Fund consolidation: More than just a storm in a tea-cup

Shiv Taneja, managing director at Cerulli Associates, and head of the firm’s London-based international research practice, ponders how best to encouraged cross-border consolidation of funds in Europe.

You don’t often get to see two of the world’s largest and most prominent professional services firms have a go at each other in full public glare as we have seen this week. In an industry generally starved for anything remotely resembling good news, this is about as much fun as one can possibly expect when European mutual fund assets have lost some 8% since 2007.

So what’s the fuss about? KPMG has hit back at critics who said its report on Ucits taxation published in 2010 has stopped the industry from merging cross-border funds. It was reported in FT’s group publication Ignites Europe that earlier this week rival audit firm Ernst & Young believed the joint report by KPMG and European funds industry association Efama had “scared the industry into inaction”. The 2010 report said that most member states would tax cross-border fund mergers either at the level of the fund or at the level of the investor, or both. According to E&Y, asset managers should actually be able to merge cross-border funds using a variety of strategies. They could, for example, obtain tax neutrality if investors agreed to a minimum holding period, or ask national authorities to issue a ruling. And I am sure this is not the last we are going to hear of this issue.

But a storm in a tea cup this is not. There is a much more serious aspect to the issue of fund consolidation, and one the industry, the regulators, and yes, even the professional services firms like KPMG and E&Y need to pay attention to, and get right.

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