A review of the accelerando associates/Lipper European Fund Distribution Forum

Lipper’s Detlef Glow, head of EMEA research, reviews the accelerando associates/Lipper European fund distribution forum which took place in Frankfurt, Paris and London between October 29 – 31, 2014. The series of events has been held for the fifth time and was visited by around 100 attendees. As always, the seminar was split in two parts. During the first half, Detlef Glow gave a presentation on the trends in the European fund industry, by analyzing the promoter activity and the fund flows in Europe. The second part was presented by Philip Kalus, founder and Managing Director at accelerando associates, who focused on the opportunities and pitfalls with regards to fund distribution in Europe.

Philip Kalus (left) and Detlef Glow (right)

Promoter Activity

An analysis of the Lipper database shows that the European fund market was shrinking in terms of the number of primary funds over the first six month of 2014.With regards to this, it can be concluded that the first half of 2014 was roughly in line with the previous years in terms of new fund launches, closures and mergers. Detlef mentioned that we might see an increasing promoter activity in terms of fund closure in Q4-2014, since a number of target maturity funds will end in December and will be closed. He concluded that the industry has gone thru a consolidation phase and might return into the growth area during the second half of 2015. But this will be depending on the market environment, even as there is investor demand for new and innovative products. He also shed a light on the fact, that  the  overall number of funds in Europe has been increased, over the last years since the fund promoter have launched a high number of so-called convenience share classes to meet the needs of their investors, as well as to fulfill regulatory requirements.

Figure 1 Launches, Liquidations and Merges of Primary Funds in Europe, Q-2 2010–Q-2 2014

Source: Lipper

European Fund Flows

The overall fund flows of the first eight month 2014 in Europe showed a very positive picture, since all asset types posted net inflows. With regards to this, the European mutual fund industry enjoyed overall net inflows of €314.4 bn into long-term mutual funds and €28.3 bn into money market products. The majority of these flows were gathered by bond funds (+€150.0 bn), followed by mixed-asset products (+€84.4 bn) and equity funds (+€74.8 bn). These three asset types outpaced all other types of long-term funds in terms of net flows, since the inflows in property funds (+€3.0 bn), hedge/alternative UCITS funds (+€1.9 bn) and commodity funds (+€0.2 bn), as well as funds from the “other” peer group (+€0.1 bn) looked rather shy. Within the money market products, plain vanilla money market funds enjoyed inflows of €26.3 bn, while enhanced money market products posted net inflows of €2.1 bn.

Detlef mentioned that it is quite remarkable, that it looks like domestic fund promoter are closing the gap, in terms of net inflows to their international pendants who have domiciled their funds in Ireland or Luxembourg and distribute them from there around the globe. He concluded that these strong inflows are mainly driven by the demand for domestic funds in Italy, Spain and the UK.

Figure 2 Estimated Net Sales International vs Domestic Fund Promoter January 01, 2002–August 31, 2014 (in Euros)

Source: Lipper

In the last part of his presentation Detlef touched base on the developments in the local fund markets of Germany, France and the UK, were he showed the long term trends with regards to fund sales and examined the best selling asset classes and fund sectors.

Challenges and Opportunities in European Fund Distribution

Philip Kalus´ presentation addressed the European fund distribution from a forward-thinking observer perspective. Europe is the world’s second largest fund market (mutual funds & mandates combined) and offers a wealth of distribution opportunities. However, there is also no shortage of challenges and a lot room for wrong decision making in terms of prioritizing different regional and sectorial distribution opportunities.

With regards to market intelligence, Philip stated that data is elementary, but to make the right conclusions, data and the drivers behind need to be fully understood. To name an example he selected Spain, top market with regards to fund flows in 2013 and number two in 2014 so far.The impressive flows in Spain were predominantly driven by one effect. In January 2013 the Bank of Spain introduced a cap on bank deposit interest rates, bringing local interest rate levels in-line with European standards. This has triggered massive asset shifts out of bank deposits into funds, mainly  into conservative bank-owned funds. This rush should come to end within the next 6 to 12 months. Fund promoters wishing to join this “fiesta” now, might be late to the party and therefore might exercise an expensive mistake. Understanding the drivers and triggers behind data is crucial for strategic decision making in European fund distribution.

Lipper data proofs well that the ‘ winner takes it all’ theme still dominates European fund flows. However the remaining space is still very large and offers great opportunity for smaller, more specialist asset managers. These can be found when scrolling down European sales tables beyond top 20 positions. Interestingly, accelerando research shows that big fund buyers tend to be a lot more tolerant with fund boutiques in terms of speed of client service enquiries. In addition to this, smaller specialist fund managers tend to be able to charge higher fees than their larger peers.

Generally, client service requirements by European investors have risen sharply according to the latest senior sales surveys by accelerando. This trend favors large asset managers with a lot of client service capabilities. Accelerando research also found, that the majority of senior sales people experienced a challenging period during 2013 and 2014, despite of the strong net sales numbers in Europe. Accelerando also identified a clear trend away from open towards guided architecture at European fund distributors. While the European asset pool is not really growing, substantial asset shifts provide major distribution opportunities. Accelerando expects more money in motion going forward, due to many structural changes combined with an ever increasing need for yield.

Figure 3 accelerando European Senior Sales Survey 2014 – Sales Landscape Expectations: The next 12 months will be …

Source: accelerando associates

Distribution competition is more intense than ever, but also more transparent and fairer. Complex regulatory aspects put knowledgeable sales people, who are able to advise their clients on solutions instead of products, in a competitive advantage.

The views expressed are the views of the author, not necessarily those of Refinitiv.