Crisis spurs competition in Spain’s fund management industry
The summer’s financial turmoil has intensified competition across Spain’s asset management industry as companies fight for a share of a diminishing wealth market cake with both local and international asset managers under pressure.
For the first time this year, in the third quarter, foreign managers saw assets decline after a period of steady growth in previous quarters. The domestic industry continued to experience declines.
By August Spanish firms were managing mutual funds totalling €129.24bn, down from €138.08bn in December 2010 and from €163.24bn at the end of 2009, according to figures from Inverco, the Spanish asset management association.
By comparison, international companies were managing about €50bn of assets, up around 20% from €41.5bn in December 2010.
However, international managers could not escape the crisis. Rising Spanish risk aversion in the face of high volatility in the financial markets has hit foreign companies which tend to focus on offering high value-added products closely tied to equities. By the end of September assets under management by foreign companies had fallen by 6% to €47bn, and the decline has continued.
“At the beginning of the year clients increased the risk in their portfolios but in August they started to de-risk and that movement has continued in September and well into October. Risk aversion is currently at a high and clients continue to de-risk their portfolios,” says Carla Bergareche, general director Spain and Portugal at Schroders Investment Management in Madrid.
Until the summer, international companies benefited from investors looking for wider investment options in spite of a declining local market.
Investors have been withdrawing money from the fund industry in Spain since 2007, but international players had fared better. “In 2010, we saw a decoupling in terms of the foreign players versus the local industry. Foreign players were selling more and we were gaining market share,” says Bergareche.
Investment flows have now turned negative for foreign players and the local industry continues to be under pressure in spite of a flight to traditional “safe” assets.
Since the summer, there have been big inflows into money market funds and outflows in all the value added and equity products.
Until then there had been inflows in global funds and value added products, but this practically came to a halt and investors are still reluctant to take up risky assets, says Paloma Piqueras managing director asset management Europe at BBVA.
August saw inflows of €6.3bn in fixed income guaranteed funds, while in general in the industry there were outflows of €4.7bn. The large inflows in guaranteed funds reflected these products renewed popularity.
“Everybody is offering fixed guaranteed funds because that’s what the client is asking and in Spain our clients have a very conservative profile. They look for that kind of product,” Piqueras says.
Global funds appeal to some investors, showing there is also demand for more sophisticated products. These are mainly funds that offer dynamic management.
There is more competition but this is a “natural” development, Piqueras says. Foreign asset managers have been in Spain since 1997. “They’ve had good times and bad times like everybody in the market.”
Overall, international companies have performed better than local firms because they can offer more sophisticated products. Local managers focus on areas where they have core capabilities and offer other products through funds of funds.
Anything special or sophisticated such as an emerging market fund in Asia is offered to clients through fund of funds or the bank’s open architecture, Piqueras says. With the recent extreme markets volatility some clients are looking for new opportunities and willing to consider more risky assets and this favours international firms.
“International companies are not offering money market funds in the Spanish market. They are dedicated more to the more risky and sophisticated assets that a specials segment of our clients are looking at. This is why they’ve been successful,” she says.