A daunting year ahead for fund managers in Portugal
2012 will be a difficult year for Portugal and the Portuguese asset management industry which will face rising competition fort scarce resources and an uncertain global environment.
The economy is expected to contract further as a result of fiscal consolidation, deleveraging and a sharp slowdown in external demand, according to the OECD. Unemployment will continue to rise and higher indirect taxes will push up prices, making for a miserable year for most Portuguese. Only in 2013 is the economy expected to slowly turn around, provided global conditions improve. By then, exports and private domestic demand should pick-up and the current account deficit should narrow substantially.
The economic recovery package agreed in the Spring by the European Central Bank, the International Monetary Fund (IMF) and the European Commission, includes tough austerity measures to cut the budget deficit to 3% of gross domestic product by 2013, tax increases for individuals and companies and sweeping cuts to social benefits and subsidies. Unemployment is expected to reach near 14% of the workforce.
All these measures will cause a reduction in disposable incomes and savings that will affect the asset management industry, says José Veiga Sarmento, president of APFIPP, the Portuguese fund management and pension funds association.
New capital requirements which banks must meet in 2012 will also increase competition for scarce savings. Banks will continue to target investors by offering high interest rates on deposits with a negative impact on investment funds.
Mark Dwyer, director wealth management at Millennium BCP Private Banking, says retaining clients will be a major challenge given the uncertain economic environment in Portugal and speculation about a potential breakup of the eurozone. Widespread risk aversion and the “risk-on – risk-off” market environment discourages longer term investing.
Banks remain very aggressive in their campaigns for retail deposits, competing with other investment products from asset managers, with offerings seen as attractive given the general weakness in risk assets witnessed in 2011, Dwyer says.
Paulo Gonçalves, asset management coordinator at Banco Popular in Lisbon, says the biggest problem for banks and asset managers is the lack of liquidity and this is likely to last well into 2012.
Unable to access the interbank market, Portuguese banks have relied on savings, causing a big outflow of assets from funds to time deposits. Mutual funds experienced net outflows of -€2.693bn between January and November this year. The total net asset value of Portuguese mutual funds stood at €10.629bn at the end of November, down 25.2% since the start of the year.