Efama : “The need of a capital markets union has increased in Europe”

Alexander Schindler (pictured) and Peter De Proft, respectively president and director general of the European fund and asset management association (Efama), have shared their views on several themes with InvestmentEurope during Fund Forum 2015 in Monaco.

Commenting on the quantitative easing policy of the European Central Bank (ECB), Schindler says “it is too early to assess the impact of the QE on the bond market” as the program only started four months ago.

He assesses that the bond market continues to be more or less liquid and that most investors have already liquidated their European government bond holdings, given the low interest rates environment.

“So far, the question of having a liquid or an illiquid European bond market does not appear as a daily concern but on the long run, we have to expect the QE program to last at least for another year or more,” he warns.

“In recent times, investors have moved to less liquid fixed income asset classes such as corporate bonds and high yield. They cope with the situation with risk management tools.

“Everybody wants to leave the fixed income market. But institutions are well aware of the situation. On the one hand, you want to stimulate growth with low interest rates and on the other hand, you want to preserve capital markets from volatility,” Schindler explains.

Highlighting QE boosting Ucits sales since the beginning of the year, Efama’s president considers that the Ucits product as such has never been as competitive as it is now compared to other financial instruments.

“Banks are promoting investment funds because their clients do not like to hear about fees and deposit. Life insurance is on heavy pressure. Ucits is a product that can broadly diversified through different asset and share classes. It allows much more flexibility,” he says.

Capital Markets Union

Schindler foresees “a major development”with the arrival of Asian asset managers and investors, expecting “two or three Chinese asset managers to establish themselves in Europe in the coming year.”

“We can expect more coming in Europe in the near future. Not only Chinese investors but also Japanese investors are flooded with cash and they have to invest it in Europe.

“We spot that the Chinese government wants to strengthen its cooperation with Europe. There is also a close cooperation between European and Chinese fund industries,” he adds.

Schindler tells InvestmentEurope that European asset managers will attract more Asian capital through a capital markets union (CMU).

Efama has been pushing hard for the establishment of a capital markets union in Europe by 2019.

“The direction we need to take is clear: to build a single market for capital from the bottom up, identifying barriers and knocking them down one by one.

“Capital markets union is about unlocking liquidity that is abundant, but currently frozen, and putting it to work in support of Europe’s businesses, and particularly SMEs,” declared, last February, EU commissioner Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union.

“On a long-term perspective, we need a harmonisation of existing investment regulations across Europe. We want to achieve one harmonised market as since 2008, we have seen national regulations overriding to some extent,” according to Schindler.

“The need of a CMU has increased in all European countries. We have to provide a framework for long term investors.”

“With the new European parliament and commission, we entered into a much more constructive dialogue. We are no longer reacting to their regulatory initiatives but we are rather discussing and shaping the forthcoming regulation of the industry with them like for the long-term investment funds,” he says.

FTT

Schindler has deeply criticised the financial tax transaction defended by a few European countries and seen as a hurdle for the capital markets union.

He describes it as an “absolutely counter-productive” measure, stressing that FTT as well as Mifid II will add cost if asset managers want to attract more capital or private capital in SMEs.

“FTT is not easy to quantify but it will add to the cost retail investors will have to bear and it will reduce their returns.”

But Schindler remains optimistic on this issue. “I do not believe that the FTT in its present form will be introduced at all, as most politicians are now realising that what was designed as measure to impose a constraint on banks, will not work – banks will not be the ones paying for the FTT,” he says.

“A few countries want to apply the FTT. Instead of having a whole capital market union, you will only have a limited one and investors would go where the FTT is not applied. But institutions are in the mood for changing or at least lightening regulations.

“For instance, if you look at Solvency II, there is an initiative to lower capital requirements for investments that will make products more attractive for end investors,” he adds.

Other concerns for Efama on a short-term basis include the standardisation of investment products, “an important issue as it will increase liquidity and make trading easier”, the securitisation of loans and solutions to attract capital from European retail pensions.

Records

Another subject on which Efama has been proactive is the global debate around the alleged “systemic” nature of the asset management industry.

The association has commented last assessment methodologies for identifying non-bank non-insurer global systematically important financial institutions proposed by the Financial stability board (FSB) and the International organisation of securities commissions (Iosco).

“Iosco was wrong when labelling asset management as “shadow banking”. There is no such thing in our activity. At the end of the day, asset management is the most transparent financial instrument,” De Proft argues.

However, he welcomes recent changes announced by Iosco in its approach towards asset managers.

“Before, Iosco was focusing on figures, making then a segregation between big asset managers and the others. The size of the asset manager was important. Iosco has clearly said that they would look at the activities of the asset managers, not necessarily at their size,” he says.

2014 having been a year of records in the European asset management industry, De Proft points out that figures recently published are paving the way to a new year of records in 2015.

“Up to now, all the figures we spot are very positive. The inflows are there and the environment is favourable. The market has been behaving well. This environment will remain unless a major geopolitical choc happens,” he concludes.

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