From crisis to confidence - the European funds management experience

22 July 2010

The European wealth management industry is grappling with a number of issues at present, restoring investor confidence being one of their priorities. Jarrod Brown, Bennelong Funds Management's Chief Executive Officer, attended the recent International Fund Forum and shares his thoughts on key messages and trends from the conference.

The challenge of restoring investor confidence
Not surprisingly, one of the recurring themes throughout many of the sessions at the Fund Forum was the challenge of restoring investor confidence in Europe. The myriad of debate on this issue showed that the industry is still coming to terms with tackling this GFC-created challenge, while also having the likelihood of increased regulatory intervention. The critical issue for both market participants and regulators is reigniting investor confidence, but the right balance had yet to be found. These discussions resonated with the Australian experience.

Discussions about ‘how much industry regulation is adequate' were rife. How does the industry introduce regulation to help re-stabilise European markets without stifling innovation in an industry that's in need of new product ideas to continually attract investors? As measures already undertaken by the European Union don't seem to have had the desired effect, regulatory measures will continue and possibly increase. In saying that, many attendees acknowledged that Government backing and intervention will play an important role in rebuilding confidence.

One interesting theme that emerged in discussions was the important role of strong brands and their ability to deliver on their brand promises in restoring investor confidence. Investors are still reeling from the destruction of wealth during the GFC so many fund managers are dedicating substantial resources to rebuilding their brands and committing to and delivering on viable brand promises to their investors.

Emerging trends
There were a number of key themes that emerged over the duration of the Forum, which I'll summarise briefly.
  • Rationalisation: whilst all investors are searching for best-of-breed investment solutions, the sheer size of the product universe in Europe is ridiculously large (30,000+ product options) and therefore potentially overwhelming, so product rationalisation is a necessity. Underperformers have contracted rapidly and significantly in recent times.
  • Re-pricing downwards: the current global investment environment and the ongoing contraction of the value chain have seen prices become more competitive, but best-of-breed products will continue to demand a premium. Relative to Australia, the average price for the end investor still remains high.
  • Passive and Exchange Traded Funds (ETFs) are experiencing global growth: both have experienced quality growth in European markets while the search for cheap beta and selective alpha continues. In particular, passive funds have dramatically increased their share of global assets under management post-GFC.
  • Merger and acquisition activity will continue: there is a huge refocussing exercise under way by financial services firms throughout the value chain globally. As a result, there is an expectation of significant merger and acquisition activity in all regions, delivering renewed focus at very specialised points in the value chain. The ‘all things to all people' model is clearly out of favour and continued industry unbundling was an obvious trend.
  • Optimistic on Asia: whilst the general mood was cautious, this was partly offset by confidence in the Asian region and there is a genuine belief that one of the shining lights in the dim global outlook is the Asia Pacific region.
  • The importance of advisers: a continuing shift in power to distributors (advisers) is occurring. As they are closest to the investor relationship, their role in helping to restore investor confidence is critical.

The Australian experience
Whilst the Fund Forum represented the global asset management industry, the presentations focused very much on the European experience. At times, it was interesting (and comforting!) to sit back and listen to discussions that we have already had in Australia, sometimes many years ago: the need for transparency; increasing capital and liquidity requirements; and enhanced governance in general. It would have been fantastic to have seen an Australian case study cited, providing not only a great reference point for the fact that we operate in an advanced marketplace, but also offering a fairly reliable crystal ball for the future of the European funds management industry.

At the closure of the conference, I walked away feeling proud of the Australian funds management industry and the way we have tackled recent challenges that markets around the globe are often just beginning to come to terms with.



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