.
Over 38 years, the UCITS tag now represents a quality mark for those investment funds permitted to carry the label, a gold standard by regulators and industry alike.
Is it time for a regional fund passport for Africa? Certainly. Success from UCITS teaches us three things; One, Africa’s asset management space can only grow if it's made up of a mixture of strong domestic funds and cross-border funds.
Two, explosive growth will only happen when Africans are leading the charge and not depending solely on foreign investors. Institutional funds can start by first integrating in their local equity markets.
African pension funds hold an estimated Sh86 trillion in assets and sub-Saharan sovereign wealth funds have approximately Sh2 trillion at their disposal.
The pension fund industry has grown rapidly in recent years, and this trend is expected to continue, with some projecting total assets under the management of African pension funds and sovereign wealth funds that could hit Sh124 billion by 2030.
However, only a small share of funds is currently invested in domestic or regional exchanges. Three; close collaboration between regulators and industry players is crucial.
In sum, UCITS has been a game changer. Asia has already initiated its own version. An African version would be a revolutionary hit.
If unity is strength, then Africa needs to travel this road. The Africa Continental Free Trade Area (AfCFTA) initiative, which aims to integrate African markets and increase investment and the choices available to retail and institutional investors, can help catalyse.
Mwanyasi is the managing director at Canaan Capital.
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