VIEWPOINT ASSET MANAGER CONSOLIDATION
A FRAGMENTED FUNDS INDUSTRY
The fragmented nature of the European fund industry compared with
that of the US is one of its most discussed and analysed features,
although experts do not always agree on its implications.
According to Lipper FMI, the funds research organisation, there
were some 35,000 funds available to investors across Europe at the
end of June, marketed by some 1,700 fund organisations, with assets
totalling $6.5trn (£4.12trn, �4.74trn). This compares with only 8,000
funds in the US, marketed by 600 mutual fund companies with AUM
of $10.1trn.
Lipper director of fiduciary operations, Ed Moisson, notes that
although the largest few companies dominate in both markets (80% of
industry assets managed by 4% of the fund houses), the concentration
in the US is also much greater (25 companies compared to 70 in
Europe). He adds that the drivers pushing the funds industry to
consolidate are complex with consolidation generally impacting on the
largest players and not on the number of fund companies overall, or
number of funds.
In a recent paper, Profiting from Proliferation, Moisson also points
out that the steady introduction of new funds in the UK and Europe is
driven by marketing concerns, such as the need to provide specific
products that investors want at any given time. This is something that
the highly-competitive asset management industry is unlikely to want
to walk away from.
going out at 220p a share,
down from an initial target
price of between 250p and
330p. As at 18 February,
shares were trading around
the 192p mark.
l Consolidating funds
The case for greater consolidation
rests mainly on
the vast number of funds
available to investors in
the UK and Europe generally,
coupled with growing
pressure on the fees these
funds traditionally charge
investors.
As a Lipper FMI report
from last autumn observed,
UK and European investors
pay as much as twice what
their American counterparts
do to mutual fund distribu-
tors, which, the report’s
authors noted, significantly
impacts on the funds’ total
expense ratios (TER).
The arrival on this side
of the pond last year of
US passive fund giant
Vanguard has concentrated
attention on the UK asset
management industry’s fee
structure and, some say,
had the effect of starting
to bring fees down. At
the same time, Vanguard’s
arrival also shone a spotlight
on the virtues of
cheap and cheerful passive
investment funds at
the precise moment when
many actively-managed
funds were posting some
of their worst returns in
memory.
Yet another driver for
more fund consolidation is
expected to be the introduction
in 2011 of the Ucits IV
directive, which is designed
to make it easier for fund
houses to rationalise their
operations across borders.
Of course, asset managers
that are flourishing
have less need to merge
or go public than those
that are struggling. In general,
UK funds houses are
in pretty good shape at
the moment. This is certainly
true compared with
the worst months of the
downturn in late 2008 and
early 2009, when some had
to put up gates to limit
redemptions.
This is because companies’
investments have
generally done well over
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