Funds Hub
Money managers under the microscope
Knowing me, knowing you..
For a fund company expanding out of its home market, a crucial question is whether a distribution strategy that works well locally will also work in other countries. You might call it the Abba Dilemma: Knowing me, knowing you?
The Swedish popsters’ 1977 hit single went on to suggest “there is nothing we can do”, but new research from Lipper hopes to shed some light on this issue.
The first step is to appreciate the importance of product development. At the end of 2001 the European mutual funds industry stood at 3 trillion euros ($4.2 trillion) in assets under management. By the end of the first quarter of 2011 this had grown to nearly 5.5 trillion. Of this latest total, 43 percent (2.4 trillion euros) of assets are now managed in funds that have been launched in the past nine years. In other words, 97 percent of industry growth since the end of 2001 has come from product development.
This is not just a quirk of the statistics over a longer time period. In 2010, for example, most local fund markets in Europe saw funds which were launched in previous years (referred to as ‘backlist’ funds) suffering redemptions while funds launches in 2010 enjoyed inflows.
You can see a chart showing these findings by clicking here
But this is not a uniform pattern. The most successful local market in 2010 (in terms of fund sales) was the UK. And in this market the vast majority of flows were into backlist funds, accounting for 81 percent of net sales.
This market stands out in Europe for the importance of Independent Financial Advisers (IFAs) as a distribution channel. Historical data reinforces just how important this has been. The weighting of flows into funds with a track record ranges from 40 percent (2007) or 50 percent (2004) to around 90 percent (2003 and Q1-2011), but the UK industry has achieved positive net sales in every year analysed – unlike most of the rest of Europe.
Morning line-up: AIG’s Asian unit IPO, City seeks to calm Europe, further bank bailout
News and views on the fund industry and elsewhere:
AIG lowers valuation for Asian unit’s IPO - FT
UK launches 1st property derivatives fund - FT
City’s bankers tour Europe to reassure investors over future - Daily Telegraph
UK banks may need further state bailout - Reuters
from Global Investing:
Too much correlation
Globalisation is evident in this graphic put together by James Bristow, a global equities portfolio manager at BlackRock. It shows the correlation between the U.S. S&P stock index and counterparts in Europe, Australasia and the Far East.
Basically, what happens these days on Wall Street is matched everywhere else, or vice versa.
It is a bit of a problem for long-term investors. One of the best ways to diversify used to be to buy outside your domestic market. Not so now. This is likely to push more institutional investors to non-correlated assets and hedge funds.
Piggy in the middle
Fitch’s annual review of the European asset management industry dished out some home truths for fund firms hoping they can begin to put that horrible financial crisis behind them.
Unveiling highlights from Fitch’s upcoming report at a briefing this week, Manuel Arrive, a senior director at Fitch Ratings, said he expects assets under management to rise more slowly and pressure on revenues to continue as investors shift to lower margin products. “Asset managers remain vulnerable to a renewed market downturn,” he said.
Asset managers slashed costs by between 10 and 15 percent through the recession and Arrive said they could not reduce costs further without compromising their franchises. Those who weathered the downturn the best tended to be the big diversified managers and specialists with good track records in the asset classes that were in demand.
But Arrive was critical of fund firms occupying the middle ground, arguing that the crisis had revealed a lack of focus and specialisation with “misplaced” innovation reflected in ‘product of the month’ launches. “ Managers need to decide if they are are a cost leader (selling passively-managed products cheaply in bulk) or a high value added provider. Being stuck in the middle is not the best place to be. Tougher decisions need to be taken in respositioning,” he said.
But despite pressure on fees from institutional investors, on average, asset managers have stayed profitable, suggesting there will be little impetus to take those tough decisions if the markets stay bouyant. “Margins are still high and asset managers don’t need growth to survive,” said Aymeric Poizot, regional head, EMEA, at Fitch.
Morning Line-Up: Galleon nears port as Hedgies exit Europe
News and views on the hedge fund industry from Reuters and elsewhere:
Hedge funds exit from Europe bets - The Wall Street Journal
South African government to clamp down on hedge fund oversight - Business Report
Hedge funds buy financials, signalling industry recovery - City AM
NAPF takes aim at EU AIFM draft
The hedge fund industry’s anger at the EU’s Alternative Investment Fund Managers directive is hardly new now, but there are growing signs of discontent from another group — the pension funds that actually put their money into hedge funds.
Last week we reported USS (the Universitied Superannuation Scheme) and Hermes, which manages BT’s pension scheme, were criticizing the draft laws for potentially limiting their investment choice and upsetting portfolio balance.
Now the NAPF (the National Association of Pension Funds) has written to Charlie McCreevy, European Commissioner for Internal Market and Services, saying the directive could reduce choice and increase costs, while expressing concern about the model of regulation being proposed.
The hedge fund industry has quickly mobilised itself to criticize the directive and lobby for extensive revision, but, as it found earlier this month when Poul Nyrup Rasmussen, president of the EU assembly’s socialist bloc, spoke at a debate in the City, many supporters of the directive are already fully aware of hedge funds’ opposition to the plans.
While some sort of directive and tougher regulation looks inevitable, the hedge fund industry must be hoping that EU lawmakers will heed more closely the voices of pension funds representing savers across Europe when they decide what rules hedge fund firms will have to play by.
from DealZone:
Deals du jour
AIG plans to float its Asian crown jewel, Volkswagen halts talks with Porsche, Nomura hires for a massive push in U.S. equities, and more. Here are the latest deal-related stories:
AIG to launch IPO for Asia crown jewel
Volkswagen halts tie-up talks with Porsche
Nomura hires for massive U.S. equity push
Cubs' offer won't be voted on next week: sources
