Fund groups forced to re-define their role
The tenuous state of Europe’s institutional market is driving more and more fund groups to move into wealth management in the hope of regaining profitability.
Fund groups active in Continental Europe are busy re-adjusting their sales strategies. A combination of factors including prohibitive pension regulations, the advent of the euro, lower commissions for private client brokers, a lack of state contribution to workers’ long-term savings and questionable management of assets by large financial institutions have given a boost to fund distribution and sub-advisory opportunities.
Fidelity, which has vocally supported the open architecture movement more than most, is a good example.
Traditionally, its business in markets such as the Netherlands, with mature pension systems, has been institutional, although private investors began to buy funds through their banks in 1993. The big change happened in 2002, when the branch network of ABN Amro decided to sell Fidelity, Delta Lloyd and Robeco funds directly to customers. ING and Rabobank will follow suit. These three banks are expected to gain 80 per cent of Dutch market share.
While distribution opportunities improved, a fragile institutional market has been further weakened by restrictive pension regulations, following three years of poor equity performance.
The advent of the euro also brought big changes. The big pension funds previously managed only Dutch equities in-house. Now they run all Euroland equities internally, as the belief is they must be experts in their home market. As Fidelity’s core product is European equities, along with other fund groups, they have been forced to refocus their marketing strategy.
“Four or five years ago, we never thought the institutional market would be where it is now; we were much more optimistic,” admits Fidelity’s head of Dutch sales Hans Goosens. “Today, the distribution side is much more open than the institutional.”
In Germany, which is considered one of the most attractive markets in Continental Europe by US firms such as Goldman Sachs and JPMorgan Fleming (JPMF), insurance companies and banks are being targeted for sub-advisory business, with economies of scale kicking in at the e1bn mark. Crisis-hit insurance companies in particular are being gently persuaded to re-examine their role by fund manufacturers and ask themselves: “Are we just collectors of savings or asset managers as well?”
JPMF, which runs $17bn (e13.6bn) in Germany, manages 10 funds for the Deka platform, now available in every Sparkasse savings bank in Germany, with access to 40m clients. Banks such as these clearly believe they can increase their profitability by moving into wealth management, and outsourcing the funds to external groups.
