With global economic headwinds and shifting investment patterns, Taiwan is adjusting its financial strategies to enhance its regional competitiveness. Paul Shelton, a Taipei-based executive director with 30 years of experience in financial services, lays out the challenges and opportunities.

The key elements for Taiwan’s emergence as a regional asset management hub are falling into place: a robust industrial base, a strong investment portfolio, and a steady accumulation of private wealth. Recognizing this appetizing opportunity to attract investment and retain capital for regional development, the Financial Supervisory Commission (FSC) proposed the Asia Asset Management Center initiative, which would establish localized asset management zones, catering to distinct local market needs across the island.

The project was introduced in September 2024 by newly appointed Financial Supervisory Commission (FSC) Chairperson Peng Jin-lung. According to an FSC press release, integrating the commission’s regulatory easing with local government collaboration would not only promote more balanced financial market development across Taiwan but also represent “a groundbreaking financial operating model that Taiwan has not attempted before.”

Promoting Taiwan as an Asian asset management center in this way might suggest the sector lacks momentum. However, this is far from the truth: the FSC’s initiative isn’t about fixing a struggling industry – it’s about optimizing its potential.

For example, as of December 2024, Taiwan’s asset management industry experienced significant growth, with total assets under management (AUM) reaching approximately NT$8.41 trillion (US$256.63 billion). This growth represents a 24.8% increase over six months, primarily driven by the rising popularity of exchange-traded funds (ETFs) among retail investors.

ETFs are traded like stocks on exchanges, allowing retail investors to buy and sell them easily throughout the trading day, unlike mutual funds, which are priced only at the end of the day. They also generally have lower expense ratios than traditional mutual funds, making them a cost-effective investment option. In addition, ETFs provide exposure to a broad range of assets, reducing risk compared to investing in individual stocks.

How, then, did we arrive at the FSC actively promoting Taiwan as an Asian asset management center?

Quite simply, Taiwan’s retail investors, along with the average Taiwanese citizen (and many extremely wealthy citizens at that), want to put their money to better use by receiving higher returns compared with the minimal interest earned on standard bank deposits. Many investors prefer passive investment strategies that track indices rather than actively managed funds, which often struggle to outperform benchmarks.

According to a Financial Times report, ETF issuers in Taiwan were projected to earn NT$13.5 billion in management fees in 2024, marking a 50% increase from the previous year. Meanwhile, total assets in ETFs surged nearly 50% in the first eight months of the year, highlighting a growing shift among investors toward these investment vehicles.

In conjunction with the growing ETF market, the FSC has been proactive in introducing new financial products, such as active and multi-asset ETFs, to further enhance Taiwan’s position as a significant regional asset management hub. The first of these products is expected to launch in 2025, underscoring Taiwan’s eagerness to expand its asset management industry and establish itself as a key player in the regional financial landscape.

Breaking the mold

In its press release, the FSC noted that the Asia Asset Management Center initiative will require establishing localized asset management zones with distinct “Taiwanese characteristics,” though it’s unclear what these characteristics include. Toward the island’s southern tip, Kaohsiung has been selected as the hub’s “gateway” for its geographical advantages and strong industrial foundations, providing an ideal setting to launch and support the project’s initial stages.

The project aims to enhance financial infrastructure, market access, and investment opportunities for domestic and foreign asset management firms, with plans to replicate the Kaohsiung hub in other cities across Taiwan. While the government will oversee regulatory frameworks, policies, and incentives, private financial institutions will carry out the actual asset management activities.

“As Taiwan continues to open up its financial markets, collaboration between the government and the private sector will be essential in shaping policies that not only align with global best practices but also address the unique needs of Taiwan’s economy and investment landscape,” says Chris Cottorone, president of TriOrient Investments, an investor focusing on the Asia region.

Creating an asset management-focused zone introduces a financial operating model that Taiwan, which has traditionally focused on banking and securities, has not attempted before. The model’s success will rely on the development of both physical and virtual financial clusters while integrating domestic branches, private banks, Offshore Banking Units, Offshore Insurance Units, Offshore Securities Units, and foreign subsidiaries and branches, as well as family office services.

Taiwan’s banks are not known for their readiness to move radically or swiftly. Some well-placed regulatory poking and prodding may be necessary to encourage innovation, expedite financial reforms, and ensure banks adapt to the evolving asset management landscape, where significant potential remains untapped.

