Monday Morning Memo: Fund Launches, Closures, and Mergers During Q2 2014

Even though the European mutual funds industry enjoyed overall net inflows of €244.1 billion into long-term mutual funds during the first half of 2014, it seems the industry is still in a consolidation mode at the product level.

REUTERS/Yuriko Nakao

During second quarter 2014 the European fund industry created 518 new funds, but there were 402 funds liquidated and 257 merged during the same period. This means the fund universe in Europe declined by 141 funds; a total of 659 funds (402 liquidations and 257 mergers) were withdrawn from the European fund market, while only 518 new products were launched.

Figure 1: Launches, Liquidations, and Mergers of Investment Funds in Europe

Source: Lipper

As shown in Figure 1, the numbers of launches, liquidations, and mergers during Q2 2014 were in line with the long-term market trend established in Q1 2012.

Quarterly Comparison

The quantity of 518 newly launched funds for second quarter 2014 was nearly 20% higher, compared with the number of launches for Q2 2013 (432). Compared with the peak in 2011, the number of newly launched products for Q2 2014 showed a decrease of around 38%. But since the low in Q2 2012 the number of launches went up consistently. If this trend continues, we might see an increasing fund universe in Europe in 2015.

Figure 2: Overview of New Fund Launches, Mergers, and Closures of Investment Funds

Source: Lipper

On the other hand, a shrinking number of fund liquidations (down approximately 20%, from 502 to 402 comparing Q2 2014 with Q2 2013) as well as a significantly lower number of fund mergers (decreasing by 28%, from 355 during Q2 2013 to 257 during Q2 2014) might also become a supportive trend for a growing European fund universe in the near future.

Despite the fact that the number of fund launches was in a positive trend and the numbers for fund closures and mergers were declining, second quarter 2014 still showed a net decrease of 141 funds.

A Closer Look at Promoter Activity

Q2 2014 witnessed the launch of 518 funds: 183 equity funds, 140 bond funds, 114 mixed-asset funds, 74 “other” funds, and 7 money market funds. During the same period 402 funds were liquidated: 133 equity funds, 76 bond funds, 80 mixed-asset funds, 96 “other” funds, and 17 money market funds.

For Q2 2014, 257 funds were merged: 82 equity funds, 76 bond funds, 67 mixed-asset funds, 11 “other” funds, and 21 money market funds.

Figure 3: Overview of New Fund Launches, Mergers, and Closures, April 1, 2014–June 30, 2014

Source: Lipper

With regard to the developments in the stock markets, it is not surprising that equity funds were the asset class with the highest number of newly launched products, since market trends are one of the drivers for new product launches. It is also not surprising that there was a high number of newly launched mixed-asset/asset allocation funds during Q2 2014, since these products seem to be the products of choice in terms of net sales for European investors—a bonanza fund promoters would like to join by introducing new strategies to the market. Opposite to the sales trend, bond funds were by far the best selling products overall in Europe during the first half of 2014. The number of products went down during Q2 2014. Nevertheless, fund promoters tried to offer new strategies that fit the needs of investors, leading to 140 newly launched products in this segment.

Outlook

Since activity of fund promoters is often driven by market trends, even in the current positive market environment in the stock markets the overall situation in Europe—with the political uncertainty in Ukraine and the developments in France and Italy—has had a heavy impact on future activity in terms of fund launches.

In addition, the European fund industry is still in a consolidation mode at the promoter level. The ongoing merger and acquisition activity at the promoter level should lead to further mergers of fund ranges. Even though the cleanout of fund ranges by non-privately owned asset management companies to achieve a higher margin on their portfolio management business has been going on for a while, it still may be one of the drivers of fund liquidations and mergers in the future.

This might not sound very positive, but since the overall assets under management are rising, fund promoters might see room for new products. From my point of view it is very clear that the European fund industry will try to secure its future growth by offering new strategies that suit the needs of investors. In this regard, it seems likely that the European fund market will show an increasing number of funds in 2015.