Closures and consolidation inevitable in European fund management industry, says FPG
Up to 85 per cent of investment fund professionals believe that fund closures and consolidation in Europe are set to continue, according to research carried out by Cerulli Associates and The Platforum on behalf of industry association the Fund Platform Group (FPG).
The report, A Snapshot of European Platforms, found that 42 per cent of respondents believe that the number of funds in Europe will fall by 10-20 per cent by the end of 2013, while 20 per cent believe that the figure will fall by 20-30 per cent.
Expectations are in line with the level of fund closures in recent years. Data shows that over the period 2008-2011 an average of 1,743 mutual funds closed each year. The record year for fund closures was 2009, which saw 2,037 vehicles closed down.
The study was commissioned by the FPG, an industry association that aims to ensure the co-ordination between all the fund distribution platforms worldwide. Many of the most prominent fund platforms are members. The report surveyed 70 firms, comprising fund buyers (13 per cent), fund sellers (51 per cent) and fund platforms (26 per cent), as well as a selection of other industry players, including trade associations and trade bodies (10 per cent).
Holly Mackay (pictured), chief executive of The Platforum, says: “The trend of fund closures looks set to continue. Cost reduction is a major concern for fund managers, and many have to rationalise their product range in the face of challenging market conditions. The implementation of Ucits requirements and the associated administrative burden are only adding to the pressure that some managers are under, forcing them to reduce their offerings.”
The report also shows that assets are increasingly concentrated in just a few large managers. A significant 67 per cent of fund platforms hold the view that more than 60 per cent of capital will be held by just 10 managers by 2015, while 60 per cent of fund managers predicted the same. In contrast, just 33 per cent of fund buyers believe they will see these levels of concentration, suggesting that there is a disconnect between platforms and fund distributors regarding the reality of global purchasing behaviour.
Yoon NG, associate director of Cerulli Associates, says: “Since the financial crisis we have seen a herd mentality from fund buyers in Europe, with the majority of capital flowing into a select few products. Despite the variety available in open architecture, fund buyers have leaned toward bigger brands and larger funds. Consolidation of capital is likely to worsen which raises questions regarding sustainability for the majority of funds. Fund launches are likely to be more cautious and managers will be considering fund rationalization, though the cost and effort involved in the latter could act as a huge impediment.”
Edouard Bokuetenge, chairman of the FPG, says: “The theme of consolidation is one we expect to see extend to the European fund platform market, with fund buyers, sellers and platforms all predicting the emergence of a few industry champions over the next three years. Despite this, platforms remain upbeat about their growth prospects, with the research pinpointing non-domestic European markets and Asia as the primary sources of new opportunities in the near term.”
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