"It is also pointless for UCITS managers to get excited about the imminent mutual recognition of funds (MRF) scheme between China and Hong Kong, as funds sold under this scheme have to be locally domiciled," added Rachel Poh, senior analyst.
The report is an about-face for Cerulli, which in the past said that the threat to UCITS from the mutual fund recognition initiative is "overstated".
The MRF scheme will allow cross-border selling of funds to retail investors in both markets from 1 July.
To participate, funds must be domiciled in Hong Kong or China. Also, funds must have at least one year of track record with minimum assets worth RMB200m ($32.3m).
UCITS growth is slowing in the region as most countries are increasingly focusing on building their onshore markets, the report said.
UCITS are predominantly sold in Hong Kong, Singapore, and Taiwan, while there is "some" traction in China through the Qualified Domestic Institutional Investor (QDII) program, which allows domestic financial institutions access to offshore funds.
Taiwan is the main driver of UCITS asset growth in Asia ex-Japan, the firm said.
But it added that Taiwan is focusing on building up its onshore fund industry, which will weigh on UCITS asset growth.
Meanwhile, markets such as India and Korea remain highly secular, and it is "virtually impossible" for UCITS products to gain traction there.
Asia has several regional fund passport schemes either working or in development. Craig Plane, senior associate at Mercer in Singapore, said in an earlier interview that the gradual merger of regional schemes could shake up distribution in the region.