European investment funds bounce back

Investment fund assets in Europe increased 13.7% in 2010 on the previous year, beating average levels seen in 2007 before financial crisis set in, latest EFAMA figures show.

The European Fund and Asset Management Association said that UCITS and non-UCITS investment fund assets jumped from €7.1trn at the end of 2009 to €8trn by the end of 2010.

The increase beat the pre-crisis peak of €7.9trn in net assets seen in 2007, although European investment funds did not quite reach the €8.2trn peak seen at the end of June 2007.

Total investment fund assets at the end of 2010 were equivalent to 66% of EU GDP, signifying their importance as sources of capital raising and funding.

UCITS meanwhile consolidated its dominant position, accounting for almost 75% of the European investment fund market at end December 2010, with assets of €5.99trn.

By net sales, UCITS saw inflows of €166bn in 2010, compared with €150bn in 2009.

A drive toward equities and balanced funds boosted overall UCITS sales in the final quarter of 2010.

Net assets of UCITS equity funds gained 10.4%,  or €180bn, reflecting a more positive economic outlook for 2011. Net assets of balanced funds rose 3.2%, reflecting investors’ search for more diversity.

Ireland and Luxembourg were the main beneficiaries of UCITS growth in 2010. Last year, the domiciles increased their market share of the industry to 44.1%.

France and Italy suffered net outflows, following a trend by European investors of withdrawing from money market funds. Total outflows from the asset class across the region in 2010 were €126bn.

In the final quarter, money market funds shrank by 5.2% on the previous quarter.
Low short-term interest rates, competition from banks seeking to strengthen their balance sheets by increasing their share of deposits, and an encouraging economic outlook drove investors’ exit from the asset class, said EFAMA.

Investors also turned away from bond funds, causing total net outflows of €8bn in Spain during 2010.

The trend continued in the final quarter of 2010. Bond funds fell slightly by 0.8% to €10bn, on the back of troubles in the Eurozone including the Irish bail-out on 22 November 2010.

Against this, investors turned increasingly to other long-term UCITS. Total net sales of long-term UCITS (ex-money market funds) reached €292bn in 2010, compared to €195bn in 2009.

Peak levels of long-term UCITS sales seen in 2005 and 2006 were not matched, however.

Non-UCITS funds also grew, contributing to the wider growth of European investment funds in 2010. At the end of 2009, the number of non-UCITS funds stood at 16,150, but by the end of December 2010, the funds reached 16,845.

Special funds saw a notable increase, recording inflows of €149bn for the year.
Demand for the vehicle came from Europe’s institutional investors, particularly in Germany, Ireland and Luxembourg.

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