The decision to include offshore-domiciled funds in the UK's Investment Management Association (IMA) sector will shake up the emerging market funds industry in the UK, says HSBC Global Asset Management and Baring Asset Management.

In each of the main emerging market categories, China, India, Latin America and global emerging markets, the top three performing funds for the last year have been based in Luxembourg or Dublin, and not in the UK. Over three-years, performance statistics also show that the top performing funds in the China, India and Latin America sectors were offshore funds, according to Lipper data.

"Until now, UK-based funds investing in emerging markets have been the only funds visible to intermediaries on the popular databases and in industry performance tables," commented Rod Aldridge, head of UK retail distribution at Baring Asset Management. "We welcome the progressive action taken by the IMA to make offshore-domiciled funds eligible for inclusion in their sectors."

HSBC Global Asset Management's head of market position, David Chellew, added that the change could see the emerging markets peer group significantly expand, with a new range of leading funds and managers brought in. The two groups are also calling for the major platforms to become more accommodating towards funds based outside the UK.

"The platforms have traditionally resisted including offshore funds, mostly citing administrative difficulties. Although some have made progress, now it is time that other platforms faced this challenge and embraced the concept of making the best possible funds, irrespective of where they are domiciled, available to UK intermediaries. Otherwise, we could end up in a position where the best funds in some sectors will be clearly visible to the UK investor and advisers, but frustratingly for them, won't be available for advisers to recommend."

Managers with Luxembourg or Dublin domiciled funds must have submitted these to be included in the IMA sector classifications from 1 January 2010 by 13 November 2009. HSBC and Barings predict that the majority of offshore funds registered will be those with an emerging markets theme, because these tend to hold more international demand for investors.

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