For its part, the FSC will need to relax existing regulations and offer fresh policy incentives – a challenging task given that regulators are often hesitant to make such moves, especially when retail investor money is at risk. If successful, developing an asset management sector should attract capital inflows, which would enhance market liquidity and support the broader financial ecosystem. The country has generally experienced larger capital outflows as opposed to capital inflows over an extended period for various reasons, including regulatory constraints and tax policies.

Undoubtedly, Taiwan has taken note of the political uncertainties in Hong Kong and stricter financial regulations in China and sees an opportunity to position itself as an alternative investment hub. Some observers would argue that Taiwan is a bit late to the party on this, but it recognizes the opportunities available by joining the party, even as a latecomer.

Vision in motion

Amid modest global growth, persistent inflationary pressures, and rising protectionism in 2025, Taiwan faces a pressing need to enhance its appeal to global investors and multinational firms. Strengthening its asset management industry and navigating shifting capital flows will require competitive financial policies that position Taiwan as a more attractive destination for international capital.

Taiwan’s substantial pension and insurance fund assets provide a strong foundation for the growth of local asset managers. According to the FSC, the government is continuing to refine financial regulations and embrace fintech innovations to create a more favorable environment for asset management firms.

In line with FSC’s proposal, the Taiwan Stock Exchange (TWSE) has announced plans to focus on three major strategies, including assisting securities issuing companies in their international development, launching diversified products to promote market development, and promoting international cooperation by working with institutions to cultivate market professionals. However, Taiwan’s relatively low salaries could hinder this strategy, potentially making it more challenging to attract top talent in the asset management sector.

Naturally, with any new proposal comes risks and challenges that must be considered.

In Taiwan’s case, the economic uncertainties fostered by geopolitical tensions with China may deter foreign investors who fear the ripple effects of political instability. Responders to AmCham Taiwan’s 2025 Business Climate Survey identified cross-Strait relations as a prominent risk factor to their business operations, signaling a need for honest and open dialogue to ease investor worries.

The notion that Taiwan is “late to the party” also underscores the challenges of its delayed entry into the competitive asset management landscape. Hong Kong and Singapore have long-established industries with strong regulatory frameworks and tax incentives, making it difficult for Taiwan to carve out a distinct advantage in attracting and retaining investors. These financial hubs have also drawn Taiwanese professionals with the promise of higher salaries, further complicating Taiwan’s efforts to build a competitive workforce in the sector.

Additionally, the FSC has repeatedly noted the need for relaxed regulatory and bureaucratic barriers, which Taiwan’s financial regulations remain restrictive compared to other markets. The recent shifts in Taiwan’s budget passed by the Kuomintang (KMT) and Taiwan People’s Party (TPP) majority in the Legislative Yuan have also caused legislative upheaval, obscuring the road ahead for changes in economic policy sparked by various budget cuts. Unfortunately, investors cannot be certain that the central government’s execution of the proposed asset management hub will be stable or predictable.

Another key area of focus is family offices – privately held firms that manage investment and wealth planning for affluent families, often spanning multiple generations. Typically, these offices oversee investable assets ranging from US$50 million to US$100 million, with the goal of preserving and growing wealth across generations.

Despite an astounding prevalence of wealthy families, Taiwan has yet to grasp the potential of a family office market. It has not aggressively pursued the family office approach to asset management despite its growing prevalence, focusing instead on institutional asset management rather than private wealth management. These families with their high net worth have already set up family offices in Singapore, Hong Kong, or the United States for better global access, privacy, and tax benefits.

Singapore, in particular, has become an ideal destination due to its low taxes, stable governance, and strong banking secrecy laws. Without similar tax policies, relaxed currency controls, and geopolitical stability, Taiwan faces an uphill battle in positioning itself as a competitive alternative for global asset managers and high-net-worth investors.

Attracting family offices would require Taiwan to reform regulations, introduce tax incentives, and ensure a stable investment environment. Moreover, pursuing both an Asian asset management hub and a family office hub simultaneously presents a strategic challenge. Allocating resources effectively to avoid dilution is critical, and many industry experts remain skeptical that both goals can be achieved in parallel. Instead, they argue that Taiwan would be better served by prioritizing the development of a broader asset management hub in the near term.

The planned financial hub in Kaohsiung, expected to serve as a testing ground offering valuable insights into future developments, will be closely watched by analysts in the coming year. It will function as a pilot program, with periodic reviews of policy relaxations and innovation measures to ensure alignment with industry expectations. Regulations governing its establishment and trial operations are set for release by March 2025, with financial institutions able to submit applications in April. Operations could begin as early as July.