On Investing

In Europe the big banks rule, OK

The UK has historically been one of Europe’s least concentrated fund markets thanks to IFAs being the predominant distributors of investment funds, as opposed to big-brand banks flaunting muscular asset management arms. Yet over the last 12 months we have seen distributors’ fund universes retreat, as firms under increasing regulatory pressure go restricted, or opt for ever-shrinking centralised fund panels and model portfolio solutions to serve their clients.

In addition to the FCA and advisers driving concentration, platforms play a huge role in this – promoting guided architecture through best buy lists and, with regard to those owned by asset managers, selling vast quantities of proprietary product.

Swim the Channel and the landscape suddenly looks very different. Fund markets on the continent have historically been hugely concentrated; aside from France which similarly to the UK houses a vast number of independent/ ‘boutique’ asset management companies (about 400, out of 604 registered companies in total), the top five asset managers typically account for over half of assets under managemnt in each European country. Our (The Platforum’s) Open Architecture ‘O’ Meter below reinforces the point. We have used data from Lipper excluding money market funds, fund-of-funds and ETFs to avoid double-counting.

In those country markets that are bank- rather than IFA-led, is open architecture becoming more prominent or shrinking away? Looking at the Lipper data on leading fund managers, the big bank-cum-asset manager names appear to be maintaining their respective strangleholds. Deutsche still controls 22 per cent of the German fund market; Credit Suisse, Swisscanto and UBS remain the dominant forces in Switzerland with 67 per cent of the market; and the top four managers in France are bank-owned and command a 38 per cent market share between them.

One prominent trade publication has printed several articles in the past year pronouncing the decline of the captive manager. Yet we do not necessarily see this becoming a reality.

Across 2013, we saw proprietary asset managers fight back in Italy, for example, where they are looking to better emulate the product design of the foreign fund managers who have in the past been more of a hit with HNWIs.

platform_660And those banks that have gone some way to offering and even marketing third-party funds are adopting guided models. Look no further than the Netherlands for an example of this: Rabobank, which has just sold off its asset management company Robeco (with AUM that is a quarter of the entire Dutch fund market), has partnered with BlackRock to produce a multi-asset fund made up entirely of iShares funds but wrapped by the bank. In a now commission-free market, the banks are looking to reclaim lost revenue with wrapped products suitable for the lower-end, mass market consumer.

Regardless of country nuances, guided architecture and narrow fund ranges are the story across markets. As told by one director of an international platform, “I think the trend is toward more guided architecture as a consequence of MiFID II and RDR.”

Canvassing opinion from circa 100 platforms and fund managers over the last couple of months, 48 per cent believe that the 10 best-selling funds across Europe will attract a greater share of assets by 2016; 28 per cent expect no change to the current, already highly-concentrated position; and 24 per cent anticipate that the top 10 funds will account for a lesser proportion of total sales.

The quarter who see the market opening up are likely to be those who see the distribution power of the banks – or the discretion of the banks in promoting in-house products – on the wane.

And even those who expect the European fund market to continue to distil down to a few blockbuster funds acknowledge that there are certain groups, particularly HNW and UHNW clients, who will need to be served with a larger and more specialised product range.

Despite mostly shifting products from the big global brands, international platforms’ fund universes are ever-expanding, as each time they penetrate a new country market they are obliged to take on board ‘local heroes’. Take Germany’s fund management Wunderkind Flossbach von Storch. The advisory firm/ asset manager has garnered AUM exceeding €4.5bn in its one blockbuster fund.

So, Europe… it is a market with little leg room and that is without taking into account some of the other issues at play affecting distributors of third-party funds (alas, I’m bound by page length not to discuss all the minutiae of European RDR-like regulation in this article). Yet there is still room for the specialist funds, those that fit the right niche, the local heroes. And if I’m wrong, we can all just move to Asia.

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