Europe’s investors cannot live on Ucits alone, RBC Capital says
Simply having products that are Ucits-compliant will not be enough for European asset managers to attract inflows, but the €8trn industry’s future is bright nevertheless, according to RBC Capital Markets.
Helping investors post-sale, robust investment strategies and infrastructure, and demonstrable experience will be keys to gathering new funds, analysts at the bank say.
“Expert client service, sound investment management processes, a robust infrastructure and an established track record are essential if a fund is to succeed,” the bank says.
RBS says having Ucits-compliant portfolios will also be important to satisfy clients’ appetite: “European investors are showing a clear preference for transparent and tax-efficient onshore products that comply with a regulatory regime designed to offer a higher level of investor protection.
“We expect this trend to continue, attracting an increasing number of investment managers to the Ucits III space, promoting the convergence of traditional and alternative investments.”
Ucits funds received net flows of €166bn last year, up from €150 in 2009.
RBC notes since 2001 net sales of Ucits and non-Ucits in Europe have only been negative in one year, 2008, and investors have put net €2.7trn into the funds between 2001 and 2010.
This helped European investment fund funds under management to grow 76% over that period – a compound annual rate of 5.8%.
The 23.2% fall in funds under management in the crisis in 2008 was partially offset by 31.8% funds growth over the ensuing two years.
RBC’s analysis suggests Europeans have largely kept faith with the fund model, despite the financial crisis and ensuing sovereign debt woes.
Investors’ inflows since the 2008/2009 crisis came despite the value of assets in European funds tumbling to €6trn in early 2009, before recovering to over €8trn by the end of 2010.
RBC highlights liquidity, diversification and capital protection as investors’ top priorities in future, driven by ongoing macroeconomic and equity market uncertainty.
“While this could be expected to drive assets into indexed funds, we are convinced that the need for asset growth and capital protection that can be achieved through active asset management is greater than ever, since the financial crisis and economic recession have reduced the value of the savings and investments of the retired and working population globally.
“We anticipate that sophisticated products with absolute return targets will remain indispensable components of investors’ portfolios.
“At the same time, in the private client segment, we believe the meaningful decline in traditional, offshore-oriented assets suggests that growth in the alternative sector will favour onshore investments over the historically dominant offshore products.”
RBC also foresees M&A of asset managers, driven primarily by banks divesting their investment management subsidiaries, “driven less by long-term strategic repositioning and more by challenges to the capital base of banks posed by the financial crisis”.