‘Complicated’ year ahead in Spain

The prospects for Spain’s fund management industry are poised between a punishing downturn or a reasonably strong rally, according to M&G’s Ignacio Rodriguez

Spain is not an easy market in which to grow a business. Customers are historically very cautious, preferring savings to even the most risk managed investment. In addition, the market structure and distribution networks, long been dominated by the mainstream banks, have slowed up access to new and potentially more rewarding product.

But Ignacio Rodriguez, M&G director for Spain, Portugal and Chile, says the outlook is starting to change and 2012 could be a momentous year. The firm set up shop in Spain in 2006, and by the end of 2011 marked €1bn in assets under management, an indication of growing acceptance among clients of the need to invest, and the benefit of active management.

“For a long time, investors have been protecting their assets, rather than growing them,” Rodriguez (pictured) comments. “They have suffered. The experience of the past few years has made them very short term and risk averse. But now there is a growing understanding that the big risk may be to be out of the market, that they could lose a lot if a rally comes.”

Europe capitulation

Rodriguez is realistic about the problems facing European markets. “It could be a very complicated year in 2012,” he explains. “If things are negative in Europe we could see another capitulation. But if they are not, there will be a rally because valuations are very attractive. Risk assets are cheap; it is the right time to invest.”

Rodriguez believes the inter-government strategy to address debt in Europe is “moving in the right direction” and that the central banks have are using all the tools at their disposal.

M&G started out selling pure equity products in Spain in 2006. As the financial crisis unfolded, fixed income products were added. “The Spanish are primarily savers,” says Rodriguez. “They don’t like even temporary losses, so it is difficult to sell risk assets. More sophisticated clients will consider equities or corporate bonds, but most prefer money market or short-term local bond funds.”

Banks have been able to exploit this by encouraging clients to switch from funds to deposits (and back again) according to the needs of their own balance sheets. The problem is that this has shrunk the overall domestic market, according to trade association Inverco data, from some €235bn to just €127bn.

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