“A game of two halves” is a footballing cliché in the UK, but was particularly apt for the European funds industry in 2011. The stock market falls that began in July not only ended the healthy sales activity that had started the year, but triggered a wave of redemptions that rolled through the industry. While these outflows ebbed slightly in the final quarter of the year, there were few who did not feel the cold chill of investors withdrawing from mutual funds by the year-end.
Net sales of long-term funds (i.e. excluding money market funds) in 2010 (305.8 billion euros) exceeded not just those of 2009 (257.7 billion), but also the level achieved in pre-crisis 2006 (265.9 billion). Expectations were therefore high when the first half of 2011 saw inflows of 96.1 billion euros, but this was followed by outflows of 155.9 billion, so that the year as a whole ended in the red (-59.8 billion) for only the second time in a decade (the 2008 total was -391.4 billion euros).
Giving investors the motivation and confidence to move money out of deposits and into funds amid the ongoing political and economic maelstrom remains a crucial challenge for asset managers.
But a longer term view is also useful in fully understanding the current status of the industry and the dynamics that have been at work to shape its current structure.
2011 saw a slight contraction in the number of funds for only the second time in the past decade. The last time this happened (in 2009) the net reduction was 801, while the latest figure was a mere 43. In recent years there have been about the same number of fund launches in both halves of the year, but in the latest year there was an unsurprising tail-off (1,687 over the first half; 1,291 in the second) partly the result of some planned launches being shelved. Just as 2009 did not herald a new dawn of product rationalisation across the industry (there was a net increase of 871 funds in 2010), so it seems very unlikely that 2011 will either. Instead market conditions will largely dictate where product development priorities lie.