Managers prepare for flexible framework

The shape of the Spanish investment industry is about to change with the introduction of new regulations that will allow more flexibility for fund managers and distributors.

More than a year after the first draft started circulating across the market, the industry expects the new regulatory framework to be introduced shortly. According to delegates attending the second PWM European Fund Series conference, sponsored by BNP Paribas Asset Management, held in Madrid last month, the impact of the regulations will be beneficial to the industry and will allow further growth of a sector that currently has around ?250bn in assets under management.

During a panel discussion with the asset management arms of Spain’s largest banking groups – Santander and BBVA – and distribution platform Allfunds Bank, delegates learned about how the leading players in the market are getting prepared for the new environment.

“This is a regulation that brings more flexibility and new opportunities and we want it to be approved as soon as possible, so we can see the final details because we still don’t know if there are going to be any last minute surprises,” said Javier Mazarredo, business director at Santander Asset Management.

The new regulations will try to provide a more flexible framework that allows the introduction of new products, increase protection for investors, improve the quality of administration and complete the transposition of Ucits III.

“Our evaluation of the draft of the regulation is, in general terms, very positive,” said Eugenio Yurrita, president of BBVA Gestión. “It represents a big effort to adapt our industry to the developments we have seen in the financial services sector recently. This means that our clients are going to be able to access instruments and investment strategies that up until now were limited to a particular type of investors, with more transparency and protection.”

Mr Yurrita highlighted the introduction of hedge funds, funds of hedge funds and exchanged traded funds (ETFs) as some of the most important aspects of the new framework. “The first two will be very important for the development of alternative investments in Spain, placing our industry at the same level as other European countries in terms of regulation.” He congratulated the regulator for having chosen the term fondo libre – free fund – to define hedge funds, instead of the previous fondo especulativo – speculative fund – since it better reflects the nature of these investment instruments.

“Another important aspect of the regulation is that it allows us to perform new functions. The relationship with the client will not only be limited to the management of funds but we will be able to enrich our proposition by giving advisory services and discretionary portfolio management,” he said.

More products will also bring more opportunities for open architecture and third-party distribution, as Beltrán Parages, sales director at Allfunds Bank explained. “Open architecture is an strategy that is already totally accepted in the market in every niche and sector, from retail to private banking.” He said that even though the introduction of hedge funds is a positive development for the industry, he was cautious about how fast this market will grow. In this sense his platform is getting prepared to be able to offer solutions for investors wanting to go into the sector particularly focusing in every aspect related to risk control. “We are not going to risk the reputation of our business by selecting a fund that might have a good track record but from a risk point of view hasn’t been properly controlled,” he said.

The introduction of new alternatives however is going to do little in changing some Spanish investors’ reluctance to invest in products with higher risk. Guaranteed funds still represent a very high percentage of the country’s fund management industry and things are unlikely to change in the near future.

“The general view is that the Spanish industry is really bad because a lot of money goes into guaranteed funds,” said Mr Mazarredo. “But in Germany the only thing they are selling is structured products that don’t go through the regulator. Guaranteed funds are more transparent.”

Industry figures flocked to Madrid to discuss key regulatory implications